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The 'Protectionist' Label Doesn't Fit : Idea Isn't to Close Our Doors but to Get Others to Open Theirs

December 27, 1987|DON J. PEASE | Don J. Pease (D-Ohio) is a member of the House subcommittee on trade.

Following the stock-market crash of 1929, monetary, fiscal and trade policy turned more restrictive at the very time that an accommodating stance might have contained the effect of the financial panic on the economy.

Since the crash of 1987, the policy errors of the 1930s have been avoided--for the time being.

As for monetary policy, the Federal Reserve is seeking to provide adequate credit without rekindling inflation--a task that is made somewhat less difficult by the recent budget accord. And while U.S. fiscal policy will continue to be mildly contractional with the new budget agreement, it has a long way to go before it begins to resemble the tight fiscal policy of the Herbert Hoover days. Even with the announced reductions, the deficit in fiscal 1988 will be about $150 billion, or 3% of the gross national product--a high level by historical standards. If anything, doubts persist as to whether the announced cuts will be large enough.

With monetary and fiscal policy on a reasonable--if not optimal--course, attention is bound to shift to trade policy, and in particular the trade bill that is pending in Congress.

Hardly a day passes without reference in the media to the "protectionist" trade bill. Market participants and average citizens rely on these reports to make decisions and form opinions. Yet the media by and large have engaged in commentary by caricature, basing little of their analysis on a careful reading of the bill.

Eternal vigilance against protectionism may be the price of a sound economy. But what happens when the legislative process is over and the trade measure becomes law, as is likely? At that time the "monster" will not be the bill, a negotiated compromise that large numbers of Democrats and Republicans are likely to support, but a superficial yet widespread perception in financial markets that the legislation is protectionist. In the markets, perception often is reality. We would argue therefore that, given the fragility of market psychology and the likelihood that a trade measure will be enacted, the temptation to play on old prejudices and fears must be resisted by the press and other analysts. Closer attention must be paid to the bill's language itself.

The protectionist trade legislation associated with the Great Depression, the Smoot-Hawley bill, raised tariffs on 887 products by an average of more than 50%. Now that's protectionism.

If the pending trade legislation proposed to increase tariffs and impose quotas, a comparison with Smoot-Hawley might be appropriate. However, the bill's aim is plainly not to protect American business from competitive, fairly traded imports. The bill that will be sent to the President is unlikely to mandate any protective tariffs or quotas.

To illustrate, the most contentious trade-policy questions before the House-Senate trade bill conference are: Should there be a presumption or a requirement of retaliation against a country that refuses after negotiations to eliminate or compensate for a trade practice that violates U.S. rights under an existing international agreement? Should the executive branch be authorized to call for negotiations or take action regarding several trade practices that are patently unfair but not yet disciplined by international agreement? Should the trade laws be applied on a wholesale rather than a case-by-case basis with respect to countries that resist liberalization even though their global and bilateral surpluses demonstrate that they can more than afford it?

The controversy over the legislation thus has nothing to do with the question of whether America should restrict access to its market. The real debate is over how the United States should use its clout to liberalize the markets of others. A far cry from the protectionism of the 1930s, the trade bill seeks to extend, not roll back, the application of free-market principles to international trade.

International trade regulations have failed to keep pace with changes in the conduct of trade since the founding of the General Agreement on Tariffs and Trade in 1947. The export-enhancing, import-restricting policies of certain "planned market" economies--particularly in the Far East, the Third World and Europe--pose a genuine threat to world trade unless their use is restricted to legitimate economic-development policy.

Judging from the industrial-policy debate earlier in this decade, most Americans believe that the United States should seek to control these policies and practices, not emulate them. The fundamental issue raised by current trade legislation is one of strategy. How much weight should be given to efforts to ensure that world trade is conducted on the basis of commercial considerations?

After taking time to study the pending trade legislation, most people conclude that it is hardly the stuff of protectionism. The media and financial markets indicated a desire to reserve judgment on the budget summit agreement until legislative details were known. With the financial markets still in turmoil, the trade bill is no less deserving of their careful scrutiny.

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