THE NEW PROTECTIONISM

"National Security" v. Free Trade

VEERING away from his free-trade position, President Eisenhower last week clamped mandatory quotas on oil imports. His reason: "national security." The curbs were made compulsory because some importers were violating the "voluntary" quotas imposed months ago. Under the new order, total daily imports will be cut from about 2,000,000 bbl. to 1,500,000, and oil products and residual fuel oils will be restricted for the first time; products will be slashed from 300,000 bbl. to 60,000, residuals trimmed slightly. The new curbs, said the President, are intended to stimulate exploration for oil at home, ensure a sufficient supply in case war blocks the nation's sea lanes.

The big, integrated oil companies, who do most of the importing, scoffed at this reasoning, since the order also restricts oil from Canada, which is highly unlikely to be cut off by war. If the U.S. needs a big hoard, they argued, it should import more rather than less, keep its own oil for emergencies. They called the mandatory order, which will boost the price of oil, simply a protectionist victory for the hard-lobbying Texas independent oilmen. What worried free traders everywhere was whether the quotas would open the door to new protectionism for other industries, under the guise of "national security."

Until a few months ago, the Eisenhower Administration stoutly rebuffed the "national security" pleas of lobbyists, who wanted to block imports of such items as watches and woolens. But the wind recently began to shift: the new chief at the office of Civil and Defense Mobilization, Leo Hoegh, tossed out a bid by English Electric Co. Ltd. to build two hydraulic-electric turbines for the Greers Ferry Dam in Arkansas, instead chose a 21% higher bid from Philadelphia's Baldwin-Lima-Hamilton Corp., thus giving some political help to Republican Congressman Hugh Scott (TIME, Feb. 2). Last week the coalmen demanded still tougher controls on imports of residual fuel oils, arguing "national defense." Lobbyists for cobalt, fluorspar, tungsten (which are already heavily stockpiled) and such debatable defense needs as dental burs and wool knit gloves are also clamoring for OCDM to squeeze off imports.

The biggest and loudest of the pending "national security" arguments concerns heavy electrical equipment. A ban on all Government buying of foreign hydraulic turbines and virtually all other equipment is demanded by General Electric, Westinghouse, Allis-Chalmers and other U.S. makers. They contend that U.S. equipment is better and breaks down less, that foreign builders in wartime could not supply parts and services to bomb-damaged U.S. power plants. They admit that they cannot compete with low-wage (about one-third the U.S. average) foreign producers, but plead that the U.S. should support the domestic industry to keep its huge machines and highly skilled men ready for an emergency.

Foreign makers contend that this is plain trade nationalism. For one thing, a mere one-half of 1% of the U.S. electric supply depends on foreign generating-equipment. Also, U.S. makers export far more heavy electric equipment than the U.S. imports--$840 million exported, v. $61 million imported from 1952 to 1957. Private utilities have bought little foreign gear, but the Tennessee Valley Authority last month selected Britain's C. A. Parsons & Co. Ltd. to build a 500,000 kw. turbogenerator--one of the world's biggest--at Tuscumbia, Ala., and said that Parsons is indeed "qualified, technically competent and adequately equipped." Parsons' evaluated bid of $13 million was $6,300,000 below the nearest domestic bidder. TVA found "the import duty [12% to 17%] is adequate to protect U.S. manufacturers against differences in labor costs." What about national security? Replied TVA: Total war would probably knock out foreign and U.S. plants alike, thus "early repair or replacement would seem unlikely no matter where the unit was built."

OCDM will soon have to decide whether to bar all U.S. Government buying of foreign heavy electrical equipment, just at a time when U.S. free-trade policies are winning converts abroad. Last fall Britain scrapped her dollar controls on many imports, thus opened ner power-project bids to all comers.

At stake in the electric--and other--cases are decisions crucial not only to free trade. If the protectionists win, the "national security" dodge will create many new problems for all free enterprise--as the quotas on oil imports show. The U.S. Government warned that it will police oil prices; if prices rise beyond levels set by OCDM, the U.S. will let in more imports. Further victories by the protectionists could well bring price controls on many another industry and take the U.S. a long step toward peacetime price controls for the whole economy.

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