PERIL: THE NEW PROTECTIONISM

PERILS OF THE NEW PROTECTIONISM

TRYING to tame a tiger by throwing him raw meat when he growls menacingly is a risky strategy. Yet the Nixon Administration is following just such a policy in foreign trade, attempting to appease protectionists by placing curbs on the imports about which they howl loudest. Last month the Administration bludgeoned Japan into setting "voluntary" quotas on shipments of textiles. Now it is trying to persuade Italy, Spain and Japan to similarly restrict sales of shoes to the U.S. These moves expand a record that includes such earlier items as the "temporary" 10% surcharge that Nixon slapped on many imports and the proposal to grant tax credits to buyers of American-made, but not foreign-manufactured, industrial machinery.

The policy of appeasing protectionists at home may well succeed in deflecting even higher and wider restrictions on foreign goods, which the Administration claims is its intention. But there is an equal chance that the President is casting himself as the sorcerer's apprentice. Protectionism has been a powerful force throughout U.S. history. Today, when the world's economies have grown inextricably interdependent, the protectionist danger is especially great. Nixon, who proclaims himself a free trader, faces a new protectionist alliance that is more broadly based than those of the past. The alliance is armed with arguments of unprecedented sophistication, and it is ominously well attuned to some real trends in American thought and economic behavior.

To some extent, the new protectionism reflects the revival of isolationist sentiment; modern protectionists like to portray themselves as champions of a hard-nosed economic nationalism pitted against a fuzzy-minded one-worldism. More specifically, the falling profits and rising jobless rates of the 1970 recession fanned businessmen's and workers' fears of lower-wage foreign competition. There has also been a panicky loss of faith in the ability of American industry to compete in the world, a feeling supported by figures that show a drastic worsening of the American trade position.

In fact, free trade as an official U.S. policy is a relatively new phenomenon. One of the earliest bills considered by the U.S. Congress was a tariff act that was passed on July 4, 1789. In 1828, Congress sharply increased the rates via a law that was labeled by cotton-exporting Southerners and Western farmers a "tariff of abominations." During the post-Civil War era, tariff rates were generally kept high by Republicans. The G.O.P. policy culminated in the disastrous Smoot-Hawley Act of 1930, which set off an international trade war that deepened the world Depression. Only in 1934, when the folly of that approach became painfully evident, did Washington switch to a consistent policy of promoting freer global commerce.

Nixon did much to change that climate by promising in his 1968 campaign to hold down textile imports. Since then, the pressures have steadily grown. Two weeks ago, for example, the Senate authorized Nixon to increase the 10% surcharge to 15%. Indiana Senator Vance Hartke and Massachusetts Representative James Burke have introduced a bill that aims at holding down to 1965-69 levels any imports that start to win a sizable share of the domestic market. That measure appears likely to die, along with nearly 100 other protectionist bills introduced in this congressional session, but the increasing number of such attempts testifies to a growing congressional opinion that there are many votes in protectionism--and few in free trade.

That feeling has been mightily spurred by a change in the traditional political line-up on trade questions. Through much of U.S. history, Eastern manufacturers were the leading protectionists, while free trade was advocated by the South, the farm bloc and labor, all of which correctly saw increased trade as a stimulant to prosperity. Now that alignment has been fragmented. Farmers, who devote a quarter of their acreage to growing crops for export, are still reliably for free trade. But the South, to safeguard its textile mills, has turned protectionist. Big business, which has built up extensive operations overseas, is mostly for free trade, but with some backsliding. Most important, the hard-lobbying labor movement has turned vehemently against free trade.

The classic protectionist line--that imports must be restricted in order to keep foreign products turned out by low-wage labor from bumping Americans out of jobs--is still the basic emotional pitch. Protectionists, however, have also developed a more intellectual position. Its essence is that the free-trade gospel is out of touch with the competitive reality of today's world economy.

General Electric Chairman Fred Borch, for instance, contends forcefully that the U.S. is under a handicap in competing with nations that subsidize exports as a matter of government policy. He points out that between 1960 and 1970, U.S. domestic prices rose 32% and export prices 23%. In the same period, domestic prices in Japan and Italy soared 78% and 54% respectively, but the increase in export prices was held to only 8% for each country, thanks to government subsidies and other special help. As an example of such aid, Borch points to a Japanese law that allows companies to take accelerated depreciation write-offs, and thus reduce their taxes, as the proportion of their sales going into export increases.

U.S. free traders ought to recognize that the handicap argument has some validity. It does not justify protectionism, and indeed Borch does not plump for that. But the Administration could well give U.S. exporters more help by stimulating research and development and providing financial aid for companies entering the export field. White House Trade Chief Peter Peterson promises to design a legislative package including just such measures; it certainly deserves sympathetic consideration.

What else could be done to blunt the protectionist appeal? One essential is a quick resolution of the international monetary crisis through upward revaluation of major foreign currencies and probably a formal devaluation of the dollar. More realistic currency values would tend to lower the world price of U.S.-made goods; as a necessary part of any monetary deal, the Administration should promise unequivocally to remove the 10% import surcharge. That solution would not mollify protectionists, but it would please some of their reluctant allies who are properly concerned about the startling deterioration in the U.S. trade balance. The Administration also could expand training assistance to workers who lose their jobs because of imports. Peterson promises proposals to do that too, but he had better hurry; businessmen and labor leaders have heard such promises before and no longer believe them. Though Congress in 1962 authorized aid to those workers and businesses injured by imports, only a measly $20 million for such assistance is included in the fiscal 1972 budget.

Above all, the Administration must make its Phase II program work, because the U.S. economy is unlikely to revive strongly and become more competitive until inflation is controlled. That will not happen until the Pay Board and Price Commission demonstrate the courage to break the wage-price spiral by turning down excessive union and company demands. An economic environment of inflation that sucks in imports, and an unemployment rate that stirs deep fears about jobs, is the ideal breeding ground for protectionists, who may only be emboldened by Nixon's piecemeal appeasement of their desires.

Whatever the state of the economy, the case for free trade is as compelling as ever. Protectionism cheats consumers out of money that they could save by purchasing inexpensive imports. (A Nixon Administration task force once estimated that quotas on oil imports alone cost the U.S. consumer $5 billion a year.) Limiting imports also restricts the consumer's freedom of choice. If something like the Hartke-Burke bill had been in effect during the days when Detroit insisted on making nothing but gas-guzzling dinosaurs, many motorists who wanted economical transportation would have been denied the option of buying Volkswagens. By shielding inefficient industries from the kind of competition that forces them to improve, protectionism works against the best use of a nation's resources. Beyond all that, protectionism, modern as it may seem in its new guise, is incompatible with the deeper reality of a world in which nations have an increasing need to get along with each other economically as well as politically.

This file is automatically generated by a robot program, so reader's discretion is required.