Protectionism Grows : U.S. Trade: Surplus of Frustrations

“An eye for an eye,” said Sen. Bob Packwood (R-Ore.) as an anti-Japanese trade resolution recently swept through the Senate and later the House. “But maybe that’s the only language that’s understood.”

The resolution--and Packwood’s assessment of it--reflect a surge of protectionism that Capitol Hill veterans call the harshest and most intense in recent memory.

And, while the immediate target is Japan, which accounts for nearly one-third of the burgeoning U.S. trade deficit, some trade specialists fear that broader U.S. countermeasures looming on the legislative docket could precipitate a global trade war and ultimately boomerang against the American economy.

“There’s a real dangerous potential that history will look back at this Congress not on how it dealt with the deficit or tax reform, but as having been a Congress that extended protectionism to new levels,” said Eddie Mahe Jr., former executive director of the Republican National Committee and now a GOP political consultant.

Confluence of Forces

The political firestorm appears to have been touched off by a confluence of forces and events: the record U.S. trade deficit, the strong dollar, the impending increase in Japanese auto imports and dissatisfaction with negotiations to open the Japanese market to U.S. telecommunications equipment.

Nor is the reaction confined to Congress. Many ordinary citizens appear increasingly indignant at the apparent inequity between relatively open U.S. trade policies and the barriers imposed by the Japanese.

“Our surveys show broad support for what people believe would be a fair shake--that other countries ought to deal with our products the way we deal with theirs,” says Democratic pollster Paul Maslin.

Localities Protectionist

Complains Lloyd Hackler, long a free-trade lobbyist who is president of the American Retail Federation: “You talk to a fairly reasonable, logical fellow on the Hill who understands the economic realities of trade, and he says: ‘I’ll tell you what you do, you get those SOBs to start taking some of my constituents’ beef and I’ll quit complaining about them sending their cars over here.’ ”

The furor over trade is a classic illustration of the time-honored maxim that all politics is local. “Congress itself tends to be protectionist,” says Hackler, a former aide to Democratic Sen. Lloyd Bentsen of Texas. “They have to look out for their parochial interests. That’s what they were elected for.”

And almost every locality in the country seems to be growing more protectionist. “In one place it’s motorcycles, someplace else it’s mushrooms, someplace else it’s textiles,” says Mahe. “Virtually every place, some business is being threatened with being driven to the wall as a consequence of imports. And of course, there’s not a general willingness of these people to admit that this is because of their own high cost or inefficient operation.”

Finally, the drive in Congress toward protectionism reflects exasperation over the seeming intractability of the budget deficit and related economic problems, such as the strong dollar, which have helped to swell the trade deficit.

“Trade is an alternative forum in which Congress can act out its frustration with the rest of the domestic scene,” says economist Michael Barker, editor of the monthly newsletter, Politics & Markets.

Robert Keefe, lobbyist for Nippon Telegraph & Telephone, the Japanese telecommunications giant, says many members of Congress believe that the deficit is out of their control. “Now suddenly here’s an issue, trade, you can do something about,” he says. “And it looks like there are some easy solutions.”

But as Keefe and other analysts are quick to point out, the solutions are not necessarily easy--or effective.

“I feel something could happen,” says David Rohr, a member of the International Trade Commission, “although I also feel that what might happen probably won’t have a helluva lot of effect.”

20% Import Surcharge

For example, Rohr argues that a much-discussed proposal to levy a 20% surcharge on imports would have only limited impact because, as a result of the high value of the dollar in international currency markets, the Japanese and other exporters to the United States already enjoy a huge built-in price advantage. A 20% surcharge, Rohr says, “would just make the Japanese laugh.”

But a higher charge, critics fear, could fuel inflation in the United States by driving up the price of imports and smothering international commerce. And the Congressional Budget Office warned that even a 20% surcharge, “while benefiting some sectors of the economy, would unambiguously result in a net overall loss of worldwide economic efficiencies and welfare.”

Trade restrictions, the budget office said in a recent report, typically result in the shift of a nation’s economic resources “away from its most efficient industries to less efficient industries that will be partly protected by the trade restrictions.”

Another weapon in the protectionist arsenal is a direct limit on imports, such as a proposal by Sen. Strom Thurmond (R-S.C.) to restrict textile imports from 20 major exporting countries.

Invite Retaliation

But free-trade advocates contend that such measures, besides boosting costs to U.S. consumers, would invite retaliation by foreign countries and ultimately do more harm than good.

Using restrictive trade measures to force other countries to ease their own restrictions, Barker said, is like “finding a burglar in your house, pointing a loaded pistol at your own head and telling the burglar you’ll pull the trigger if he doesn’t leave.”

Unfortunately, the defenders of free trade have no easy answers themselves. Doreen Brown, president of Consumers for World Trade, says she tells lawmakers that the United States should “keep negotiating” and that they should look for solutions to domestic problems, such as the dollar imbalance, that contribute to the trade deficit.

But when skeptics ask what she would do about the dollar imbalance, Brown tells them: “I’m not an economist, and I don’t want to mess up the country more than it’s messed up right now.”

Howard Phillips, head of the Conservative Caucus, a grass-roots lobbying organization, proposes a tariff on Japanese imports to cover Japan’s share of the financial burden borne by the United States in protecting Japanese security.

‘For the Little Guy’

“Free trade is for the little guy,” Phillips argues. “The little guy wants to buy a car for as low a price as possible.”

Polls suggest that the “little guy” does not think of it that way. Surveys in recent years show substantial margins in favor of protectionism. A Roper poll in the fall of 1984, for example, showed that 66% of those interviewed favored government restrictions on imported goods priced lower than American goods of the same kind--a figure that has not varied by more than a few points for more than a decade.

Such results, reflecting general concern that cheap imports take away American jobs, make it seem surprising not that there is a current upsurge in protectionism, but that the country’s elected officials have resisted protectionist pressures for so long.

Kevin Smith, a Democratic lobbyist, explains that politicians do not take the poll results too literally. “They basically think that people are fickle on the issue,” he says. “The politicians feel that if the U.S. restricts imports and prices go up, people would have a fit. The country would turn around.”

Smoot-Hawley Lesson

In addition, most congressmen are mindful of the lessons of the past and are aware of the damage done to the world economy by the restrictive Smoot-Hawley tariff of 1930.

Still, many erstwhile allies in the fight against trade barriers have gone over to the other side. The AFL-CIO now advocates import quotas and other restrictive measures, for example, but in the early 1960s, organized labor was one of the major forces advocating free trade because it saw expanding world markets as an opportunity to increase job opportunities at home.

Old Stance ‘Irrelevent’

But sweeping economic changes, depriving the United States of its dominant position as an industrial power, have made the old stance “irrelevant,” says Mark Andrews, an AFL-CIO economist and trade specialist.

Farmers, another historic free-trade bulwark because of their dependence on overseas sales, now have their own grievances against foreign merchants. Wine growers in New York and California complain about competition from France. And Midwest farmers grumble that Indonesian palm oil competes against soybean oil.

Despite the widespread current support for protectionism--indeed, because of it--the issue does not appear to offer any particular advantage to either party.

“It doesn’t cut as an issue, because virtually everybody running for office is going to be on the same side,” says Mahe, the political consultant.

Nevertheless, the trade controversy does pose some potential problems for President Reagan. He has been staunchly free-trade--in part to hold down inflation, one of the hallmarks of the economic recovery.

Patience Urged

The Administration is urging Congress to be patient--at least until the Bonn economic summit, which begins May 4.

But Reagan’s problems would become much more serious if the economy turns decisively downward, thus increasing congressional demands for protectionism to save American jobs.

That would be an exceedingly bleak predicament for the President because many economists believe one prescription likely to make a slumping economy even worse is a substantial dose of protectionism.

Japan seems to have met some U.S. objections on telecommunications. Details in Business.