Reagan, Bush Issue New Threat of Trade Retaliation to Safeguard U.S. Interests

Seeking to hold the protectionist-minded Congress at bay, the Reagan Administration Wednesday sounded stern new warnings that it will retaliate against U.S. trading partners if that is necessary to protect American interests.

At the White House, President Reagan told Republican congressional leaders that he is prepared to use “whatever tools are necessary” to defend the United States against discrimination in world markets. A short time later in San Francisco, Vice President George Bush declared that foreign governments competing unfairly with American exporters may see the United States link humanitarian aid to trade policy.

“We’re going to meet fire with fire and create our own ‘war chest’ if that is the only way to beat those who insist on competing unfairly,” Bush told the Commonwealth Club of San Francisco. The text of his speech was made available at the White House. He referred to an informal proposal to form a $300-million fund, administered by the Export-Import Bank, to provide low-cost loans for the purchase of American products.

Slaking Congress’ Thirst

Wednesday’s tough talk was aimed at slaking the congressional thirst for action on strong protectionist measures that would invite retaliation. It came as the Administration and Republican leaders were starting work on a compromise trade bill.

Reagan’s hourlong meeting with GOP leaders was the first such session since Congress returned to work after its summer recess. His remarks were relayed to reporters by White House spokesman Larry Speakes.

Sen. John Heinz (R-Pa.), chairman of the Senate Finance subcommittee on international trade, emerged from the leaders’ session with the President and told reporters that there would be no congressional action on Reagan’s tax revision package until there is new trade legislation.

“Right now,” Heinz said, “people are interested in trade, in jobs and in defending this country’s interests in trade--they think we have been taken to the cleaners on too many trade issues.”

With the Administration now prepared to accept some form of trade legislation and trade standing at the top of the congressional agenda, Reagan and Bush followed up their warnings to governments abroad with caution to Capitol Hill.

‘Free and Fair Trade’

Although Reagan told the leaders that he “will not tolerate unfair trading practices of our trading partners,” Speakes said that he reiterated his position that “we must have free and fair trade” and asked the leaders to help “produce a positive Republican trade policy that will help American industry and consumers.”

The stand against protectionism received a strong endorsement from Federal Reserve Chairman Paul A. Volcker as he told the Senate Banking Committee that a turn to protectionism is not the way the United States should attempt to deal with its trade deficit crisis.

“I think resistance by the President and the Administration to these protectionist measures is admirable,” he said. “He’s got to show resistance, and that’s what he is doing.”

Statement of Policy

The White House meeting and Bush’s comments occurred as White House officials continued to work on a trade statement that will make the Administration’s policy clear. Sources said that, when the statement is completed, it probably will be disclosed in a speech by the President.

Both Reagan and Bush pointed to investigations of alleged unfair trade practices initiated last weekend against Japan, Brazil, South Korea and the Common Market as proof of Administration willingness to retaliate against unfair competition.

“We have made it clear to our competitors that we can and will lean on them,” Bush said. “We will be absolutely ferocious in our effort to win more markets for our exporters. We have made it clear that, if there is no other way out, we will use the sanctions available to us in long-established international trade agreements when Americans are wronged.”

A Torrent of Criticism

In addition, Bush defended Reagan’s refusal last month to establish quotas on shoe imports--a decision that brought a torrent of criticism from Congress. He said that the President “made a clear decision: He wasn’t going to give welfare to big companies at the expense of the little guy. He wasn’t going to protect a few Americans at the expense of all the rest.”

Bush told his San Francisco audience that protectionist sentiments in Congress have escalated to a fever pitch.

“Literally hundreds of protectionist measures have been put forth and they’ll be coming up soon, and we had better think long and hard before we pass even one of them,” the vice president said.

The Administration’s strategic retreat, dropping its tough opposition to any trade legislation, occurred after an Administration attempt to delay congressional action on trade was flatly turned down. But, despite the new flexibility on the Administration’s part, House Minority Leader Robert H. Michel (R-Ill.) warned that Congress may still force on it stronger provisions than the White House wants.