Reagan Warns of Trade War as Congress Rebels

An increasingly restive Congress Tuesday moved toward raising stringent new barriers against imports from Japan and other U.S. trading partners, while an angry President Reagan warned that “a mindless stampede towards protectionism will be a one-way trip to economic disaster.”

In a warning to both Reagan and foreign governments that concern over America’s trade deficit must be taken more seriously, House Ways and Means Committee members expressed growing support for a bill that could raise the price of imported cars, television sets and other goods from Japan, South Korea, Taiwan and Brazil by a whopping 25%. Such an increase, if actually imposed, would effectively price many such imports out of the reach of American consumers.

And the Senate Finance Committee, reflecting an equally determined mood, formally approved a bill designed to force Japan to open its markets to American telephones and other telecommunications equipment.

President Reagan, responding vigorously at his nationally televised news conference, denounced efforts to close American markets to foreign goods and emphasized that his policies of low taxes and “free and fair trade” have produced 33 months of prosperity. “This is a time for cool heads and clear vision,” he said.

If the United States tries to strike against imports, the President warned, American workers who make aircraft, machinery, chemical products and high-tech electronics goods “could well be the first targets of retaliation.” American farmers, who export heavily, “would be even more vulnerable,” he said.

“Protectionism is a two-way street. There is no way you can try to protect and shield one industry . . . without exposing others,” he said. “No one ever looks over their shoulders to see who lost their job because of protectionism.”

‘Begging Our Allies’

The President said that he would continue to work to remove trade barriers in other nations, but he acknowledged that his efforts have not been making much headway so far. “For almost two years now,” he said, “I have been begging our allies and trading partners to join with us in another round of trade talks” aimed at eliminating discriminatory practices and government export subsidies.

But feelings are running high in Congress, which has been hearing a swelling chorus of complaints from domestic industries and workers about the ravages of imports. Proclaiming themselves free-traders whose patience is exhausted, Ways and Means Committee members delivered blunt warnings to Clayton Yeutter, President Reagan’s special trade representative.

“I’m concerned that the Administration doesn’t know what is going on,” said Rep. Richard T. Schulze (R-Pa.). “Not only are we going to pass this legislation (for the 25% tariff), but we are going to override any veto.”

“I don’t think this legislation is the right answer,” said California Rep. Robert T. Matsui (D--Sacramento). But he added that it gives Congress “a chance to express our frustration.”

The Democratic-sponsored bill, whose sponsors include Ways and Means Committee Chairman Dan Rostenkowski of Illinois in the House and Lloyd Bentsen of Texas in the Senate, would slap the additional 25% tariff on all goods from nations running big trade surpluses with the United States. While Japan, South Korea, Taiwan and Brazil now would qualify, other nations also could join them.

Calls Bill ‘Defeatist’

Yeutter was adamant in his opposition to the bill, calling it “defeatist in nature. It says to the rest of the world, ‘We can’t compete any more.’ ”

The Reagan Administration will never “take steps to protect industries that are not competitive,” Yeutter said. He promised a more aggressive Administration effort to tackle unfair trade practices of other nations.

But with imports expected to exceed exports by a record $150 billion this year, Yeutter said, any brightening of the nation’s trade posture will require “long, hard, tough slogging.” American exports will not recover, he told the Ways and Means Committee, until the federal budget deficit is reduced, a step he said would lower interest rates and bring down the value of the dollar, making U.S. goods more competitive in world markets.

“There’s no nice, easy answer,” he said. In both the Democratic-controlled Ways and Means Committee and the Republican-dominated Senate Finance Committee, however, legislators seemed determined to find answers quickly.

Pervasive Impact Seen

The torrent of imports, long “a problem in the factories and mill towns of our nation, has spread to every sector, from high-tech to agriculture,” Rostenkowski said.

The Finance Committee unanimously approved a bill that would direct the Reagan Administration to retaliate against Japan and other countries that fail to open their markets to American telecommunications equipment. The bill aims to punish Japan for allegedly keeping out American firms even as Japanese electronics giants have enjoyed major success in the United States.

The legislation, sponsored by Sen. John C. Danforth (R-Mo.) singled out Japan for retaliation because the government of Prime Minister Yasuhiro Nakasone had failed to follow through on specific pledges to dismantle trade barriers.

‘Nothing to Show for It’

“Once again we have negotiated an agreement with that country and have nothing to show for it,” complained Sen. Daniel Patrick Moynihan (D-N.Y.), a committee member.

Under the bill, Japan would have 4 1/2 months to demonstrate that it had opened its telecommunications markets to U.S. firms. If the President found Japan’s steps to be unsatisfactory, he would be required to submit for congressional approval a schedule of embargoes, quotas, tariffs or other retaliatory measures against Japanese goods--not only telephone equipment and other communications devices but also other sorts of imports.

Canada, Western Europe and other countries would face similar action, but they would have 18 months to dismantle telecommunications trade barriers.