New Protectionists Want U.S. to Curb Foreign Competition

The people who make eyeglasses were seeing red.

“Did you know that 86% of all eyeglass frames are imported?” Anthony M. DiChiara, president of the Optical Manufacturers Assn., fumed in a broadside sent to reporters during recent debates over America’s mounting trade deficit. “No other U.S. industry has been hit this hard.”

Hard, indeed. From 1980 to 1985, European and Asian sales of eyeglasses in the United States nearly doubled, to $250 million a year, while U.S. exports struggled to reach a scant $27 million. “We have lost three-fourths of our American employees to imports,” DiChiara wrote. “President Reagan, are you listening?”

First Commandment

Reagan may not have been, but a growing number of experts are. After 50 years in which free trade has been the first commandment of American economic gospel, a band of heretics is suggesting that government-led protection against foreign competitors might be good, not just for spectacles makers, but for the rest of America too.

The new protectionists say that in a shrunken world where technology, innovation and other traditional American edges can be freely and instantly transported across oceans, the comparative advantage goes to the nation with the lowest wages and the fattest trade subsidies, not the most brains and industrial brawn.

“In the United States, we’re losing high-grade jobs, and people are taking low-grade jobs,” said John Culbertson, a University of Wisconsin economist who is among the most ardent protectionists. “In Asia, the opposite is happening--people are getting new jobs in industries they didn’t have before.”

Record Trade Deficit

The plummeting dollar has already made foreign products more costly, cut into the record 1985 trade deficit of $148.5 billion and eased some of the political concern over the issue. But it has not prevented such ideas from enjoying a spring renaissance among reelection-minded legislators.

Many of these politicians, joined by a handful of economists, are proposing measures that in past years might have been called attempts to shelter American businesses from the stiff breezes of competition.

Among these are higher tariffs on imports, “bilateral” agreements that mandate a balanced flow of goods between the United States and other nations, quotas on foreign products such as textiles that outsell American-made competitors and subsidies for U.S. firms that export their goods.

Welfare Improvement

“Like the British before us, we supported free trade as a worldwide inducement to welfare improvement,” said Laura Tyson, a UC Berkeley economist in the vanguard of skeptics. “But any competitive edge we had has diminished. It’s not altogether clear that pursuit of free trade alone is in our interest any more.”

Last week, a House Ways and Means subcommittee approved a Democratic bill ordering retaliation against “unfair” foreign trade barriers and giving the U.S. trade representative the power to protect ailing American industries from import competition, whether or not imports are at the root of the industries’ woes. Reagan has the same authority, but he generally has not invoked it.

At the same time, Senate Democrats, saying Reagan is weak-kneed on trade issues, are pushing a strategy that calls for bilateral agreements to reduce U.S. trade deficits, and federal subsidies to make American exports more competitive.

Perhaps stung by its critics, the White House threatened earlier this month to avenge Common Market limits on imports of U.S. farm goods by raising so-called “yuppie tariffs” on European wine, beer, cheese and mineral water.

Protectionism Avoided

But the threat of a trade war, in which import barriers go up, sales go down and both sides suffer economic wounds, is precisely why American economists and statesmen have avoided protectionism for decades.

Despite its drawbacks, mainstream economists argue, free trade benefits everyone: Competition lowers prices at home, creates jobs and markets for U.S. products abroad, and forces Americans to use their more expensive labor and machinery ever more efficiently.

The new protectionists say that era has passed, and recent history sometimes seems to back them up. Last fall, for example, giant AT&T; moved the nation’s last production line for residential telephones from Shreveport, La., to Singapore, eliminating at least 700 assembly jobs. Other phone makers had gone abroad long before.

Similarly, Caterpillar Tractor Co., whose hulking yellow earthmovers are the epitome of American industrial muscle, shifted production of its D5 crawler tractor from the United States to Grenoble, France. Partly because of such shifts, Caterpillar last year eliminated nearly 8,600 American jobs, while its employment abroad rose by more than 500 workers.

An Unmistakable Trend

No one is certain how rapidly American factories are moving abroad, but the trend is unmistakable. For example, U.S. imports of products with components made in America--but assembled abroad--grew by 20% a year from 1966 to 1983, the Commerce Department says.

Just as in the eyeglasses business, jobs are at the core of the protectionism debate.

The trade deficit is tied directly to the competitiveness of U.S. factories, because factory goods make up more than 70% of both American exports and imports. As exports stagnate and imports rise, jobs have followed the curves: U.S. manufacturing employment was 19.2 million in February, down slightly from a year ago and far below the 1979 peak of 21 million.

Meanwhile, total U.S. employment has steadily risen, in part because expanding service businesses such as banking and warehousing have compensated for manufacturing losses. But the average service job pays $1.57 an hour less than a factory position, the Labor Department says, making it hard for the average worker to improve either his wages or living standard.

Backbone of Industry

In the view of free-trade critics, those job shifts strike at the heart of the American economic base, and they worry that the backbone of American industry--steel, autos, advanced electronics--will shrivel into insignificance.

Although they do not agree, even free-trade economists admit the seemingly inexhaustible supply of high-tech, low-wage foreign competitors makes the outlook tough for American factories.

“One of our great myths has been that only Americans can have this high productivity, running complex machines and so forth,” one Administration trade expert has said. “The Japanese have proven that wrong--and some people say that if you think the Japanese are tough, wait till you see the (South) Koreans.

“The optimistic scenario (for U.S. factory workers) is modestly declining real wages. How do you sell that to the American public?”

‘New Wave’ Economists

But the more skeptical experts say you should not have to sell it. “New wave” economists--a group that includes experts such as UC Berkeley’s Tyson--argue that protectionism can be justified to rescue a few strategic industries from competitive attacks by Japan and other nations.

Tyson, who says “we don’t really want to rely on the protectionist machinery we have in place,” joins other UC Berkeley economists in favoring government subsidies and Japan-style industrial policies to boost research and development, exports and other activity in key sectors.

Other new-wavers say temporary tariffs and import quotas are useful to allow import-battered U.S. industries breathing space, and as “bargaining chips” when pressing foreign nations to open their own markets to American goods.

“Japan needed to be confronted with a firmer negotiating position on our side,” said Roger Brinner, senior vice president at Data Resources Inc., a Lexington, Mass., forecasting firm. “There, the prime minister is willing to make some moves, but he faced some very powerful industry special interests. Our threat of protectionism can be a very valuable tool for him to use.”

Rare Times of Crisis

The economists also say protection is sometimes the only way to aid industries during rare times of economic crisis, when temporary subsidies and import barriers can enable companies to hang on in the United States until the economic storms pass instead of seeking permanent shelter elsewhere.

Finally, they note, protection can give an American industry time to develop a market before competitors’ cheaper versions of products begin to steal sales--something vitally important in an era when innovations cannot be monopolized for long. Compelling as they may sound, those arguments still are dismissed by most experts--including, ironically, some of the businesses that would be protected.

At Caterpillar’s Peoria, Ill., offices, spokesman Gil Nolde said the firm is betting that American technology and skilled labor can offset the low-wage advantages of many foreign plants.

Upgrading Was Cheaper

Although some tractor-making operations have been moved to France and Britain, he said, the firm scrapped plans to shift other assembly lines to Scotland after upgrading at its Davenport, Iowa, factory proved cheaper.

Meanwhile, Burke Stinson, an AT&T; Information Systems district manager, calls the opening of a Singapore phone plant “a straightforward decision,” given the costs of American hand labor versus that in Asia. But he notes that some laid-off workers in Louisiana were shifted to the manufacture of sophisticated business phones and private branch exchanges.

“Our thinking to date indicates the higher the technology, the better off you are manufacturing in this country,” he said.

Robert Lawrence, a free-trade economist at the Brookings Institution think tank, agrees.

‘Americans Produce More’

“Why are Americans on average paid more than, say, Koreans?” he asked. “The reason is that on average, Americans produce more than Koreans. It’s not just that Korean textile workers are competing with American textile workers. It’s also true that American textile firms are competing with American computer firms to attract labor.

“People think that somehow the foreigners are going to get as productive as we are without having their wage levels rise. That’s baloney.”