A World of Goods . . .and Not So Goods : Free Trade or Fair Trade?

The President won an important victory in Congress last week, and it has many Republicans worried. By an eight-vote margin, the House of Representatives failed to muster the necessary two-thirds majority needed to override President Reagan’s veto of a bill to limit imports of low-cost textiles.

“Talk Like Rambo, Act Like Bambi,” screamed a page-length advertisement in last Tuesday’s Washington Post. The ad, aimed at members of Congress and paid for by the Fiber, Fabric and Apparel Coalition for Trade, claimed, “There is only one chance to deal with our government’s failed trade policy: Override the textile bill veto.”

A few pages later, Post readers were confronted with a full-page ad from the Retail Industry Trade Action Coalition. “Protection At Any Price?” it charged, warning that “American consumers will pay $44 billion” and “American workers will lose 62,000 jobs” if Congress voted to override Reagan’s veto of the textile bill.

These groups spent big money to reach an audience of 535 readers--the Congress. The textile industry wants to keep cheap imports out and prices for domestic fabrics up. The retail industry wants cheap imports coming into the country and customers coming into the stores.

Congressional votes on trade issues don’t seem to have much to do with party or ideology. The textile bill passed Congress last year with the support of about three quarters of the Democrats and close to half the Republicans. The split was regional. Representatives from the South, where textile interests are important, voted solidly for the bill. Unless something is done soon, Sen. Ernest F. Hollings (D-S.C.) warned, “we could end up having one of those ‘sing-songs for Africa’ for everybody in South Carolina.” Members from more trade-oriented areas, like the Northwest, voted solidly against the bill. In other words, it looked like an issue of “Whose ox is gored?”

Since Washington is filled with high-minded statesmen, naturally the debate over trade is cast as a conflict of principles: the doctrine of free trade versus the doctrine of fair trade. “Instead of erecting destructionist import barriers, we’re tearing down foreign barriers to make trade freer and fairer for all,” said ardent free trader Ronald Reagan in his Aug. 2 radio speech. Sen. Majority Leader Bob Dole (R-Kan.), an adversary on this issue, has said, “The United States cannot be the world’s only free trader any more than we can unilaterally disarm.”

What’s going on is more than a conflict of interests but less than a conflict of principles. It’s the tough guys versus the know-it-alls. The tough guys say the United States is being played for a sucker and pushed around by its trading partners--time to get tough with countries that subsidize their export industries and bar U.S. imports. “No more Mr. Nice Guy,” said Vice President George Bush, seizing the opportunity to beef up his tough guy credentials when the Administration announced limited trade sanctions last fall. The problem with the tough guys is that their solutions don’t always turn out to be tough. On Aug. 1, Reagan decided to get tough with grain exports. Under intense pressure from farm-state Republicans facing difficult re-election campaigns this fall, the Administration agreed to subsidize the sale of 4 million tons of U.S. wheat to the Soviet Union. The Soviets hadn’t been buying U.S. wheat because the price was too high--about $13 a ton higher than the world market price. So the Administration is making up the difference, at a cost of up to $52 million to American taxpayers.

The cost to American foreign policy has been high, too. The Australians and Canadians, who also sell wheat to the Soviet Union, are outraged at this unfair competition. Secretary of State George P. Shultz broke with the Administration and openly criticized the President’s decision. He noted that the Soviets “must be chortling” and “scratching their heads” over the fact that Soviet consumers can buy American-produced food at a lower price than U.S. consumers.

Reagan made matters worse when he announced an agreement that would allow South Africa a 4% increase in textile exports to the United States. That is a tough quota, since textile imports from South Africa grew by 100% over the past two years. Nonetheless, Congress responded with outrage at increase in trade with South Africa. The policy was tough; the symbolism was all wrong.

The know-it-alls are experts who claim that restrictive trade legislation will have disastrous consequences for the U.S. economy. It will cause other countries to retaliate. It will cost jobs in the trade, retail and export industries. It will protect industries that are costly and inefficient. Such views were expressed in a statement signed by 10 former chairmen of the Council of Economic Advisers who served various Presidents of both parties.

Reagan, too, is usually a know-it-all. Reagan knows this the way he knows most things--from personal experience: “I well remember the anti-trade frenzy in the late 1920s that produced the Smoot-Hawley tariffs, greasing the skids for our descent into the Great Depression and the most destructive war this world has ever seen.”

The problem with the know-it-alls is that they don’t always know it all. Last year, the experts blamed the country’s record trade deficit on the dollar being overvalued. Bring down the dollar, they said, and the result will be to raise the price of imports, lower the price of U.S. exports and reduce the trade deficit. The Administration took that advice. As a result of a concerted effort with other countries, the dollar’s value has dropped by 30% since March, 1985. What happened? The trade deficit has reached a new high, a projected $168 billion by the end of this year. “This is a staggering surprise,” said Walter Heller, one of the know-it-alls who signed the statement.

What the experts didn’t know was that foreign manufacturers would accept lower prices and lower profits to protect their share of the U.S. market. They also didn’t know that foreign demand for American products would remain low because of Third World debt problems, lower oil revenues and sluggish economic growth in Japan and Western Europe.

After the failure to reverse the President’s veto, one congressman said, “Our trade policy is flawed. It’s wrong and it’s time to say so.” Another said the Administration “fundamentally mishandled” trade policy. A candidate for state office addressed his remarks to Reagan: “I think that your political consistency is wrong, Mr. President, and I, who consider myself one of your most loyal soldiers, will leave you.” These were all Republicans.

For many years now, polls have showed widespread support for protectionist policies, even though most Americans understand the arguments in favor of free trade. The basic impulse is a populist sympathy for American workers: Most Americans feel it is wrong for consumers like themselves to benefit at the expense of American jobs. By over 4 to 1, the public favors limiting imports from countries that engage in unfair trade practices. However, economists would be surprised to learn what most Americans consider unfair trade practices. The biggest complaint is not about government subsidies, but about forcing American workers to compete with low-paid foreign labor. Our workers demand and deserve a higher standard of living. Howard H. Baker, the former Senate Majority Leader from Tennessee, recently remarked that trade is one area of public policy where it is not necessary to have a “doctrine.” “The situation is too complex,” he said, “and problems should be handled on a case-by-case basis.” In trade, then, there are no principles. There are only interests.