Protectionism Endangers California : Threatens Pacific Trade, Could Cut Jobs and Investment Here

Wake up, Californians. Our state’s prosperity is endangered. The threat is from restrictive trade bills that are being introduced in the 100th Congress as hoped-for solutions to America’s record-breaking trade deficit and the loss of American jobs to foreign competitors.

California cannot afford restrictive legislation, because so much of our state’s economy now depends on foreign trade and direct foreign investment in our corporations, factories and real estate.

Approximately 60% of all U.S. trade with the Pacific Rim nations--a market growing at the rate of $3 billion a week--now passes through California, generating enormous revenues.

As America’s gateway to the Pacific Rim, Los Angeles has gained uncounted thousands of new jobs. An estimated 10% of all jobs here are linked to trade with Asia, according to attorney Douglas Ring in a recent study of the city’s Pacific trade link.

California’s booming foreign trade has also yielded millions of dollars in additional tax revenues, and it is responsible for the revival of entire communities--such as downtown Long Beach, where the $550-million World Trade Center is now under construction. The opportunity to export U.S.-manufactured goods to thriving Pacific Rim nations is one reason California gained 132,000 manufacturing jobs between 1982 and 1985 while the rest of the nation lost 800,000 such jobs during the same period.

Restrictive legislation would not only limit this vital trade, it would also indirectly discourage foreign investment in California. Japan’s Shuwa Investments Corp., for instance, recently purchased the twin Arco Plaza office buildings in downtown Los Angeles for a record $620 million. Singapore’s Wearnes Technology has acquired several troubled Silicon Valley computer-component firms in hopes of turning the companies around. And Japan’s Sanyo Corp. has opened a compact refrigerator factory in San Diego County that will eventually employ 750 people.

This year California can expect even further increases in foreign investment, especially from cash-flush Japan. The high value of the yen encourages Japanese companies to shift production to America--and especially to California, where the Japanese already have made 40% of their U.S. investments in recent years. In fact, one-third of all Japanese-owned companies in the United States already are located in California, providing jobs for 47,000 people.

These factors promise a prosperous future for California--unless Congress passes restrictive trade legislation. Such restrictions have failed in the past. In 1930, for example, Congress passed the protectionist Smoot-Hawley Act in an effort to protect domestic jobs. In response other nations hurriedly erected trade barriers, and U.S. exports dropped 70% between 1929 and 1933, at the expense of American jobs.

Restrictive trade legislation won’t work any better today. When the United States placed high tariffs on European pasta last year, to cite one tit-for-tat example, the European Community placed high tariffs on American walnuts and lemons.

Protectionist legislation, whether in the form of retaliatory tariffs or additional import quotas, would be a calamity for California--and not just because these measures would slow the all-important trade through our ports or reduce direct foreign investment in our state.

Consider California’s own exports to other nations. In 1985, the most recent year for which complete figures are available, California exported $7.5 billion worth of goods to Japan. Higher Japanese tariffs, enacted in retaliation for new American tariffs, would hurt these California manufacturers and farmers.

Additional import quotas will harm California in other economic areas as well. Consider the existing import quotas on Japanese cars, which were enacted to save U.S. auto-manufacturing jobs. California has been the loser, because our state has only two auto plants, and the Toyota-General Motors joint venture in Fremont is one of them. Thus the real effect of the auto-import quotas for California has been to reduce competition and create artificially higher prices for all cars--Japanese and protected American models alike.

In today’s global economy, protection-ism can even encourage American companies to open factories in other countries at the expense of local jobs. A recent series of U.S. import quotas, for instance, included foreign-made items used by Davis Walker Corp. for manufacturing wire products in Los Angeles. Because of the quotas, the company purchased the items from domestic mills despite recurring quality problems. To make matters worse, the company’s Canadian rivals, who were not affected by the American import quotas, still purchased the foreign-made components and undersold Davis Walker in the United States. To remain competitive, Davis Walker expanded its Canadian facilities at the expense of its operations in Los Angeles.

Of course, something must be done about America’s record-breaking trade deficits. And members of Congress, business leaders and academicians are proposing plenty of possible solutions. But another round of tariffs and import quotas is not the answer to the pressing trade-deficit problem. And no one has a greater stake in spreading the word than Californians have.