Lesson to Remember

Americans who are concerned about the threat of self-defeating trade legislation--and all Americans ought to be--can take some comfort in the razor-thin approval that the House gave on Wednesday to the punitive Gephardt amendment to the trade bill approved handily by the House on Thursday. With a victory margin of only four votes, far fewer than its backers expected, the amendment now seems unlikely to be retained when House and Senate conferees meet to adopt a consensus trade bill later this year. The Senate is no less concerned than the House about the trade deficit. It is, though, far more alert to the dangers of trying to mandate an illusory quick fix to a complex problem. That good sense does it credit.

The Gephardt amendment, whose main sponsor is Rep. Richard A. Gephardt (D-Mo.), is aimed at a half-dozen countries, most of all Japan, whose allegedly unfair trading practices have helped earn them large surpluses in their merchandise trade balances with the United States. Basically, it would provide for six months of negotiations to force significant reductions in the surpluses. If negotiations failed, tariffs or quotas to slash the surpluses by 10% a year for four years would be required.

The results of this rigid approach are predictable. First, the cycle of international trade would be severely disrupted as major trading nations--and not only those at which the Gephardt amendment is aimed--moved in retaliation or in perceived self-defense to protect their own producers from foreign competition. That would eliminate American jobs. Second, U.S. consumers would find prices rising on virtually everything they buy--on foreign products because fewer of them would be available, on domestic goods because as competition from imports was forcibly restrained producers would feel free to increase their prices. This is a clear prescription for inflation, and for inevitably higher interest rates that eventually would reduce business activity and invite recession or worse.

Pressures to get fairer access to foreign markets are legitimate and should continue. But crude pressures that could only be bound to weaken the American economy, like the Gephardt amendment, solve nothing. That is the clear lesson of history, and Americans will pay dearly if it is forgotten.