A Veto Pledge That’s Out of Focus : Reagan’s Concern Should be Protectionism, Not Plant Closings

President Reagan’s promised veto of the omnibus trade bill is like too many policy decisions in recent years: the right choice for the wrong reasons.

The trade bill should be vetoed because it is protectionist, not because of relatively innocuous plant-closing notification requirements or restrictions on the exporting of Alaskan oil. By misfocusing the veto message, the President’s advisers effectively are accepting the trade portion of the legislation, thus guaranteeing--sooner or later--that it becomes law.

And that, for an economy only beginning to recover its competitive edge, could be disastrous.

Admittedly, most of the headline-grabbing protectionism was stripped from the bill. The Gephardt amendment (which was aimed at reducing large bilateral trade imbalances), the Bryant amendment (which would have imposed onerous reporting requirements on foreign investors), a long list of industry giveaways (especially in agriculture) and other highly visible trade-restricting provisions were eliminated during months of conference-committee negotiations.

This was predictable: After the October stock-market crash, few in Congress were eager to follow the example of their predecessors whose blatantly protectionist legislation turned the crash of 1929 into the depression of the 1930s.

But the residue of their work, while less dramatic, is almost as bad and would result in a significant shift toward a less open, more protected trading regime. Through a host of provisions, the legislation would shift the balance of power over trade matters from the President to Congress and to the trade bureaucracy, both of which are usually more responsive to special interests. Perhaps more important, the bill would create a predisposition to retaliate against unfair trade practices rather than to negotiate. It would also provide greater opportunities for domestic industries to find relief from effective but fair foreign competition. The result would be more trade friction with our allies, more government intervention in commerce and, ultimately, higher costs to the American consumer.

All this has been called “process” protectionism because it would become easier for U.S. companies to exploit the trade law to avoid competition. Though this sounds more benign than “real” protectionism, it would likely have the same chilling effect on a much needed move toward freer, or even fairer, trade.

Unfortunately, the Reagan Administration’s record on trade--capped by the President’s misfocused veto pledge--belies much of its free-trade rhetoric. Since 1980 the proportion of U.S. imports of manufactured goods from other industrial countries that are covered by restrictions of one kind or another has risen by two-thirds, to 15%, at a time when the total value of such imports was exploding. These restrictions range from so-called “voluntary” arrangements that limit the number of imported Japanese cars or German machine tools to efforts to turn the semi-conductor industry into a cartel by negotiating market-share arrangements. Similarly, the United States has dramatically expanded agricultural protection through a sharp increase in export subsidies; one recent estimate put the cost of U.S. agricultural protection at $126 per capita in 1986, and indicated that U.S. farm prices were more than 50% above world prices.

Of course, most of our trading partners are worse: Japan and Europe are more protectionist and more willing to exploit the trading system to their own advantage. But growing U.S. preference for managed trade, as reflected both in the record and in this trade bill, has been a poor antidote to the global erosion of free trade.

The President probably understands instinctively that this trade bill should disappear on its merits. But his advisers seem to be preoccupied with near-term political maneuvering, with the apparent linkage between the trade bill and legislation implementing the U.S.-Canada free-trade agreement, and with the fear that the next President will face an even worse bill. None of these are compelling enough to justify moving in a decidedly protectionist direction now.

In the foreign-policy area, especially in arms control and the Arab-Israeli conflict, the President has recently been willing to pursue initiatives that are unlikely to come to fruition before the end of his term. These initiatives are important not only for their own sake but also because they establish a platform on which the next Administration can build its own policies. In a similar spirit the President should base his veto of this avowedly bad trade bill on a rejection of its inherent protectionism. He should match his free-trade rhetoric with action and indicate that a new version of the bill that only eliminates the plant-closing and other superfluous provisions will be equally unacceptable.

Then, perhaps, the next Administration could begin building a new U.S. trade strategy on firmer underpinnings.