World Trade Turns on the White House

<i> Eliot Janeway's next book, "The Economics of Chaos: On Revitalizing the American Economy" (Dutton), will be published in January. </i>

After Sen. Lloyd Bentsen demonstrated his maturity in debate with Sen. Dan Quayle, the Boston Phoenix asked: “What would Dukakis do if something happened to Bentsen?”

Again and again in our history, congressional elders have demonstrated their knowledge of the intricate workings of the U.S. system. Just as often, the erratic nature of the American selection process has produced presidential aspirants who turn out to be on-the-job trainees, especially in terms of trade.

Nearly 100 years ago, a hard-nosed Connecticut Yankee defended arch-protectionism by defining the tariff as a “local issue.” Protectionism cannot be made to work today, but reciprocity in trade can, and the economy is not working as it could because the government has abandoned the idea. George Bush is now admonishing Americans to be grateful to the foreign creditors. Yet in every U.S. community where anything is still being made, the No. 1 local issue today, as a century ago, demands action from Washington to give home-grown activity a fair chance in its own home markets.

Bentsen has caught the need to update America’s historic local issue of the tariff by retrieving reciprocity. In doing so, he put his finger on America’s overriding economic policy problem, and on the failure of both presidential candidates to formulate a solution. But only the President can deal directly with any foreign power to secure advantages for advantages granted. Reagan has not seen this responsibility as part of the President’s job.


Bentsen, the chairman of the Senate Finance Committee, clearly does see intergovernmental negotiation as an inescapable presidential duty. Bush has a ready excuse for not questioning the outdated free-trade dogma: Reagan didn’t and, as with the budget deficit, what was good enough for Reagan is good enough for Bush. But when Michael S. Dukakis went national, he too adopted the free-trade gospel, on the advice of economic counsel. He started out selling the “Massachusetts Miracle,” not realizing that this would bind him to buy the Reagan recovery. Now, as he gropes for ways to deny that the Massachusetts economy is being caught up in the deterioration of conditions nationally, he is forced to soft-pedal suspicions that the Reagan recovery is also weakening. His original asset in the Democratic primaries is boomeranging into a liability.

Even more fundamental to Dukakis’ position has been reliance on accepted academic economic wisdom. It regards markets, defined as free, as the arbiters of world trade flows in general, and of the trade performance of any country in particular. But academics have not yet grasped the extent to which government intervention has superseded purely market forces--both in determining the flow of transactions and the terms of competition between countries.

Sometimes this intervention is direct, in the form of subsidies, quotas and tariffs. Direct intervention by foreign governments is particularly conspicuous in the case of U.S. oil imports. America buys oil from governments, not from businesses or traders. These same governments also control the food-buying for their countries; many of the largest, especially Mexico and Nigeria, are starving. The simple common sense expedient of substituting food for cash to pay for oil imports would slash America’s trade deficit--and dollar interest rates as well. It would take agriculture off welfare and cut the annual $20-$25 billion farm relief burden about which Bentsen complained.

At times indirect government intervention can be even more influential, as when then-Secretary of the Treasury James A. Baker III persuaded the major financial powers to cooperate in a 1985 devaluation of the dollar. In spite of this demonstration of U.S. intervention reversing market performance, the Administration has clung to its faith that markets do and should lead national policy. Dukakis’ economic advisers have nodded.


During the primary season, Dukakis was ambushed into a preliminary test of his free-trade credo when the road show hit Michigan. Dukakis won the race to mobilize money but that was all he won. In Michigan, Rep. Richard A. Gephardt of Missouri, a member of the House Ways and Means Committee, directed an all-out protectionist appeal to the harassed auto workers who dominate the state Democratic Party. The centerpiece was a simplistic TV ad, promising Joe and Jane Sixpack a tariff, to make a Honda cost as much in the United States as an American-made car is made to cost in Korea. When the votes were counted, Gephardt beat Dukakis badly.

Although Dukakis has expressed gratitude for the instructive experience of defeat in his first try for reelection as governor of Massachusetts, his defeat in Michigan had no such instructive effect upon this campaign. As recently as late September, the Wall Street Journal profiled both presidential candidates as fellow free-traders, hailing their joint dislike of “protectionism” and saluting Dukakis for his courage in resisting protectionist pressure from unions. No correction came from Dukakis headquarters.

Then came the vice-presidential debate. Bentsen was deft in disclaiming Republican brags of prosperity. He attributed it to eight years of writing jumbo “hot checks” to the budget deficit.

Bush and Quayle shrug off the budget deficit as part of the country’s growing pains, well worth the cost of the interest bill. This was the very rationale for deficit-financing advanced by John Maynard Keynes, patron saint of the liberals at whom they sneer.

Of the four people atop the tickets, only Bentsen has made sense about the economy, focusing on the trade deficit as the key to the budget deficit. Subsidized imports force the deflation of incomes--business and private alike. In turn, the failure of incomes to keep pace with a supply-side recovery retards the Treasury’s revenue collections.

Subsidized imports do deflationary damage to incomes and, therefore, to the budget. At the same time, rampant protectionism abroad blocks American export growth. So Bentsen did more than just raise fears about Uncle Sam passing hot checks, and he did more than subordinate budget deficit troubles to the trade deficit that is the cause of them. He established a role for the President as an effective chief executive who would know what he was doing as America’s deal-maker when he turns the market tides around.

The economic advisers to Bush and Dukakis read from the same book, go by the same statistical guidelines and give the same policy counsel. They find the activist concept put forward by Bentsen--the President as a world economic wave-maker--unthinkable.

Dukakis has, to be fair, lately responded to recent poll results by tagging along with Bentsen. Bush has been quick, and justified, in rapping Dukakis for abandoning their bipartisan espousal of free trade.


At the depth of the war crisis of 1941, a great and underrated Republican, Alf M. Landon, proclaimed that “politics ends at the water’s edge.” Democrat Bentsen injected sanity into the back-alley brawling of the 1988 presidential contest by warning that economics begins at exactly the same place.

The White House--even before Reagan’s occupancy--has been inviting and indulging raids on the U.S. economy by every government in the world. Rhetoric notwithstanding, America will not stand tall again unless and until the occupant of the White House agrees with Bentsen that America’s economic security, negotiated abroad, holds the key to national security. Dukakis may not have got the whole message, but at least Bentsen has shocked him out of me-tooing Bush on the vital trade issue.