Beware of Managed Trade

Beware. The sharp increase in the nation’s trade deficit reported for February will encourage the protectionists waiting to prey on a vacillating new Administration and an inexperienced U.S. trade representative. It will be well to remember that any concessions to the forces of managed trade will have dire consequences for the nation and must be resisted.

The omnibus trade bill adopted last year by a Congress eager to seem to be doing something will make it more difficult to resist these pressures. There are new provisions in that legislation for retaliation against unfair practices that will be interpreted by some in Congress as mandates for punishing not just unfair traders but also effective competitors. Unless the legislation is implemented with great moderation and care, it will ignite trade wars just when there is the promise of extraordinary progress in Geneva where a new General Agreement on Tariffs and Trade (GATT) is being negotiated.

GATT trade ministers earlier this month reached a healthy compromise, overcoming the most significant barriers to a new trade agreement. Their agreement cleared the way for an extraordinary step forward, including extension of international trade agreements to agriculture, intellectual property, services and trade-related investment.

But many special interests in the United States fear the rising competitiveness of the world market and favor retreat behind trade barriers. The already over-coddled textile and apparel industry is a case in point. The protectionists are already exploiting the disappointing trade figures in general and the particular disappointment of the 34% increase in the deficit in trade with Japan, which alone accounts for 45% of the imbalance. So there is talk again of setting quotas for deficit reduction for Japan, West Germany, Taiwan and South Korea, among the nations with the largest surpluses in trade with the United States.

The slowdown in the growth of American exports, which increased less than 1% in February, is a disappointment. It appears to be a response to the increased value of the dollar that makes American goods more expensive to foreign importers. There also are unfair barriers to American exports that need to be corrected in conformity with the law, with due respect for the existing provisions of GATT.

There is no place, however, for unilateral punitive action including the establishment of market shares, quotas and other elements of managed trade. Such reckless and illegal action might buy a few American jobs in the short term, but it would destroy the international trade system in the long term. There is every reason for moderation and care now, at the very moment that a global trade liberalization of vast value to the United States is nearing completion.