No Dummy, Barbie Says Much About Free World Trade
Your future prosperity is at stake this weekend in the emergency talks between President Bush and European leaders on the General Agreement on Tariffs and Trade.
Almost nobody would believe that, of course. To most people, GATT stands for distant, dull arguments over customs duties--nothing to do with their daily lives.
It’s an understandable attitude; when the sun is shining we take it for granted. We do the same with GATT, forgetting that nations used to fight wars over trade.
But since 1947 nations have settled disputes peacefully within the framework of the GATT, originally a pact among 23 countries but now signed by more than 100. And those peaceful settlements have increased the international flow of goods by 500% to more than $3 trillion--not counting banking, airline or telephone services, and undercounting a lot of other items in world trade such as movies and TV shows.
Quite simply, the agreement has helped to create a new world, one that spreads the work and increases output. A single Barbie doll, for example, is made in 10 countries--designed in the United States, with parts and clothing from Japan, Korea, Italy, Taiwan and other places. The same one-from-many production system holds for automobiles, airplanes, computers and dishwashers. Moving goods around like that is possible because, under GATT, tariffs have come down from an average 40% to 5%.
The benefit is that global output of goods and services has grown faster since World War II than at any time in history. Most pointedly, the 43 years of GATT have created more prosperity than the first half of the 20th century, which saw at least three depressions and two world wars.
And yet the agreement is in trouble. Talks have gone on since 1986 to renew and expand the GATT, which has been renewed six times before. Agricultural trade is to be taken into its framework along with trade in services--in which the United States leads the world. Trade in intellectual property--computer programs, semiconductor designs, films, music and television entertainment--are to be covered by GATT’s open market system.
But all of a sudden the Europeans are balking, refusing to lower agricultural subsidies to their farmers and buy from the United States and other competitive farming nations. Potentially a great market for farm produce, the 12 countries and 350 million people of the European Community last year bought far less from U.S. farmers than did Japan, which has one-third Europe’s population.
The EC is also trying to curb purchases of American television shows and severely limit imports of Japanese cars. Essentially, Europe--scheduled to unite its 12 economies in 1992 and seeing less need for U.S. military protection against the Soviet Union--is trying to avoid sharing its future prosperity with the United States and others.
It’s a dangerous time to try that. In Washington, Congress is in the mood for retaliatory protectionism, says Rep. Tom Campbell (R-Palo Alto). The thinking is that other nations only take advantage of the United States, so there ought to be a law requiring goods sold in America to be made in America.
That may sound logical, but it isn’t. Because a lot of the goods moving in world trade--more than $1 trillion worth, say experts--are like parts for Barbie dolls and Boeing airplanes, made by workers in many lands who thereby earn the income to buy more goods. It’s one of the ways GATT has spread the work and increased global output. So restricting such transfers would not increase goods made in America. It would simply diminish the output of Barbies, or Boeings, because the single U.S. market wouldn’t buy as many dolls or planes as had the larger world market.
The ominous precedent for today’s protectionist thinking is the Smoot-Hawley Tariff, passed in 1930, with strong approval from President Herbert Hoover. Hoover believed that high tariffs helped U.S. farmers by building up domestic prices for their crops and lessening their dependence on export markets. But the law proved a disaster, curbing domestic consumption and killing export markets. It hurt consumers, farmers and world trade, and is widely cited as one of the principal causes of the Depression.
It’s to avoid a rerun of that disaster that Bush and the European leaders he’s meeting from Sunday through Wednesday are striving to make the GATT talks successful. “If GATT is not renewed,” warns Congressman Campbell, “it will leave a vacuum, and protectionist regulations here and abroad will rush into it.”
The sad irony is that world trade is the main hope for the U.S. economy in the 1990s. U.S. manufacturing exports, up 70% since 1985, are very competitive. And demand for U.S. entertainment and service exports is awesome--as witness the crowds at Moscow’s first McDonald’s.
In fact, at a tense time for trade, there’s a reassuring lesson in that Moscow McDonald’s. It lies in the vision of one man, George Cohon, the head of McDonald’s Canadian operation, that the next great opportunity for the hamburger chain was in the Soviet Union.
Cohon got the idea at the 1976 Olympic Games in Montreal, when McDonald’s loaned the Soviets a bus to take their team to the stadium. Cohon visited with Soviet officials, took them to a Montreal McDonald’s and saw their interest. So he followed up--through 14 years of visits to Moscow. And this year he opened the first of 20 McDonald’s in Moscow. Cohon planned to serve 15,000 customers a day; he is getting 50,000.
The lesson for Bush and European leaders: World trade often pays beyond your expectations.
