U.S. Industry Needs Backing, Not Barriers

Detroit’s Big Three auto companies offered a reassuring sign of self-confidence Tuesday in calling off their proposed legal action against the Japanese auto industry.

Their olive branch also signaled that the Clinton Administration’s trade policy will be less protectionist than Washington scuttlebutt has been saying in recent days.

The chief executives of General Motors, Ford and Chrysler had threatened an anti-dumping lawsuit against Japanese auto makers, charging them with selling imported cars in the U.S. market at prices lower than in Japan’s home market.

It’s a serious charge, at least partly true on its face. But bringing it would have worsened trade friction, possibly raised the price of minivans in the United States and cast the Clinton White House as a pushover for special interests wanting favors.

“They think Clinton can be pushed into granting them favors,” an auto industry insider said recently. “So they’re pushing.”

Maybe, but now they’re pushing less openly. And that helps the chances of numerous U.S. companies that have been quietly racking up victories in world markets, despite all the talk that U.S. industry is uncompetitive.

In services, a U.S. trade surplus is growing, as full-year government figures out next week will show. Statistics through last September show a U.S. surplus of $53 billion in services ranging from airlines and tourism to construction and engineering, from banking and finance to computer software and entertainment.

In merchandise trade, the deficit was $68 billion through September, including $38 billion in automobiles--about half of that trade with Japan--and a $55-million deficit in oil.

Not much will be done about oil imports, but the automobile deficit is already down from higher levels in the mid-’80s. That’s partly because of Japanese car production in the United States and partly because U.S. companies have regained customers from Japanese car makers, whose overall share of the U.S. market has fallen to 27%.

Meanwhile, U.S. trade in other goods is in balance--despite recessions in the economies of America’s export customers in Europe and Japan.

Small wonder, then, that London’s prestigious Financial Times this week called U.S. industry “a potential world beater.”

The simple fact is that U.S. suppliers of microprocessors, cellular phones, computer software, machine tools, television programs, locomotives, electric power plants, farm and construction tractors and, yes, automobiles and auto parts have more to gain from opening foreign markets than in putting up barriers around the United States.

That’s a point to keep in mind because protectionism is always tempting. Local industries help elect members of Congress, after all, and it seems to make sense to protect one’s friends.

That was the general attitude in 1930 when Congress passed the Smoot-Hawley Tariff Act and President Hoover signed it. The intent was to put up tariffs against foreign grain and thus help U.S. farmers gain higher prices and better incomes.

But U.S. farmers were already internationally competitive. Smoot-Hawley, by sparking retaliation, cut off their foreign markets, shrank their incomes and bankrupted them--and led to the Great Depression and the bankrupting of many other businesses besides.

That was a long time ago, and a repeat of wrongheaded legislation on the scale of Smoot-Hawley is unlikely. Still, world trade does seem threatened by fatigue these days.

At the recent International Forum in Davos, Switzerland--an annual conference attended by heads of state and leaders of industry--European delegates kept asking for “breathing room,” reports one participant. After years of trying to merge into a single market, European industries now face the challenge of competing with Japanese and U.S. companies--and they want to slow the pace.

Japan’s economy may be hurting for years to come; its delegates at Davos seemed to have no answers on trade or other problems.

So all eyes were on the new U.S. Administration and how it would deal with big issues, such as free trade with Mexico and a renewal of the global General Agreement on Tariffs and Trade.

So far, the Clinton team is pushing to open markets for U.S. business--fighting, for instance, to stop discrimination by foreign governments against U.S. suppliers of telecommunications gear. After Tuesday’s diplomatic withdrawal by Detroit’s Big Three, it is likely there will be pressure on Japan to open its markets and to take action to reduce the U.S.-Japan trade imbalance.

“The emphasis will be on opening markets and helping Americans,” says Sen. Max Baucus (D-Mont.), who chairs the subcommittee on trade of the Senate Finance Committee. Baucus advocates worker training and a boost in federal help for commercial research and development.

That’s the right approach. Competitive industry needs support, not protection--even if the new President does, indeed, turn out to be a pushover.