The Great Trade War : Opinion : Protectionism Is Not the Solution : U.S. companies need support, not closed markets, to remain competitive. Research and innovation are key.

In the decades since World War II, the output of goods and services in the U.S. economy has grown more than thirtyfold, and so has the volume of goods and services moving in international trade.

That’s no coincidence. The explosion of world trade in the postwar era was spurred by a U.S. policy that believed in encouraging prosperity for cash-strapped allies, defeated enemies and a world full of underdeveloped countries.

In a sense, it was a policy of creating customers. Rising living standards anywhere meant growing markets for U.S. goods and services and a healthy environment for liberty and democracy.

But now, at the end of the Cold War, we are engaged in an agonizing reappraisal of U.S. policy. We look at chronic trade deficits--last year’s was $84.3 billion--and question whether U.S. industry can compete any more.

And even if it can, do American products and companies get a fair shake? Other nations, often playing by different rules, seem to enjoy more access to the rich U.S. market than we have to their markets.

So we wonder what U.S. trade policy should be as we negotiate a broadening of the General Agreement on Tariffs and Trade, and we wonder whether we can afford to be as generous and openhanded in a trade agreement with Mexico as we were with bombed-out Europe.

The fact is we cannot retreat from world trade, which looms larger in the U.S. economy than ever before in history. Exports last year accounted for 38% of all U.S. manufactured goods; the continued prosperity of our most successful service industries, from computer software to movies, TV shows and music videos, depends on global markets.

Don’t be alarmed by trade deficits--more than half the amount is oil and much of the rest is Japanese cars, which are not a problem of competitiveness but of legal battles with Tokyo. Otherwise, U.S. industry is competitive in many fields, including the most advanced.

Considering all that, what should we do?

We should remember that we do our best when we play championship ball, not intramural. In trade terms, that means don’t protect U.S. industries but do support them. Help firms by supporting research and encouraging innovation; don’t close our markets to others’ products, but open their markets to U.S. goods and services.

The good news is, that should be easy because the government has been supporting U.S. industry for decades, with much success.

Support has come in various ways. Sometimes it’s direct, as in defense spending to spur aircraft development. Sometimes it has been in trade negotiations to defend an industry or technology as critical to the national interest. And sometimes it has been a “tough love” policy of keeping the U.S. market open to competition and change, as in cars and telecommunications.

A closer look at how industries have been helped in the past may guide us in how to proceed at present.

First and most obviously, billions of dollars invested in aerospace and defense helped the aircraft industry. The first commercial jet, the Boeing 707, grew out of a bid to build the Air Force KC-135 tanker.

That’s not all defense spending did. The Defense Advanced Research Projects Agency and the National Aeronautics and Space Administration helped the U.S. electronics industry. NASA, in its need for microelectronic circuits for space capsules, spurred development in semiconductors.

And DARPA financed research into large-scale integrated circuitry. It was research that had a defense purpose but commercial applications. That’s why DARPA is looked upon now as the model for a civilian research effort by government--an agency that would finance basic research and allow private companies to build on it.

The most significant help the government gave recently to an industry other than defense was to electronics, in the 1986 semiconductor agreement with Japan.

Japanese firms had won a terrible battle in computer memory chips a few years previously by using predatory pricing. Japanese companies lost $4 billion but gained control of the market for memory, the most widely used form of semiconductor. U.S. companies dropped roughly $2 billion and all but retired from the field.

But then predatory tactics spread to more complex chips and the U.S. industry cried foul. Washington listened and in negotiations with Japan concluded a semiconductor agreement that curbed predatory pricing and demanded that Japan open its market by setting aside a 20% share for foreign semiconductors.

The 20% provision has been honored only infrequently, but otherwise the accord has worked. The U.S. industry has come back strongly. Today U.S. firms, led by Intel and Motorola, are successful everywhere, even in Japan. Technologically, the U.S. industry is the world leader.

Two lessons are apparent from the semiconductor case: The U.S. government didn’t try to close this market to Japanese chips; it tried to open Japan’s market to foreign ones.

And it said, yes, it would pay more for essential components to preserve the semiconductor industry, which it designated a vital national resource.

That’s something the government emphatically did not do in automobiles; instead, foreign car makers were encouraged to compete with domestic ones. The result: U.S. car makers, after long years of reform and restructuring, are making better cars today and winning back market shares, even as the foreign car makers open new U.S. production facilities, creating jobs for Americans.

Where there were four automobile manufacturers in the United States 30 years ago, today there are eight and two more on the way. Honda, Nissan, Toyota, Mitsubishi and Mazda have joined General Motors, Ford and Chrysler (now including American Motors), with BMW and Mercedes-Benz soon to start production here.

In telecommunications, government policy foresaw both technological change and foreign competition, and said let a hundred flowers bloom. It broke up American Telephone & Telegraph in 1984 and kept the U.S. market open to all comers.

The results today are dramatic. U.S. telecommunications companies are world leaders and the innovative U.S. telecommunications system is a strength of the economy. AT&T;, the local Bell companies that spun off from it and U.S. cellular phone providers are all over the world, winning markets against phone competitors that failed to change in time.

What of the future? We must go on supporting industry and demanding a fair shake for U.S. interests, whether opening a growth market like Mexico or China or negotiating intellectual property rights in the GATT. “The U.S. loses $60 billion a year through theft of intellectual property,” says William Brock, a former U.S. trade representative.

He’s referring to the loss to American labor and know-how whenever somebody copies a computer software program or a song or movie or the Levi’s brand name on a pair of jeans without payment.

It’s a hard world, and if there’s a watchword for a new trade policy, it should be to ask at every turn: What’s in it for the American standard of living? We didn’t formally ask that before; we assumed our standard of living always benefited.

So today we trade and compete with fewer assumptions, but one hopes, with no less energy and vision.