Protectionist Showdown

With the House voting Aug. 6 seeking to override President Reagan’s veto last year of textile legislation, a major new protectionist campaign begins in Washington. Critical national and world economic issues ride on the outcome.

If Congress succeeds in the veto override, the way will be cleared for omnibus trade legislation like the punitive HR 4800 approved by the House on May 22. The combined effect of those two actions would indefinitely sidetrack the next round of world trade negotiations now scheduled for the autumn, and would virtually destroy the present General Agreement on Tariffs and Trade, inviting wholesale retaliation and the kind of chaos that characterized passage of the Smoot-Hawley tariffs in 1930 that deepened the world depression.

Congressional leaders have waited eight months to try to override the textile-bill veto in the hope that proximity to Election Day in November would intimidate even the most resolute opponents of protectionism. That may be. But there is much evidence that Americans are unimpressed with the protectionist arguments of narrow special interests, and even those most affected by foreign competition are awakening to the fact that the tariff and import-quota strategy would only postpone and make more difficult the adjustments necessary to bring continuing vitality to the U.S. economy.

The mood in Congress has forced Reagan’s hand in some negotiations. He has, for example, sought to ease pressures for a textile-bill override by negotiating separate bilateral agreements. A new trade agreement with Hong Kong, the place with the highest value of textile and apparel sales to the United States, is an example of this approach. The volume of Hong Kong’s exports to the United States increased 63% from 1980 to 1985. Under the new agreement, growth will be held to 1% a year until 1991. That almost certainly will penalize American consumers. But it is far better than the import rollbacks, some up to 30%, mandated in the textile legislation vetoed last year by the President. Bilateral trade restrictions also are being, or have been, negotiated with Taiwan, South Korea, Brazil, Indonesia, Singapore and Mexico.

Omnibus trade legislation adopted by the House in May and similar legislation now under consideration in the Senate place at risk the structure of international trade relations. Presidential discretion would be limited, and mandatory retaliation would be the order of the day. Included among the more draconian elements of the House version is the Gephardt amendment requiring arbitrary 10% annual trade cuts for nations--such as Japan, West Germany and Taiwan--with large surpluses in trade with the United States; this measure would do more violence to Americans than to the foreign trading partners. The successful negotiations last week with Japan on computer chips illustrate the value of flexible and open resolution to disputes, as opposed to mandatory and inflexible regulations.

Some congressional leaders have insisted that they are fighting for access to foreign markets for American exports, not for protection. But the protectionism is evident in the legislation, and by its very stringency it invites retaliation, not conciliation, with the prospect of fewer export opportunities for U.S. firms and farms if the legislation passes. The mounting U.S. trade deficit poses grave problems for the American economy, but it is a symptom of basic problems, not an ailment that can be legislated away.

The General Agreement on Tariffs and Trade has been the umbrella for a slow but constant liberalization of world trade. It has proved to be an imperfect instrument. Many nations, the United States among them, have flouted its commitments. Others, like France, seem prepared to cling stubbornly to practices, like farm subsidies, that imperil necessary broadening of GATT’s powers. But the fact remains that there is no better instrument. GATT surely needs improvement. That is no reason to tear it apart or to abandon it.

The trade legislation now before Congress would jeopardize GATT. And, worst of all, it would isolate the United States from world markets that are of increasing importance to the sustained economic growth and vigor of the nation.