Friday, September 14, 2012

Reagan on freetrade

Volume VI, No. 5 May 1988Ronald Reagan: Protectionist by Sheldon L. RichmanMark Shields, a columnist for the Washington Post, recently wrote of President Reagan's "blind devotion to the doctrine of free trade." If President Reagan has a devotion to free trade, it must be blind because he has been way off the mark. In fact, he has been the most protectionist president since Herbert Hoover.Admittedly, his rhetoric has been confusing. In 1986 Reagan said, "Our trade policy rests firmly on the foundation of free and open markets. I recognize. . . the inescapable conclusion that all of history has taught: the freer the flow of world trade, the stronger the tides of human progress and peace among nations."But he advocated protectionism early in his 1980 campaign, saying to the U.S. auto industry: "Japan is part of the problem. This is where government can be legitimately involved. That is, to convince the Japanese in one way or another that, in their own interests, that deluge of cars must be slowed while our industry gets back on its feet..."When he imposed a 100% tariff on selected Japanese electronic products for allegedly "dumping" computer memory chips, he said he did it "to enforce the principles of free and fair trade." And Treasury Secretary James A. Baker has boasted about the protectionist record: Reagan "has granted more import relief to U.S. industry than any of his predecessors in more than half a century."It's true that the administration has fought with protectionists in Congress, but only over who should have the power to restrict trade. As Reagan put it, "It's better policy to allow for presidents—me or my successors—to have options for dealing with trade problems."Defenders of the Reagan policies will say that he has engaged in protectionism to open foreign markets. But they cannot deny that one-quarter of all imports are today restricted, a 100% increase over 1980.Nor are foreign markets more open. The Reagan administration talks about exporting free enterprise, but in fact it has exported economic intervention to Japan, South Korea, and other nations.When the United States imposes import quotas or pressures a foreign government to do so, a compulsory cartel must arise in the exporting country, since its government will assign the quotas among private firms and administer the system. Ronald Reagan has forced nations that export textiles, apparel, sugar, steel, and other products to cartelize these industries.Can trade restrictions open foreign markets? The use of government power to regulate trade is more likely to produce conflict of which American consumers and exporters become the victims. It is also naive, because it ignores the political pressure to maintain existing restrictions. The United States, for example, could impose new limits on Japanese autos to force Japan to accept beef exports from Iowa. But, as syndicated columnist Stephen Chapman asks, "Does anyone believe that when Japan starts buying Iowa beef, Ford and Chrysler will stop trying to keep out Japanese cars?"Considering our own intricate web of trade restrictions, it is sanctimonious for the U.S. government to lecture others about opening their markets. It might be in a better position to make demand~ if it first stripped our economy of those restrictions. But wouldn't we be giving up bargaining chips? Yes. But the objective is not to negotiate; it is to enjoy the benefits of productivity and the international division of labor. The bonanza of unconditional free trade would be so great for the United States that it would set a good example for the rest of the world.The value of free trade does not depend on open markets abroad. It is good for the nation that practices it, regardless of what others do. The purpose of an economic system is not to produce jobs or sell products abroad. Those are means. The end is satisfaction of our material wants. Free trade is good because our standard of living depends on how easily we can get the products and services we want.One is led to ask: with free-traders like this, who needsprotectionists?The administration has thus far:Forced Japan to accept restraints on auto exports;Tightened considerably the quotas on imported sugar;Negotiated to increase the restrictiveness of the Multifiber Arrangement governing trade in textiles and apparel;Required 18 countries, including Brazil, Spain, SouthKorea, Japan, Mexico, South Africa, Finland, Australia, and the European Community, to accept "voluntary restraint agreements" that reduce their steel imports to the United States;Imposed a 45% duty on Japanese motorcycles for the benefit of Harley Davidson, which admitted that superiorJapanese management was the cause of its problems;Raised tariffs on Canadian lumber and cedar shingles;Forced the Japanese into an agreement to control the price of computer memory chips;Removed third-world countries on several occasions from the duty-free import program for developing nations;Pressed Japan to force its automakers to buy more American-made parts;Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools;Accused the Japanese of dumping roller bearings on grounds that the price did not rise to cover a fall in the value of the yen;Accused the Japanese of dumping forklift trucks and color picture tubes;Extended quotas on imported clothes pins;Failed to ask Congress to end the ban on the export of Alaskan oil and timber cut from federal lands;Redefined dumping so domestic firms can more easily charge foreign competitors with unfair trade practices;Beefed-up the Export-Import Bank, an institution dedicated to distorting the American economy at the expense of the American people in order to artificially promote exports of eight large corporations.The World Bank estimates that import restrictions in 1984 had the same effect as a 66% income tax surcharge on America's poorest citizens. Less obvious is the harm to American producers, who lose exports and pay more for capital goods because of protectionism. For example, everyone, including the beleaguered American auto industry, has to pay more for steel because of the Reagan administration's restrictions on imports. Even the steel industry is hurt because artificially high prices stimulate the search for alternative materials.President Reagan missed a unique opportunity to begin freeing the American economy from the shackles of trade restrictions. He need not have given the American people a technical lesson in economics. He could have said that free trade requires no more justification than domestic economic freedom; indeed, it requires no more justification than the traditional American values of a humane and open society.