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Examining Reagan’s Record on Free Trade

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The following article originally appeared in the May 10, 1982, issue of The Wall Street Journal. Copyright Dow Jones and Company, Inc. Reprinted by permission.

Hardly anyone was surprised when the Reagan administration imposed quotas on sugar imports last week. This is at once remarkable and understandable. It’s remarkable because Mr. Reagan wants to be known as a free-trader. Indeed, he lists as heroes some of history’s foremost free-traders: Frederic Bastiat, Richard Cobden, Ludwig von Mises and F. A. Hayek, all of whom would find import quotas odious.

And yet the blasé response is understandable because the imposition of quotas is consistent with the Reagan record and the neo-mercantilism of his predecessors (he had already raised the basic tariff on sugar imports and imposed a new import fee). Historians certainly weren’t surprised; the Republicans are the traditional party of high tariffs.

We can’t say he didn’t warn us. On a swing through Detroit during the presidential campaign Mr. Reagan said of the automakers’ hard times:

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…. If Japan keeps on doing everything it’s doing…obviously there’s going to be what you call protectionism.

On taking office, the President installed officials who pay lip service to free trade while seeking every opportunity to have the government restrict and manage international commerce. Rationalizations built around the causes of “reciprocity” and “fair competition” fail to disguise such efforts to retreat from the life-serving worldwide division of labor and comparative advantage.
Actions Belie Words

It is true that Japanese (and all other) barriers help keep the world from full free trade, but U.S. retaliatory restrictions would only take us further from that goal. Special Trade Representative William Brock and Commerce Secretary Malcolm Baldridge may piously claim that their bullying of the Japanese is in the service of free trade, but their actions belie their words. They suffer from the classic mercantilist symptom: failure to understand that since economies are meant to serve consumers (not nations, governments or businessmen), imports are an unconditional blessing regardless of the export statistics.

The administration has eliminated import restrictions only once since taking office: When the U.S. International Trade Commission (ITC) recommended that quotas on shoes from Taiwan be continued, Mr. Reagan disagreed and ended the quotas. But lest people draw the wrong conclusion, presidential spokesman David Gergen cautioned, “I would not read it as a way he would come out on any case.” It may only be a coincidence that a major congressional advocate for the U.S. shoe manufacturers is House Speaker Tip O’Neill.

In recent months the administration has accelerated its provocation of trade warfare with the European Economic Community over steel; with Japan over autos, airline service and high-technology products; and with the Third World over sugar and textiles. Mr. Reagan has even extended quotas on imported clothespins, citing the national interest. This is the consequence of the administration’s sensitivity to privileged business and union interests and its lack of appreciation of the people’s freedom to choose.

Mr. Reagan’s first venture into the foreign-trade issue was the Japanese auto case. Here he exhibited a remarkable penchant for Orwellian newspeak. Throughout the debate on how to slow imports from Japan, Mr. Reagan professed allegiance to free trade. Yet the Japanese officials finally agreed to “voluntary” quotas when Mr. Reagan threatened to sign a Senate bill to impose harsher restrictions. Volunteer, or it will be done for you, Mr. Reagan’s men told the Japanese.

Another major trade case is steel. Wilting under heavy government regulation and their own ineptitude, the major steel companies again have sought a scapegoat in foreign steelmakers by threatening to file “anti-dumping” suits against them. The Commerce Department has initiated its own complaint against five nations. In late December the ITC preliminarily found that imports from Romania, Belgium, Brazil and France have damaged the domestic industry. It’s now up to Commerce to decide if these governments subsidize or “dump” the exported steel. If it so decides, the matter goes back to the ITC, where special duties could be imposed. The government’s intervention in steel pricing would mean U.S. automakers, which are so badly out-competed now, would have to pay 25% to 30% more for steel than their rivals in Europe and Japan.

Also, in late December, the U.S. and 50 other countries agreed to extend for five years the Multifiber Agreement (MFA), the legal framework governing world textile trade. Textile and apparel imports have been under quotas for 25 years, refuting arguments about temporary relief. During MFA negotiations, some American manufacturers feared the administration might push to liberalize trade. They needn’t have worried.

The administration promised an agreement that will “relate total import growth to the growth in the domestic textile apparel market.” In other words, there won’t be more imports simply because consumers want more imports. The five-year extension of the Multifiber Agreement will maintain existing quotas, and make it easier to negotiate stricter quotas on Third World imports. The Reagan record is just as bad in other matters. The Agriculture Department joined the dairy lobby in asking the International Trade Commission to decide whether imported casein, a dairy derivative used as a substitute for milk, “harms” either the industry or the price-support program. (The ITC said no.) The dairy lobby argues that people substitute casein for nonfat milk, costing the industry sales and the government money, since the government buys any milk that can’t be sold at the supported price. Why isn’t casein made in the U.S.? Because it isn’t covered by the price-support program.

Similarly, the Commerce Department asked the ITC to recommend restrictions on imported flue-cured tobacco because it threatens the tobacco-subsidy program, under which the government buys whatever tobacco the growers cannot sell at the artificially high price. The ITC refused to go along, and the administration is apparently letting the matter drop.

Despite his promises to get government off the people’s back and revive the economy, consumers are still prohibited from buying more than specified totals of imported peanuts, mushrooms, beef, shoes, ad infinitum. There are still special duties on 132 products—from South Korean bicycle tires to canned pears from Australia—not to mention all the regular tariffs.

Several months ago, Mr. Reagan removed from a duty-free program $3.8 billion in imports from Hong Kong, South Korea, Taiwan, Brazil and Mexico. The program exempts developing countries from some tariffs as a form of encouragement, but American interests apparently have had enough of these nations’ competition in auto parts, electrical good, fertilizer, chemicals and glassware.
Hopeless Contradiction

This and the sugar-cane case reveal the hopeless contradiction that discredits the Reagan position on the Third World and his Caribbean Basin initiative. His philosophy will be credible only if coupled with a free-trade policy. Urging private enterprise on developing countries while erecting trade barriers is hypocrisy.

Perhaps Mr. Reagan’s most egregious violation of the free-trade principle is his immigration policy. This is not usually thought of as a trade issue. But in the free-trade philosophy of Mr. Reagan’s heroes, labor is to be as free to move in response to market forces as capital, raw materials and finished products. So what does Mr. Reagan propose? He seeks extraordinary powers to seize ships in international waters, close ports and other entrances and fine employers for hiring illegal aliens.

This administration’s distinctive mark in world-trade matters is a churlish jingoism, epitomized by Commerce Secretary Malcolm Baldridge, who during the auto-import debate sniffed, “Secretary Lewis and I are the businessmen in the Cabinet; we know what it’s like to trade with the Japanese.”

How ironic that Mr. Reagan, admirer of free-traders, has yet to discover the senseless self-deprivation of protectionism and the imperative of immediate elimination of U.S. trade barriers. As Henry George wrote 100 years ago, “What protection teaches us is to do to ourselves in time of peace what enemies do to us in time of war.”

It is ironic that this debate occurs when protectionism is in intellectual disrepute. Free trade, not nationalistic exclusionism, is now the respectable position among economists across the spectrum. But what one hears more and more today are protectionist statements prefaced with, “Of course I’m for free trade, but….”

(At the time of publication, Sheldon Richman was director of research of the Washington-based Council for a Competitive Economy and editor of its publication, Competition.)

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.