Trade: The Black Comedy That Could Come True

It sounds like a ludicrous piece of political black humor. A Southern Democrat introduces an import-restricting bill designed to help a Republican President who wants to win votes in Dixie. Egged on by organized labor, Congressmen joyfully expand the bill into a measure that will force consumers to pay higher prices for clothes, shoes and many other goods. More than 4,000 professional economists sign a letter warning that the bill not only will be grossly inflationary but will also gravely hurt the nation's position in world trade. The U.S. Secretary of State says that the measure will start a trade war with some of the nation's most important allies. But these warnings are drowned out by the voices of Pennsylvania mushroom growers, Hawaiian passion-fruit producers and other businessmen who want protection from low-priced imports. The bill passes, and the President signs it, explaining that he had to do so in order to win increases in Social Security payments for the poor and aged.

THIS grotesque parody of the U.S. legislative process is unfortunately all too real. When Congress reconvenes this week, the first major item of business in the House will be a vote on the most restrictive piece of trade legislation since the disastrous Smoot-Hawley Tariff Act of 1930. The bill, which would raise prices by denying consumers access to many imports, is likely to pass after only perfunctory debate, and then whiz to the Senate. There the Finance Committee already has voted to attach it as a rider to a measure raising Social Security benefits. The odds are that the Senate will pass the package in early December.

All of this would turn the clock back 35 years, to the days before the nation began leading a highly beneficial world movement toward freer trade. The provisions of the bill are complex, partly because the legislation grew by a process of log rolling rather than by conscious plan. The bill rigidly limits imports of textiles and shoes, for example. Next year they must be held to the 1967-69 average, which would amount to a reduction of at least 30% from current levels; in subsequent years, they could grow only 5% annually. The bill also obliges the President to continue holding down oil imports by quota, rather than switch to a less restrictive tariff system.

Tragedy of Errors. The bill's most mischievous feature is the so-called "trigger mechanism." It forces the President to impose quotas or higher tariffs on any foreign product that is increasing rapidly in sales and has captured 15% of the U.S. marketprovided that the domestic industry can prove injury and the U.S. Tariff Commission recommends action. The President can avoid invoking restrictions only if he finds that they would not be "in the national interest." At present, an estimated 125 foreign productsincluding wigs, radioactive isotopes, sewing machines, autos and TV setswould be subject to the "trigger mechanism."

If anyone had proposed so blatantly protectionist a bill six months ago, free traders and consumer advocates probably could have rallied their forces quickly and buried it. The bill, however, took its present form gradually, as a result of a tragedy of errors made by everyone concernedPresident Nixon, House Ways and Means Committee Chairman Wilbur Mills and foreign governments.

In the 1968 election campaign, Nixon promised to restrict textile imports. Hubert Humphrey offered a similar promise, even though the U.S. textile industry has never made any persuasive case that it is being badly damaged by imports. Between 1961 and 1969, the domestic industry's employment increased from 893,000 to 989,000. Even now, imports account for only 4% of all the textiles bought by Americans. Nixon, however, was seeking Southern votes. After winning them, he set out to hold them by assigning Commerce Secretary Maurice Stans to persuade the Japanese to "voluntarily" restrict textile exports to the U.S. Stans got nowhere. He was asking the Japanese to sacrifice sales without offering anything in return.

Stans, seeking a club to hold over the Japanese, asked Mills to introduce a bill setting textile-import quotas by law. Mills agreed, sensing that the gesture would be popular in the House and expecting that the threat would produce a voluntary quota agreement that would allow the bill to die unnoticed. But the Japanese dawdled and, when Mills opened public hearings in May, the protectionist dam broke. All together, 377 witnesses filled 16 fat volumes of testimony w:th pleas that the mushroom, umbrella, scissors and shears, zipper, bicycle, mink, glue and candle industriesamong many othersdeserved protection too.

In July, the Ways and Means Committee went into secret sessions, and the real log rolling began. Democratic Representative James Burke of Massachusetts agreed to support textile quotas if the bill would also protect his shoemaking constituents, who have lost 25% of their market to imports. Wisconsin's John Byrnes, the ranking Republican on Ways and Means, introduced the trigger mechanism to help his state's dairy farmers repel an invasion of foreign cheese. The provision freezing the oil-quota system was thrown in to win the approval of Russell Long from oil-producing Louisiana, chairman of the Senate Finance Committee and the key to the bill's prospects in the upper chamber. Long returned the favor by arranging to tie the trade bill to increased Social Security benefits; both fall under his committee's jurisdiction.

The Victims. Opposition forces, meanwhile, were asleep or fumbling. Nixon, a self-proclaimed "free trader," began by threatening to veto any bill that went beyond textile quotas, but as the strength of the new protectionism became evident, he lapsed into silence. Worse, he permitted an open split in his Administration. Secretary of State William Rogers warned the Senate Finance Committee of an "impending trade war" if the legislation should pass, but Stans reassured the Senators that there would be no foreign retaliation that would hurt U.S. exports.

The Japanese Embassy in Washington consistently advised its government in Tokyo not to take the threat of a protectionist bill seriously. Other foreign governments chose to speak softly, for fear of antagonizing Congress. The A.F.L.-C.I.O., worried about the loss of jobs by highly paid union members, abandoned old free-trade principles to lobby for the bill.

One voice was never heard on Capitol Hillthe voice of the U.S. consumer. The consumer will pay the bill if the protectionist measure passes, and the price will be outrageous. Federal Reserve Board Governor Andrew Brimmer said last week that by 1975 consumers will be paying $3.7 billion a year extra for clothing and shoes alone. Reasons: Americans will not be able to get low-priced imports as easily as they now do, and prices of U.S.-made goods will rise faster because of less competition from abroad. The costs. Brimmer declares, will be borne disproportionately by the poor, who must spend a larger slice of their income on shoes and clothing than the well-to-do. These costs would be multiplied if imports of many other foreign products were limited under the trigger mechanism.

Unifying Europe. Critics are belatedly waking up to the dangers of the bill. The Japanese, at about the 13th hour, have just reopened negotiations with Presidential Assistant Peter Flanigan in Washington for voluntary limitations on textile sales. European governments are conferring on ways of retaliating against American exports. The first target will be the $500 million worth of soybeans that U.S. farmers sell annually to Europe. Next may come U.S. small airplanes, light machinery and computers. Steps of reprisal would be taken jointly by the six members of the Common Market, with Britain probably joining in. On a visit to the U.S. last month, Ralf Dahrendorf, the Common Market's top trade executive, raised an ironic toast to Wilbur Millsas the man who had done most recently to promote European unity. The threats have begun to weigh on some Congressmen, who realize that U.S. exports produce more income than the auto or home-building industry. The nation's exports this year are running at a $42 billion rate and are likely to exceed imports by $3 billion. But the new worries about retaliation are probably too late. Mills has been concerned lately about soothing protectionists' fears that his heart is not really in the trade bill, which now informally bears his name. In a recent speech he proclaimed that "Congress is not bluffing. I predict that the Trade Act of 1970 will pass by a big majority."

Nixon could still wage a vigorous fight against the Mills bill in the Senate. If it passes, he would do well to veto it, even at the price of delaying an increase in Social Security benefits. If the bill becomes law, he could use the "national interest" clause to weaken the trigger mechanism. The President's waffling so far, however, leaves scant hope that he will do any of these things. If he does not. the black comedy could become a horror story:

Foreign nations retaliate against the new U.S. restrictions, and angry U.S. politicians and businessmen press Nixon to hit back by putting up barriers against an even longer list of imports. Cooler heads in all nations warn that such a cycle of retaliation and counterretaliation, carried to the extreme, can have the most chilling consequences. The last such spiral began duringand did much to deepenthe Great Depression. But the margin for good sense is slim, as the world teeters on the brink of a trade war that no one wanted.

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