The Protectionist Temptation

By LANCE MORROW

There are two basic visions of it. Protectionism, in the free trader's eyes: When an economy gets sick, it wants to withdraw from the world. A protectionist psychosis sets in. The invalid retreats into the house and locks the doors and windows and pulls the shades. Hypochondriac, jittery, paranoid, the economic system settles down to feed upon its own inadequacies. It sits in its slippers by the cold furnace and thinks about how well it used to make things, long ago. It disconsolately guzzles Old Smoot-Hawley, far into the night. Then it passes out. Another economy gone, as defunct as Mayan civilization.

Or else, the protectionist's happy dream: The prospering American family gathers at its bright windows to peer outside. There, in the dusk, the streets are clogged with trade-crazed foreigners, Brazilians burdened down with shoes, Koreans with shirts, Japanese revving their Hondas, bearing a million videotape recorders on their heads. The foreigners wail and gnash their teeth as they hurl their inventories against the impenetrable American trade barriers. The American economy waves smugly to the rest of the world, then settles in to savor a bit of roast beef and full employment.

Both visions are fantasies, cartoons of the harder, drearier, subtler economic realities. The first is closer to the truth. Unfortunately, the months of recession and traumatic unemployment have begun to attract many Americans to the second vision, the protectionist illusion.

As their plants close down and workers go onto indefinite layoff and the hard winter sets in, Americans want help. They begin to regard themselves as the suckers of international trade, the only free trade purists left in a world of venal nationalisms.

The impulse to protect American products by tariffs and other means begins to seem irresistible. Politics comes lumbering in. The 1984 election is likely to turn upon the condition of the American economy. Walter Mondale, long a free trader, began sounding like a tough-guy protectionist as he toned up last fall for the presidential race. Congressmen heard the cries from home. The House passed a "domestic content" bill that would have required that American parts or labor must be involved in producing most foreign cars sold in the U.S. The Reagan Administration figured that the bill would prompt retaliation from U.S. trading partners, raise U.S. car prices by 10% and cost the economy from $3 billion to $5 billion overall.

What is wrong with protectionism? Americans for much of their history kept themselves snugly wrapped in protectionist laws. The famous Smoot-Hawley Tariff Act of 1930 set up the highest general tariff rate structure that the U.S. had ever had. One nation after another retaliated. The tariffs helped deepen the Great Depression worldwide and thus at least indirectly brought on World War II. Protectionists say that was an extreme case. No one wants to go back to Smoot-Hawley. Protectionists today want subtler, more modulated laws.

In some ways, the debate between free traders and protectionists is illusory, an argument about a world that does not exist. Free trade is merely a theoretical ideal. All trading nations protect themselves, more or less. West Germany is the nation that is most open, closely followed by the U.S. France is more protectionist than the U.S. Almost everyone except the Japanese regards the Japanese as the most protectionist, given to such elaborate nontariff barriers as the superzealous customs check and a cohesive, even collusive, partnership between business and government.

The real question, a hard and unsettling one, is whether the U.S. will yield to political temptation and become much more deeply protectionist than it is now. If it does, the results, for both the U.S. and the world economy, could be devastating. The principles of free trade remain essentially valid; the logic of protectionism remains beguiling and essentially self-destructive. Consider one example of how protections can subvert the economy. The American machine-tool industry recently joined the lineup of those seeking protection from foreign competition. The industry has been seriously hurt by the recession and by imports of cheaper or better machine tools from Japan and other countries. Since machine tools are essential to a growing U.S. economy and to its defense, the toolmakers argue, import restrictions must be imposed so that the domestic industry can survive and supply other U.S. manufacturers with the equipment to modernize and expand.

It is a seductive but wrongheaded argument. Import restrictions on cheaper or better tools would mean that the domestic industry would no longer be forced to match foreign competition. This would mean the U.S. manufacturers who buy machine tools would have to make do with more expensive, less sophisticated or less efficient American machine tools. Inevitably, those American manufacturers would produce more expensive, or less modern, products. Their competitiveness would suffer. They would lose sales both in the U.S. and abroad. Then those manufacturers would also be traveling to Capitol Hill to demand protection against "unfair" foreign competition. That kind of protectionist spiral could suck the U.S. economy, and that of the entire free world, toward long-term stagnation and depression.

Protectionist laws can indeed give short-term relief to some targeted industries. But protectionism amounts to a subsidy that is financed by the U.S. consumer and other U.S. industries. Furthermore, Newton's third law of motion (the one about every action having an equal and opposite reaction) applies in international trade. Protectionist laws invite retaliation. The logic of protectionism is degenerative. It pitches economics toward a medieval and even tribal fragmentation.

If the U.S. means to develop a trade strategy, it should not begin with protectionism. That tends to push things toward stasis and mediocrity. The economic recovery of the U.S. hinges upon the nation's ability to regain its competitive strength in the markets abroad.

The U.S. should encourage innovation in its industries. The dollar is overvalued, which hurts the American cause. The U.S. strategy should be to bring down foreign barriers that unfairly hinder exports. It is a delicate game. The threat of new protectionist measures by the U.S. can sometimes be used to induce other nations to drop their barriers, which are often insufferably high. Yet the enactment of those measures could be ruinous.

A certain amount of stolid dogmatism deadens the debate. The terms themselves -- free trade and protectionism -- have be come inert and somewhat pointless. The best approach is one of subtle, intelligent and infinitely imaginative flexibility. The U.S. has its responsibilities as the economic power of the world. But it can still negotiate and persuade and improvise in the cause of its enlightened, aggressive self-interest. By Lance Morrow This file is automatically generated by a robot program, so viewer discretion is required.