Warning Shot

As soon as the House of Representatives passed a sweeping trade bill by a vote of 295 to 115 last week, President Reagan all but promised to veto it. Said he: "This antitrade bill, this protectionist legislation, would have our nation violate the most basic tenets of free and fair international trade. Indeed, it would plunge the world into a trade war eroding our relations with our allies and free-world trading partners."

A combination of nine bills drafted by six House committees, the 458-page package now goes to the Senate. The measure, which aims to reduce the record U.S. trade deficit ($148.5 billion in 1985), is loaded with provisions designed by Congressmen to help industries in their districts. Said House Speaker Tip O'Neill: "We're getting trampled and stomped upon by the nations of the world. All we want is fairness."

Among the most controversial parts of the bill is a provision that would trigger a series of automatic actions if a major trading partner achieved an "excessive trade surplus" with the U.S. through a "pattern of unjustifiable, unreasonable or discriminatory trade policies or practices." In such cases, the President would be required to open negotiations to reduce the trade imbalance with that nation by 10% annually. The bill is aimed at such countries as Japan (1985 surplus with the U.S.: $49.7 billion) and South Korea ($4.8 billion), which have long put restrictions on American imports. If no agreement was reached in the trade talks, the President would be required to take retaliatory action, such as raising tariffs or tightening import quotas.

While President Reagan was criticizing the House bill as protectionist, he had to make a difficult decision involving a recommendation from the International Trade Commission. Responding to a complaint from the Northwest Independent Forest Manufacturers, the ITC had decided that the U.S. should impose tariffs on imports of Canadian red cedar shakes and shingles because they were damaging American producers of those products. Under U.S. trade law, the White House had until last Saturday to act on the ITC recommendation, and the President chose to slap a 35% tariff on the Canadian shakes and shingles. The levy will be phased out over five years.

Ottawa's reaction was immediate and intense. Calling Reagan's action "bizarre" and "appalling," Prime Minister Brian Mulroney denounced the tariff as "pure protectionism."

Reagan may have been sending a signal that the White House intends to take a tough line in new trade negotiations with the Canadians, which got under way last week. The tariff also demonstrated that the White House, like Congress, can be moved by pleas for protectionism.