Beware of ’89 Trade Bill if This One Is Killed

Tucked away in the trade bill that President Reagan will soon veto is a tiny provision that would allow government to pay hundreds of thousands of dollars in legal costs for the National Corn Growers Assn. What’s that got to do with trade? Not much. The Corn Growers spent the money unsuccessfully defending U.S. corn exports against protectionism in Canada. Government reimbursement would be subsidizing lawyers, not exports.

You’re supposed to believe that the trade bill is about reducing the deficit. It isn’t. Even if the bill ultimately becomes law--and that’s possible--there wouldn’t be any dramatic effect on the U.S. trade balance. What happens to the trade balance depends mostly on forces outside the control of the President or Congress--exchange rates, the pace of world economic growth and the competitiveness of U.S. companies.

It is a fond congressional myth that most problems can be solved by legislation. Almost no one believes this, but legislators perpetuate the myth so that the public will think that Congress is “doing something” about pressing problems. In an election year the mythology and accompanying partisanship are magnified. Thus the Democratic congressional leadership portrays the trade bill as a decisive rejection of a passive Reagan trade policy in favor of its own activist approach.

As for changes in the trade laws, they are so technical that almost no one is certain just what the effects would be. The avowed purpose is to open overseas markets by having the President investigate “unfair” foreign trade practices and then retaliate if other countries don’t reduce their restrictions. But even if all unfair foreign practices were instantly eliminated, the trade deficit would shrink by only 10% to 20%. And, of course, this sort of sweeping success is wildly improbable.

The U.S. trade deficits themselves show that trade-policy actions don’t determine the trade balance. Contrary to the popular impression, the Reagan trade policy hasn’t been passive. It has been protectionist. In a new book (“Reaganomics”) William Niskanen, a former member of Reagan’s Council of Economic Advisers, aptly terms the policy a “strategic retreat.” The President supported free trade in principle but acceded to pressures for protection. Industries that got help included autos, steel, machine tools, textiles and apparel.

The share of imports facing stiff restrictions roughly doubled to 22%, according to Georgetown University economist Gary Hufbauer. Companies also used American trade laws to obtain protection. Between 1980 and 1987, complaints of illegal dumping or foreign subsidies led to import duties in more than 150 cases. Nevertheless, the trade deficit rose from $19 billion in 1980 to $153 billion in 1987. Individual industries and prices were affected by protectionist actions, but the overall trade deficit responded mainly to general economic conditions.

This trade bill has its strong points. It would improve U.S. protection against foreign pirating of American patents. It would loosen self-defeating export controls over high-technology products that are available from other countries. Finally, it would provide expanded negotiating power for U.S. officials in current worldwide trade talks under the General Agreement on Tariffs and Trade. These talks could lead to liberalized agricultural trade, which would benefit U.S. farmers.

If Congress doesn’t grant this GATT negotiating authority in 1988, the next Administration would almost certainly have to ask for it in 1989. And that’s the main reason for passing a trade bill this year: A bill in 1989 could be much worse.

The great danger is tit-for-tat global protectionism. Unilateral U.S. actions against other nations’ “unfair” practices risk just that. Other countries could retaliate against “unfair” American practices. Everyone could suffer from a global spasm of protectionism that lowers economic growth. The United States could be the biggest loser, because U.S. exports are now expanding rapidly. In early 1988 they’re up 29% from the same period in 1987.

The current trade bill would not make an outbreak of protectionism inevitable. The bill would give the President wide discretion in deciding what foreign practices to examine and when to retaliate. The President could negotiate and avoid automatic actions that could trigger spiraling protectionism. But in 1989 Congress might provide less leeway. Many Democrats favor tighter restrictions, and would pressure the next President to accept them. Both George Bush and Michael Dukakis would probably resist limits on their power. An ugly struggle might ensue. If the President lost, he could face a crisis with America’s major trading partners.

This is not the way to begin a new Administration. It is time to put aside the public relations of the trade legislation. The Democrats can make trade an issue in the fall even if Congress passes a bill. Republicans can run on the Reagan economic record. Both parties have an interest in not crippling the next President before he takes office. They should heed it and pass a bill.