Getting Tough on Trade

...Getting Tough on Trade by Robert M. Kaus Few eyebrows were raised in the last few months when the financial leaders of the free world delivered stern warnings to the United States about its economic policies...

...is repeatedly told that the political clout of local farmers makes broad agricultural liberalization “non-negotiable...

...The nearuniversal attitude among the international trade intelligentsia is that any attempt to dramatize the ways in which American exports are unfairly blocked is an attempt to promote a narrowminded protectionism generally associated with the AFL-CIO...

...Or consider the recent experience of one American entrepreneur, T. R. Cat ald o of Micro -Ler t Systems International...

...In doing so, the administration has deprived itself of one of its most powerful bargaining weapons-the power of public opinion...

...The tariffs began to fall during the Kennedy Round reductions of 1968...

...By the time he met with Prime Minister Fukuda, the Japanese head of state could introduce him, only half-jokingly, as “the most famous man in Japan...

...While we have been petrified by the possibility of a public confrontation with other nations, we haven’t been able to use effectively our greatest weapon for breaking down barriers abroad: denial of the vast American market...

...Eliminating all these tariffs and quotas was a great thingunfortunately it didn’t necessarily mean that Japan’s market (second largest of non-communist nations) was open to the world...

...After World War 11, Japan’s rebuilding effort was guided by a pervasive fear of a trade deficit...

...So, it was decided to send a low-level official, and General Counsel Richard Rivers got the nod...

...imports of corduroy and denim aren’t insurmountable, but there is a little paperwork needed...

...In 1955 the United States sponsored Japan’s official entry into the free trade brotherhood-a membership in GATT (General Agreement on Tariffs and Trade...

...Still, it’s the government’s job to channel the energies of American business in directions consistent with the national welfare...

...If multinational companies don’t care where they make their money, the Departments of State and Treasury should...

...In contrast, the discriminatory policies of other countries (again, including the Common Market and Japan) don’t incorporate this “due process...

...Cataldo has invented an electric device-a reverse “beeper”that can be worn around the neck of those who, like epileptics or likely heart attack victims, may need emergency medical assistance...

...Looking back on thirty years of chronic unemployment, it’s harder to scoff at the foreign politicians who, heedless of economic theory, tried to protect local jobs by keeping exports high and imports low...

...Rivers’ demands leaked to the Tokyo press before his arrival, and this, coupled with negotiations in Washington and t h e American announcement of planned troop withdrawals from East Asia, turned the low-level mission into a “sensational media event...

...Instead, Strauss’ office fears that any public outpouring of dissatisfaction will play into the hands of those who don’t want free trade at all...

...Today, even skeptical U.S...

...Our businessmen had their own lofty view...

...0 Like other countries, the U.S...

...American pharmaceutical manufacturers discovered that prohibitive new health regulations just happened to spring up in the very product lines where they had a competitive edge...

...Nevertheless, in both Europe and Japan, the U.S...

...The twin principles of Japanese trade policy during this period were free trade abroad (for Japanese exports), and protectionism at home (to avoid foreign competition...

...manufacturers must still go through the costly process of hiring Japanese agents and sending prototype models to Japan for testing...

...How much better would things be now if something like that had been done 15 years ago...

...This lofty view began to be increasingly unrealistic about 15 years ago, as America’s economic dominance waned, and multinational c o r p o r a t i o n s spread advanced industrial techniques around the world...

...But approval, unfortunately, would be difficult...

...The theory assumed of course that all nations start from a position of full employmentbut postwar economists were confident that this could be achieved by the new, sophisticated techniques of deficit spending and monetary control...

...These forms then go to an imports office in Rome...

...The result was arguably to benefit the trade surpluses of those nations who relied on the invisible bureaucratic methods of protectionism...

...France is notorious for its ingenious restrictions on the import of pharmaceuticals...

...Very interesting, a succession of ministers told himthere was nothing like it in Japan...

...to limit imports which “interfere” with programs of the Department of Agriculture...

...Cataldo thought of manufacturing his device in Japan...

...For the contribution of the Japanese to the science of protectionism wasn’t in the field of tariffs and quotas...

...From 1945 to 1965, the Japanese were the renegades of the free trade world...

...In Italy, tariff barriers to popular U.S...

...Give us equal access to your markets,” Strauss implies, “or we won’t be able to hold off the crazies in Congress who want to block all imports...

...The main goal of our relationship was not a favorable balance of trade with Japan, but a mutual security treaty...

...Confrontation is to be avoided...

...devices that the most ardent labor “fair trader” wouldn’t dare propose in America today-you name them, the Japanese used them...

...While researching this article, I called up one former State Department official, and asked him if he agreed that the U.S...

...And the motors, too, were unsuited to Japan’s peculiar climatic conditions...

...It was our balance of trade that was billions in the red, and our currency that was sinking to new lows on world money markets...

...That’s how we got into the current mess...

...exports-and this failure has only sent the dollar down further...

...The problem was illustrated during the recent trip of a U.S...

...imports dramatically...

...In short, we should know when we’re being screwed and not be afraid to screw back in order to stop it...

...The debate has hardly started over here-how many Americans have heard of the Japanese counterpart of Richard Rivers...

...If free trade is to work, we must be willing to use our economic muscle to ensure that our openness to foreign competition is reciprocated...

...In other words, it’s not rare that the bureaucrat would delay the certification of an import long enough to let the Japanese manufacturers come out with a competing model...

...After all, economic theory proved that by denying itself the benefit of cheap foreign goods, a nation which erected trade barriers would only hurt its own interests-even if its trading partners refrained from retaliation...

...In 1972, Japan claimed only 3.6 per cent of total European imports, but 16.3 per cent of goods imported to the U.S...

...was encouraged by our tax laws...

...American senators traveling to Japan are encouraged to exaggerate the protectionist threat, and every foreign concession is welcomed with a carefully staged sigh of relief-“Let’s hope that keeps Congress happy for a while...

...Effective retaliation need not be heavy-handed...

...We adopted a lofty, principled view of international commerce-and even if others didn’t play the game by the rules, by golly we would...

...You are right...

...Had Mr...

...And the administration is doing little to stir up public sentiment in support of its policies-preferring to whisper its views to foreign leaders...

...In the three decades after World War 11, the U.S...

...These strategic, rather than economic, objectives dominated our European policy as well...

...Our Barriers Are Visible Nevertheless, you are thinking, the United States blocks some imports too...

...Only in the mid-60s, however, did Japan begin to lower the official trade barriers, encouraged by a booming business of exports to other nations’ markets...

...Section 22 of the . Agriculture Act of 1923, for example, broadly allows the U.S...

...But as long as retaliation is only something that protectionists recommend, the threat isn’t very credible...

...in the postwar era largely took the form of tariffs or negotiated import restraints...

...In 1973, with the floating of i n t e r n a t i o n a l exchange r a t e s , economic strategists cameup withnew reasons to discount the impact of foreign protectionism...

...But our complacency was reinforced by a more sophisticated moralism among economists...

...The force of the resulting public opinion is one source of Japanese strength in trade negotiations-one reason that they can label some concessions “nonnegotiable...

...Cataldo’s brainchild has tremendous potential for saving lives and eliminating the need for expensive institutional care, Late last year, on a trip to Japan, Cataldo decided to talk with the Japanese Ministry of Post and Telecommunications about marketing his product...

...had allowed itself to get the short end of the stick in trade negotiations...

...It wasn’t until late in this decade that Japan dropped quotas specifically designed to combat America’s strength as an exporter in high technology items like computers...

...Strauss wanted to present a set of demands to the Japanese government, but he did not want to provoke a confrontation...

...Were they justified...

...American government policies don’t deserve all the blame for our trade decline...

...But consider the following: The barriers to foreign trade in the U.S...

...Thedollar has beenfallingforayear and a half;its decline has yettodramatically boost U.S...

...At the annual convention of the International Monetary Fund, President Carter asked the assembled leaders to be patient-his own “reputation as a leader” was committed to erasing our shameful trade deficit...

...The importer must prepare nine copies of an import authorization form and complete (in triplicate) a technical certificate giving the material’s fiber and dye content, weight, and so on...

...trade policy after World War 11...

...When U.S...

...In 1945 America saw its primary mission in the Far East as the reconstruction of Japan as a stable and prosperous ally...

...Most European nations have fostered the art as well...

...Because the approval authority is not independent of the ministry concerned,” note James Abegglen and Thomas Hout in the current issue of Foreign Affairs, “there is substantial room for mistrust and misunderstanding...

...European nations, in contrast, were quick to abandon free trade principles and erect barriers against Japanese competition...

...industries-notably dairy and sugar...

...At any point over the last two decades the aggressive use.of this threat might have been extremely effective in bringing down both hidden and visible barriers to our exports...

...What’s missing from this scenario is any attempt to generate popular support for the view that free trade is good, but that it’s about time that American businessmen received the same treatment in other nations that foreign businessmen generally get over here...

...firms aren’t told when bids are taken or specifications change...

...But there’s a key difference...

...If the U.S...

...It is not, however, a self-enforcing mechanism, and we can’t afford to sit back and congratulate ourselves on our economic wisdom while our trading partners profitably beat the system...

...The American policy is explicit, written in a statute, and the preferential margin is fixed by law...

...Let’s start with Japan-the nation that has profited most from the relative openness of the American market...

...Yet the lofty view persists...

...Those hoary devices are highly visible, and in economic circles, pretty disreputable...

...How did all this come to pass...

...It would be so much easier to get the product approved if it was licensed to a Japanese producer...

...After approval there...

...The big picture this view misses is the distorting role of anti-communism in U.S...

...The impact of this sub rosa discrimination is much more difficult to measure than our above-board policy...

...deficit have become big issues in Washington...

...Rednecks We are now paying the price, in our massive deficits, for our high-minded view of free trade...

...After approval there, they go to the Ministry of Finance...

...Needless to say, there are plenty of those programs, and the provision has been invoked to protect several U.S...

...Japanese safety inspectors, on the other hand, don’t make house calls...

...We could stick to our principles and wait for this monetary retribution-or maybe even hasten it by “talking down the dollar,” as Treasury Secretary Blumenthal did last year...

...We are so used to foreign accusations against the U.S., and so used to agreeing with them, that these latest criticisms probably had a great deal of credibility...

...has a “buy domestic”po1icy of government procurement...

...He termed the suggestion “protectionist,” and added “you can get a lot of rednecks to say that, but you can’t get anybody responsible to say it...

...Responsible people may know when they’re being had, but they would never be seen angry in public, lest they be mistaken for rednecks or disciples of George Meany...

...The whole process is somewhat like a California sensitivity session during the mellow 60s--interdependent, “nonconfrontational,” “noniudgmental...

...Indeed, in Japan the “partnership of government and business” that so many American politicians visualize achieved reality...

...But Strauss’ advisers had miscalculated the Japanese awareness of trade politics...

...It wouldn’t be difficult for the American government to impose similarly cumbersome requirements on Japanese goods until they gave us the same courtesies we now give them...

...When a non-Japanese manufacturer sought a safety certification for an inexpensive electrical appliance, his application might be routed down to a lower level bureaucrat in MITI whose other activities included looking after the welfare of the Japanese appliance industry...

...To date, the favorite negotiating tactic of the Carter administration and Special Trade Representative Robert Strauss is to achieve freer trade by using the specter of rabid American protectionism as a club with which to threaten the leaders of foreign nations...

...These alternatives will be unavailable to any administration as long as it concedes the “hard line” in trade matters to the protectionists...

...If other governments are determined to keep us out of their markets, we won’t increase sales no matter how big the bargains we offer...

...His conservative personal style was expected to contribute to the nonconfrontational air of the meetings...

...It would be unfair, of course, to give the Japanese all the credit for perfecting the bureaucratic hassle as a way to preach free trade but practice protectionism...

...The point of this incident is not that Strauss’office bungled the mission, but that trade policy is a matter of intense public debate in Japan...

...As a result, goods that Japan could have sold in Europe have been diverted to this country...

...Many postwar economists just couldn’t understand why other countries would want to play the protectionist game...

...All too often they preferred to accommodate foreign trade barriers by building plants abroad rather than engaging in the messy task of beating down the barriers from the outside, or hustling American-made goods in spite of those obstacles...

...High tariffs were only the first line of Japan’s defense against foreign goods-they were backed up by a comprehensive scheme of import quotas and enforced by a protection-minded government bureaucracy, the Ministry of International Trade (MITI)-or the “Ministry of One-way Trade” as it came to be known in foreign business circles...

...If tariffs are easy to argue against, safety standards are not...

...It is going to be an extraordinarily slow process...

...observers believe that many top officers in the Japanese government sincerely want to remove these bureaucratic obstacles...

...Foreign suppliers are notified of all bids and specifications...

...Cataldo had come face-to-face with the so-called “public policy” sector of Japanese industry-a government-run series of utilities and enterprises where “buy Japanese” is an explicit credo rather than a clandestine bureaucratic campaign...

...trade aide to Japan...

...But although Japan’s balance of trade had turned favorable in 1965, Japan kept its quota system largely intact until the early 70s...

...But in the real world, foreign trade barriers, rather thanfalling before the threat of dollar devaluation, played a role in frustrating Blumenthal’s strategy...

...Free trade remains a desirable goal-the economists are right when they say it allows international specialization that in the long run will benefit all nations...

...As a rich strong nation, we could afford to look the other way if other nations chiseled a bit behind the rhetoric of free trade-if it helped their economies, so much the better...

...Rivers’ calm presentations were portrayed as aggressive and demanding...

...The problem these officials face is getting this message accepted in the ranks of protection-minded lower level bureaucrats and in the more industryoriented ministries...

...Those guys are very insulated, closely tied to the interests they regulate and there is not much improvement,” noted one American expert...

...Their economy was sealed off from foreign investment (although for part of the period Japanese investment in the U.S...

...manufacturers last year achieved a breakthrough in the production of phosphate fertilizers, MITI responded with an unwritten ,and unpublished series of administrative “requests” to local consumers that limited U.S...

...The first step towards improving the situation is what it has always been-to realize that the battle for world trade is a grubby fight for goods and jobs, not a spiritual struggle to maintain free trade purity, and that, after sacrificing economic advantage in the name of anti-communism, we have entered the fight late...

...Often, U.S...

...He is more or less right...

...It is important to examine honestly how we got into our current mess, looking especially at the role played by some of the countries that are so quick to remind us of our duties to the free trade system...

...Freetraders in the United States, particularly those involved in ongoing negotiations, portray the situation as a complex one in which each nation has its own dirty hands, and in which the common interest of all is served by a carefully o r c h e s t r a t e d , mutual lowering of barriers...

...The winning bid is published...

...Similarly, importers might find that their customers quietly had been given “administrative guidance” to “buy Japanese...

...The advantage accorded any American firm may be readily discovered...

...above all, no nation should blame any other nation for having played the balance of trade game to its advantage...

...To start undoing the damage, we should admit-honestly and publicly-that we can no longer play the free trade game all alone...

...When help is needed, the wearer simply squeezes the device, and it sends out a signal calling a pre-arranged group of doctors or relatives...

...generally kept its markets open to Japanese products...

...So-called ‘%on-tariff barriers ”-s u b sid ies for exports , restrictive safety standards, import licenses, burdensome paperwork requirements-are generally conceded to have been much greater in other nations...

...Protectionist Robert M. Kaus is an editor of The Washington Monthly...

...What would be the effect if Robert Strauss stood up and said, “if you don’t give us fair treatment, not only will the Congress recommend retaliationdamn it, Z’m going to recommend retaliation...

...But a little public righteousness-against foreign barriers to our trade, rather than against “cheap imports”-might be a powerful weapon at the GATT talks...

...But the protectionist shields of Japan and the EEC are far less selective, and have a greater restrictive impact on trade than our law...

...Any nation that tried to block our imports, it was theorized, would quickly pay the Answers to last month S puzzle: price-as its trade surplus grew, its currency would appreciate and our exports would become cheaper and more competitive...

...The 1968-73 Kennedy Round of GATT negotiations successfully lowered tariff barriers dramaticallybut it deferred action on most nontariff barriers...

...The frank public statements to this effect by the head of Japan’s telecommunication industry have been a considerable embarrassment to the Fukuda government’s attempt to convey a “free trade” image...

...It seems crazy now, but in 1962, when the Japanese resurgence was essentially complete, President Kennedy still gave as a central objective of our free trade policy “the need for new markets for Japan and the developing countries...

...The Japanese had discovered a far more potent weapon: bureaucracy...

...Foreign trade and the U.S...

...And so American manufacturers attempting to unload appliances in Japan would be told-so sorry-but the cords were the wrong size...

...For example, Underwriter’s Laboratories, the private American concern that certifies the safety of electrical appliances, has an army of inspectors in Japan, efficiently a p p r o v i n g J a p a n e s e goods for American export in the comfort of Japanese factories...

...The U.S., Japan, and the European Common Market (EEC) all protect their agricultural sectors, to some d e g r e e , f r o m f o r e i g n competition...

...wanted monetary stability, they said, we should put our own house in order...