Share this story
Close X
Switch to Desktop Site

FYI: What you need to know about Trade Protection/America rethinks its free-trade tradition as tide of imports rises.

UP to now, America has benefited enormously from international trade. But suddenly in the 1980s, it seems the tables have turned. Like huge, crashing waves, an influx of foreign goods, spurred by a strong US dollar, is creating havoc in a number of US industries: Shoes. Now, three out of every four pairs sold here are made outside the United States. Big winners include Taiwan, South Korea, and Italy. But last year, some 105 US factories had to close their doors. Jobs lost: 13,300.

Clothing. Flip through the mail-order catalogs, and the ``imported'' signs -- now required by law -- tell the story. Imports command half of the US market. The result? More than 200,000 US textile and apparel jobs have been lost since 1980, according to the Clothing and Textile Workers union.

About these ads

Cars. The well-publicized invasion of Japanese imports is not over. By 1988, according to a new Commerce Department study, one out of every three cars sold here will be foreign. Expected job loss: 100,000 in manufacturing. More cuts are due because of improving manufacturing technology.

How should America react? Will developing nations undermine US jobs? Is the concept of free trade out of date? These are the questions that Americans, scholars, and congressmen have begun to pose.

``It's become a topic of more debate,'' says Jeffrey J. Schott, research associate with the Institute for International Economics. ``The US trade deficit has reached such a level that it is raising political pressures that can no longer be ignored.''

Last year the US merchandise trade deficit shot up to a record $123.3 billion. This year's deficit is expected to go even higher.

In Congress some 70 pieces of legislation are pending that would either urge or require the President to act to improve the sagging trade balance. But there is vigorous debate over whether to enact such legislation and push further against the American tradition of free trade.

Ever since Scottish economist Adam Smith espoused free trade, most Western scholars have been free-traders. The logic amounts to this: When countries A and B make what they make best and then trade with each other, everybody benefits.

Of course, there is no truly free trade. Japan protects its inefficient beef producers. The US shelters its steel industry. There are hundreds of other examples where nations -- often bowing to domestic political pressures -- limit imports.

About these ads

These import restrictions are trade barriers. Some of them are obvious. Tariffs are a tax on imports. Quotas limit the amount of foreign goods that can be brought in.

Other trade barriers are more subtle. A few years ago, France decided to route incoming Japanese videocassette recorders to a customs point in Poitiers. The small French town could not possibly keep up with the inflow of Japanese goods, which effectively kept the imported machines from overtaking the French market.

Subtle or otherwise, these barriers have the same effect: Import prices go up, making it easier to sell domestic products. Many economists oppose trade barriers for two reasons. First, they make products more expensive for the consumer. Second, they invite retaliation.

In a notorious example of trade protectionism, the US imposed high import tariffs in 1930 to try to save American jobs. But other countries retaliated and international trade virtually dried up. Many historians and economists agree the tariffs prolonged the depression.

``Trade controls make you poorer,'' says Richard N. Farmer, a professor of international business at Indiana University's graduate business school. ``The loss is always bigger than the gains.''

Still, America's job and industry losses have been so high in the last few years that some scholars are looking for an alternative.

``You really do need some kind of policies to protect the interests of nations,'' says John Culbertson, an author and economics professor at the University of Wisconsin at Madison. His solution: managed trade.

The US must manage and balance its trade through selective barriers and negotiations with other nations, he says. These negotiations would not be easy, he concedes, but the alternative is worse. High-wage American workers would lose their jobs to low-wage competition in developing countries.

Other scholars, notably Robert Reich of Harvard, use the low-wage competition argument to urge the US to move to industries where it can use its skilled work force to best advantage.

Others, however, disagree that living standards will be pulled down to the level of developing nations.

Some workers in steel and other basic industries may have to adjust downward, says John Odell, visiting fellow at the Institute for International Economics. ``I'm afraid there's no way we can avoid that.'' But government can step in to cushion the adjustment for those workers. ``It's appropriate for society as a whole to absorb some of these costs.''

The alternative -- propping up inefficient industries with trade protection -- is costly and ineffective, says Philip Kotler, an author and marketing professor at Northwestern's graduate school of management.

``It doesn't solve the problem,'' Mr. Kotler says. ``Protectionism is going to slow down the adjustments that have to be made.''

General Agreement on Tariffs and Trade (GATT) -- an agency established in 1948 to develop rules and settle disputes in international trade. Some 90 nations, including the US, are members. Quota -- a limit on the number or amount of a foreign product that can be imported. Tariff -- a special tax on imports. Trade deficit -- situation created when a nation buys more goods and services from foreign countries than it sells to them. International Trade Commission -- agency that investigates tariffs and foreign trade matters at request of President or Congress. Trade protection -- regulating imports and exports in an attempt to shield domestic industries from foreign competition. Often called protectionism. Dumping -- selling goods below the cost of production. % of total 80 70 60 50 40 30 20 10 0 1970 1980 1984 1970 1980 1984 1970 1980 1984 GRAPH: Share of US market held by foreign goods 1970 1980 1984 1970 1980 1984 1970 1980 1984 Compiled from industry sources 30{et

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.