Interest rate hikes, auto slump point up task facing Reagan
Tough economic choises are shaping up for President-elect Reagan, sharpened by conflicting pressures from varying American interest groups. One way or another, the latest problems to surface affect jobs and inflation, two areas of great sensitivity to most Americans.
Automobile sales and interest rates provide immediate, tangible evidence of these problems:
* Washington will not clamp import curbs on Japanese cars, despite the pleas of the Ford Motor Company and the United Automobile Workers (UAW) -- unless Congress and Mr. Reagan take special action.
* Interest rates are climbing again, so steeply that, according to a senior Federal Reserve Board source, "they threaten to weaken the economy, industry by industry."
On autos, the International Trade Commission (ITC) rejected the UAW and Ford contention that Japanese imports -- now commanding between 21 and 25 percent of the US market -- had caused substantial injury to troubled American carmakers.
The commissioners agreed that the US industry is in bad shape -- more than 200,000 auto workers laid off and all four major manufacturers (General Motors, Ford, Chrysler, and American Motors) suffering financial losses.
Under Section 201 of the Foreign Trade Act of 1974, however, the ITC could find "serious injury" from foreign imports only if no other cause was shown to be greater.
By a vote of 3 to 2, the commissioners decided that domestic factors -- high interest rates on cars, the recession, and rapid shift in consumer demand from large to small cars, which US makers were unable to satisfy -- outweighed the impact of Japanese imports.
This ruling ends the matter, unless Congress passes a law authorizing the President to negotiate an orderly marketing agreement with the Japanese to restrict car shipments, as was done earlier with Japanese TV sets.
Observers doubt the current lame-duck Congress will enact such a law, which would throw the burden of decision to the new Congress and to Reagan.
Quotas or other limitations on Japanese imports, a staff study of the ITC concluded, would cause domestic car prices to rise as customers competed for smaller models, would add to inflation, and would increase gasoline consumption, if there were not enough fuel-efficient cars to meet demand.
"I doubt that Reagan would come out for quotas on Japanese cars," said a senior Carter administration official. "To do so would undermine Reagan's credibility in the fight against inflation, on which he will be measured by the public
Nonetheless, both the powerful UAW and Ford are expected to put maximum presure on Congress and the new administration to do something to restore at least some lost American jobs.
(GM, giant among US automakers, opposed any restrictions on Japanese imports. Chrysler, while not a party to the suit, supported the UAW-Ford action.)
Interest rates, meanwhile, continue to rise, partly because 1980 growth targets for the nation's money supply, set by the Federal Reserve Board, are in danger of being exceeded.
This puts pressure on the Fed to restrict bank credit, forcing would-be borrowers -- corporate, individual, and the federal government -- to compete for funds.
"I expect interest rates to go higher," says J. David Grissom, chairman of the Citizens Fidelity Corporation of Louisville, "before they start coming down."