US trade policy: hard choices or piecemeal solutions?
THE debate over trade policy is becoming tiresome. Spokesmen from embattled industries voice passionate pleas for respite while hurling barbs at the Japanese. Importers and free-trade supporters hold up the 1930s trade wars as the sword of Damocles dangling over the heads of US industry. The United States has a trade problem. With few exceptions, however, policymakers have avoided hard choices in favor of piecemeal solutions. Trade deficits cannot be simply reduced to the fault of industry, the administration, or any particular foreign country.
The debate over US textile trade policy is especially oversimplified. The recent voluntary restraint agreement between the US and Japan in textiles is just one more effort by the Reagan administration and the Japanese to diffuse protectionist pressure in the US. Such a solution might be acceptable if it were not for the lessons of the past 30 years of similar piecemeal measures.
Specifically, concessions to the textile industry in the 1950s legitimized the use of quantitative import restrictions outside of the General Agreement on Tariff and Trade framework. The selective nature of textile protectionism actually accelerated the shift of existing foreign competitors into higher value-added products while opening the door for new unrestricted competitors.
In addition to weakening the GATT framework, US textile protection prompted the growth of a highly selective ``new protectionism.'' Thirty years later, the initial, ``temporary'' protectionist measures granted to the US textile industry have developed into the Multi-Fiber Arrangement, a multilateral framework that regulates more than 85 percent of world textile trade. Yet, textile imports still challenge the US textile industry, which still demands increased protection.
It is time for the Reagan administration and the new Congress to make some hard choices. The key question that needs to be faced is: What do we want to save, textile jobs or the textile industry?
To save jobs, the administration has several options. First, assure the US industry of a constant share of the domestic market. Second, subsidize US textile production and textile exports so as to offset high labor costs. Third, channel those willing to work for lower wages (such as the ``no-longer-illegal'' immigrants) into labor-intensive portions of the industry. Each of these options is not without costs. An assured market share can lead to industry complacency and increased consumer prices.
In addition, the difficult task of allocating quotas to foreign countries would not be made easier by the strategic importance of certain textile exporters (such as China) or the indebtedness of developing countries. This strategy may also prompt foreign retaliation as goods are diverted from the US market to Western Europe. In contrast, a strategy of extensive subsidies would face industry and government resistance. Industry concerns with extensive government involvement in the day-to-day operation of companies would prevent extensive production subsidies. Government budget concerns would also limit the extent of export and production assistance. Finally, channeling low-wage labor into textiles would do little to aid Americans employed there.
To save the industry requires a slightly different tack. The West German textile industry offers an interesting model. Although employment there has decreased markedly since the war, Germany has emerged as the world's largest exporter and importer of textiles in the early 1980s. There is no simple reason. Predominantly medium-size companies, extensive modernization, capital intensification, and aggressive exporting have all been important causes.
Despite industry protests, import protection for the US has been limited. Through the 1960s and early 1970s, West German policymakers either liberalized textile trade restrictions or limited the use of quantitative restrictions allowed under the Long Term Arrangement and Multi-Fiber Arrangement. In the context of the European Community, West Germany has attempted to resist increasing French and British pressure for protection. Because of such pressures, the West German textile industry has benefited from an increasingly restrictive European Community policy on successive versions of the fiber arrangement.
West Germany, however, has encouraged textile imports through trade regulations that facilitate outward (foreign) processing arrangements with low-cost producers in areas such as Eastern Europe. The US textile industry, by contrast, is only beginning to take advantage of similar measures under Section 807 of the US tariff regulations allowing foreign assembly. Reduced labor costs, stemming from outward processing, and the pressure of international competititon have increased the competitiveness of the West German textile industry.
The price of increased competitiveness has been domestic jobs. Labor has lost out to the broader concerns of the export focus of the German economy. The US faces a similar choice: Save the industry or save the worker. There are no easy answers. What do exist are choices.
H. Richard Friman is an assistant professor of political science at Marquette University.