Comeback for Protectionism

EVER since the modern era of internationalism began in the days of the New Deal, the U.S. has been committed to freer trade, and Americans have enjoyed many benefits from that policy. Consumers have been able to buy rising quantities of relatively inexpensive Italian shoes, British clothes, German autos, French food and Japanese cameras. Producers have profited from sales abroad of U.S. aircraft and computers, heavy machinery and soft drinks. The domestic economy gained as well, because international competition helped check inflation. The boons were so apparent that protectionism has been in steady retreat. Now in 1970, a year of economic distress, protectionism is making a comeback.

Caught between falling profits and rising costs, and unable to boost their prices because of the competition of imports, businessmen are looking more and more to the Republican Administration for help. Unions, alarmed at growing unemployment, are similarly demanding that Washington halt the loss of jobs to low-wage countries. For example, U.S. companies have set up more than 200 electronics plants in Mexico, while Midwestern electronics workers have been discharged. Westinghouse buys TV sets from Japan; and Singer, the last company to make household sewing machines in the U.S., has reduced its domestic work force from 10,000 to 2,000. The complaints of business and labor are being echoed in Congress, which is considering no fewer than 200 bills to restrict imports.

Touchstone Issue. Next week the House Ways and Means Committee will begin hearings on a trade act that President Nixon sent to Congress late last year. In that document Nixon affirmed the principle of freer trade but suggested tighter restrictions on some imports and more accessible tariff shelters for U.S. industries injured by foreign competition.

Much of the testimony will center on an issue that has become a touchstone of the new protectionism: whether or not the U.S. should impose quotas on imports of Japanese textiles. The question has become charged with emotion on both sides of the Pacific, and ranks with the tug of war over the return of Okinawa to Japan as the worst diplomatic impasse between the two countries in recent years. Last month Ways and Means Chairman Wilbur Mills, who is hardly known as a protectionist, introduced a bill designed to write import quotas into law. It would roll back imports of textiles to average 1967-68 levels, a reduction of 30% from last year, unless exporting nations "voluntarily" agree to limit their shipments to the U.S. The same restriction would be imposed on shoe imports.

Since 1960, textile imports have increased from $866 million to $2.1 billion, largely from Japan (though South Korea, Taiwan and Hong Kong are increasingly important contributors). Last year the U.S. trade deficit with Japan amounted to $1.5 billion, and textiles alone accounted for $504 million. The Nixon Administration has insisted that Japan agree to quotas on all exports of wool and synthetic textiles to this country, and charges that the Japanese refuse to cooperate. The Japanese say that they have offered to restrain shipments of any particular exports that have demonstrably injured U.S. industry.

Damage, however, is difficult to prove. J.P. Stevens & Co. Inc., which makes a broad range of textile products, closed three of its mills for a week last month. Deering Milliken cut several of its plants back to a four-day week. But much of that can be attributed to the overall slowdown in the economy. Actually, the U.S. textile industry has increased its sales from $13.8 billion in 1960 to $21.3 billion last year, and employment has edged upward from 924,400 to 988,250.

Behind the textile industry's demands for protection is the fact that domestic producers' sales have not grown as fast as the textile market has, and their profit margin on sales has remained below 3%. U.S. textile men cannot raise their prices without losing more territory to imports. In effect, quotas on imports would allow manufacturers to increase their profits at the expense of the consumer.

Payment on a Pledge. For their part, the Japanese argue that they are being pressed for quotas because of a Nixon campaign pledge to the big, old and politically powerful textile industry. During the 1968 campaign, both Nixon and Hubert Humphrey promised protection that would hold back imports of wool and man-made fibers by international agreement, much as cotton textiles have been restricted since 1962. Textiles today are less important to Japan's trade balance than they once were; that country has been switching its export emphasis to costlier and more complex products, like television sets and turbines. But the Japanese fear that if they yield on textiles, they will face similar demands for quotas on other goods. The U.S. electronics industry has already asked Washington's tariff commission to investigate alleged Japanese dumping of TV sets. Japanese electronics manufacturers, dismayed by the tough U.S. stand on textiles, are informally discussing among themselves whether to limit their shipments.

There is considerable dissembling on both sides. The Japanese case could probably command greater support among U.S. free-traders if Japan were not itself more protectionist than any other developed nation. It has grown rapidly to economic maturity behind a barricade of restrictions, which once were justifiable as a shield for so-called infant industries. Japanese attitudes have not caught up with the country's important new trading role.

Today Japan maintains 108 import quotas, most of them illegal under the terms of the General Agreement on Tariffs and Trade--though Tokyo plans to abolish restrictions on 55 items by 1971. The government justifies its barriers on the grounds that some Western European nations have similar illegal restrictions against Japanese goods, although on a much smaller scale than Japan. Moreover, Japan has been excessively reluctant to accept foreign investment. Many of its industries are closed entirely to outside capital. A four-step program of liberalization, which began in 1967, opens some industries to foreign ownership. While the list includes fabricated iron and steel, most of the other fields that it unlocks--including sake manufacturing, beauty parlors and driving schools--are of scant interest to a foreign investor. The total impact is slight because the list offers little new opportunity in such key sectors as auto manufacturing and electronic computers until the final stage of liberalization in 1971. Even then, the Japanese promise only up to 50% participation in the most important area--automaking. Detroit's manufacturers would like a chance for a larger share.

Merry Christmas. The U.S. campaign to persuade Japan and other countries to lower the barriers will be set back if Congress passes protectionist quotas on textiles. The Japanese are privately resigned to passage of the Mills bill, which could well prove costlier to the U.S. than to them. It would not only place the responsibility on Washington for reversing a worldwide trend toward freer trade, but would also add to inflation in the U.S. The danger always exists that Congress, in an election year, will turn Mills' proposal into a Christmas-tree bill, loading it down with amendments setting quotas on other goods. Manufacturers of electronic and chemical products, flat glass and baseball gloves, to name a few, have called for quotas to protect their own markets.

If the impasse is to be broken, it will probably require some fresh initiative from President Nixon, who appointed Commerce Secretary Maurice Stans to negotiate the quotas in the first place. Nixon could take a useful step by naming a new negotiator. Stans has given every appearance of making the textile industry's cause his own and has apparently given up trying to reach a compromise. A new negotiator, charged by the White House to bargain for a compromise, might find the Japanese less adamant. Even so, the chances of reaching any agreement before the Mills bill passes Congress are discouragingly slim. Both Tokyo and Washington now insist that the other side must make the first concession.

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