Double or Nothing: Open Trade and Competitive Industry

Trade disputes have moved from the business page to the front page. No longer can they be considered ordinary commercial frictions to be dealt with in a routine way through existing institutions and within agreed rules. Nor are they simply the unhappy consequences of an international economic decline that will melt away with the first burst of economic resurgence.

It is becoming obvious that a basic long-term conflict over national economic position and advantage underlies many of the present trade troubles. In the narrowest sense it is a question of which countries will create substantial commercial advantage in the growth industries of the future, which countries will be able to defend employment in today's mainline industries during that transition, and which countries will move up to substantial roles in traditional sectors. More broadly, the very international rules determining the appropriate roles for government in national and international economic life are being challenged and the premises of multilateral trade arrangements are being questioned by a series of state-centered industrial development and trade strategies.

Trade conflicts are already generating tensions that directly affect political relations between America and its allies, and among the allies. The open trade system-free exchange of goods among countries-has been a part of the foundation of America's international leadership. Sustaining an open trade system in the years since the Second World War required that the American economy be able to absorb-without substantial domestic political dislocation-the impact of foreign strategies for adjustment and development. The system-supporting role presupposed a preeminence of the American economy that meant we could absorb imports and foreigners would hold dollars. It rested ultimately on the competitive position of American producers in a wide range of manufacturing sectors. As foreign producers have established themselves as substantial rivals, they have-by the very dint of their success-weakened the willingness and the ability of American policymakers to maintain the openness of the international trade system in manufactures.