Beyond Free Trade


The United States is now engaged in a divisive debate over international trade. On one side are disciples of the principle of free trade-the touchstone of American trade policy in the postwar era. Free traders argue that the interests of the United States, and of the world, continue to lie in reducing barriers, subsidies and other government interventions which distort the natural pattern of specialization and trade among countries. On the other side are those calling for policies to protect American industry from foreign competition. Protectionists argue that imports are causing massive unemployment and eroding the nation's industrial base.

The two camps have recently found common ground in the view that the United States must "get tough" with trading partners which protect or subsidize their own industries. By threatening to close American markets or subsidize American traders if other nations fail to abandon their own interventions, free traders and protectionists can both serve their concerns. More than 30 bills were introduced in the 97th Congress urging government action to enforce reciprocity by retaliating against foreign trade barriers and subsidies. Last December the Senate adopted a resolution sought by a Florida-based machine-tool manufacturer; the measure endorsed the manufacturer's request for President Reagan to deny investment tax credits to U.S. companies that purchase Japanese computerized machine tools, on the grounds that Japanese industrial policies give Japan's machine-tool manufacturers an unfair competitive advantage. The Reagan Administration is now warning the Japanese that the United States will commence formal countervailing duty proceedings unless the Japanese cease their practice of favoring certain industries with low-interest loans and special immunities from antitrust constraints.

The Administration also has asked Congress for a $2.66-billion standby fund to match export financing by foreign governments. Already the Administration is providing generous subsidies on the sale of $150-million worth of wheat flour to Egypt, in retaliation against state-assisted flour exports by France. Even the Council of Economic Advisors-long a bastion of free trade purism-has embraced the strategy of retaliation. In its 1983 report

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