Ronald Reagan: Trade Realist - An old article, but a gem.

It may be old, but it's a must-read for any Dem who wants to shame the current crop of race-to-the-bottom global-free-trade Repugs with the words and actions of their hero.

Ronald Reagan: Trade Realist
Alan Tonelson
Monday, June 07, 2004

Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

Lost in the flood of Ronald Reagan retrospectives and testimonials is a crucial fact with special relevance for all Americans today: To a great extent, Ronald Reagan was a trade realist.

The conventional wisdom about Reagan as free enterprise, free market champion is largely true. But on trade policy, Reagan acted decisively in five instances to save major American industries from predatory foreign competition. Moreover, as I detailed in a 1994 article in Foreign Affairs, in each case, the temporary import relief succeeded spectacularly, resulting in improved performance by these industries and avoiding the captive market prices that conventional economics teaches will always flow from restricting foreign competition.

Reagan's best-known protective policy was a tariff placed in 1983 on imported motorcycles at the request of American icon Harley-Davidson. The tariffs were to last five years, but the company's comeback proceeded so quickly that it relinquished the final months of import relief. Moreover, the tariffs encouraged Japanese rivals like Honda and Kawasaki to build or expand factories in the United States and create still more jobs for American workers.

Yet in many ways, the Harley tariffs were the least important examples of Reagan's trade realism. Far more significant and beneficial for the U.S. economy were Reagan trade policies that helped revitalize the auto, machine tool, semiconductor, and steel industries.

Reagan's tactics were flexible. In autos, machine tools, and steel, his administration subjected foreign producers to so-called voluntary export restraints. In semiconductors, Reagan officials negotiated an agreement to secure a specific share of the Japanese market for U.S. companies, and then imposed tariffs on Japanese electronics imports when Tokyo briefly refused to keep a promise to halt semiconductor dumping.

Reagan's results, however, uniformly clashed with conventional economic theory, which holds that protected industries always become fat and lazy price gougers. All four of the industries protected saw their productivity rise vigorously. All four improved quality so dramatically that they won back market share at home and abroad. All four boosted capital and R & D spending. All four held the line and then some on prices. And all four excelled largely because the import relief enabled them to attract the investment needed to retool. After all, why would capital markets steer money towards industries that seemed doomed to succumb to foreign mercantilism?

In addition, like the Harley-Davidson tariffs, the steel and auto trade restrictions drew Japanese, German, and Korean investment into the United States. Not only were jobs created; in the case of steel, cutting-edge technology was transferred to joint ventures with American partners set up in the United States.

Reagan was a trade realist in another vital sense -- understanding the need for carefully regulating trade with current and prospective adversaries. Indeed, soon after his inauguration, Reagan became convinced that the Soviet Union had run into a series of potentially crippling economic problems, and he implemented a policy of strategic denial that undoubtedly played a role in hastening communism's demise.

Reagan also recognized that, although preserving a system of multilateral controls is essential, U.S. leadership is also essential to keep those controls strong. Accepting the lowest common denominator -- especially from shortsighted allied governments out to make a quick buck -- just wasn't an acceptable option to him.

Reagan's trade policies were far from perfect. For example, he never systematically confronted Japanese, Korean, or European protectionism, apparently convinced that U.S. allies would in some way defect from the free world if he pressed them too hard on economics. He permitted the U.S. dollar to remain far too strong for far too long, and consequently did much needless damage to the U.S. industrial base by the time he approved a major devaluation in late 1985.

Nonetheless, when major American industries were on the ropes, a combination of national security fears, electoral concerns, and outrage at inequitable, illegal competition prompted Reagan to act, and American manufacturing was unquestionably the stronger for it. Tragically, this is a crucial aspect of his legacy that all three of Reagan's White House successors have rejected, frittering away American manufacturing and jobs in one ill-advised free trade agreement after another.







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Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

http://www.americaneconomicalert.org/view_art.asp?Prod_ID=1134