at the Japan America Society of Chicago, Inc.
November 14, 1995
truly represents a sorry paradox. At the very moment in history
when the triumph of free markets is nearly global—at the very
moment in history when mankind has discarded the manifesto of
Karl Marx in favor of the principles of Adam Smith—at the very
moment of our success with GATT and NAFTA—at this same moment
in human history, the staunchest champion of market-driven economic
order has suddenly reversed course.
stock exchanges spring up throughout the Socialist world, as
American corporations invest billions of dollars in nations where
they could never before sell their wares, as central planning
has become a bankrupt concept, there are those within the capitol
of free market economics who are demanding industrial policies,
protectionism, and tariffs. The philosophical incongruity of
this phenomenon is difficult to comprehend. What happened? Have
we lost our faith? Our nerve? Or have we simply lost our memory
and are condemned, as Santayana suggested, to repeat past mistakes?
our memory cannot be so short-lived that we have forgotten
Senator Reed Smoot of Utah and Congressman Willis Hawley of
Oregon who together devised the so-called Smoot-Hawley Tariff
Act of 1930, the Act that resulted in a trade war and helped
plunge the world into the great depression of that era.
of the biggest foreign policy hurdles confronting the nation
is educating "ignorant" lawmakers about the global economic challenges
the country faces, says former Undersecretary of Commerce Jeffrey
who again advocate government interference with free market economics
suggest that the United States has been taken for a ride by nations
who do not play fair in the international arena of trade: that
we must draw the line with respect to unfair competition; that
we must come to the aid of American industries that have been
unduly hurt by protectionist policies of trading partners. Such
rhetoric is guaranteed to strike a popular cord. And there is
much truth to it. There exist a network of protected industries
that take advantage of American free markets. Few countries are
without sin in this respect. Protectionist policies are certainly
exercised in Japan covering a wide range of commercial enterprises.
Such actions are the cause of the image Japan has earned. But
there is nothing new about that. And what of it? American free
market philosophy is not dependent on other nations embracing
our beliefs. It is designed to benefit our people and our nation.
And it has. That our way is better needs no validation.
who advocate that our government come to the rescue of American
industries say that unfair trade practices have cost us jobs
and have created U.S. trade imbalances. To get even, they propose
to apply tariffs. In other words, they advocate the use of bankrupt
policies utilized by our unfair competitors to force our will.
example, Presidential candidate, Patrick J. Buchanan, would overturn
the economic order pursued by Republican and Democratic administrations
for 50 years and violate the country's trade accords with its
biggest economic partners—accords Mr. Buchanan says must be scrapped
anyway because they undercut America's ability to control its
own economic destiny—as he brazenly advocates industrial policies
and other forms of economic planning.
this how we proved to the world our system was better? The whole
point of winning over Communist central planning was that our
economic order was far superior to theirs. We beat them because
our markets were open. Will embracing a policy of trade management
by government create American jobs? Herbert Stein, the American
Enterprise Institute scholar, calls such a notion "best selling
fiction." As Milton Friedman explains, "The gains to some producers
from tariffs and other restrictions are more than offset by the
loss to other producers and especially to consumers in general."
it is true that a protectionist policy will create jobs in the
particular industry being protected, it is equally true that
it will have devastating effects and cost jobs in the economy
as a whole. By saving jobs through trade protectionism in (say)
the computer chip industry or the automobile industry, it will
be at the expense of jobs in manufacturing or electronics. The Wall
Street Journal correctly stated that political management
of trade is a dangerous business, and is very likely to rebound
against the would-be manager. Consider that Japanese airlines
have traditionally preferred Boeing Co. aircraft. What if they
suddenly switch to the European Airbus. The Japanese also buy
U.S. soybeans, but there are other nations that produce farm
products. And what about the fact the Japanese are a predominant
buyer of American debt. Besides, the cars not imported from Japan
might prove to be a boom to car manufacturers of other foreign
domains. Whatever happens in the end, Americans are unlikely
to notice any benefits to their pocketbooks. And even if they
do, the price they will pay by virtue of the resulting long-range
damage to a global free market will far outweigh any immediate
rationale for protectionism and tariffs, however, is unencumbered
by the truth; it is often built upon false assumptions, inaccurate
impressions, and demagogic sentiments. It is politically cool
to call the Japanese unfair traders. This is, however, a clouded
accusation. While Japan is clearly not without guilt, it is on
the whole not much different than other industrial countries.
It has higher tariffs than the U.S. in certain products and industries,
and lower tariffs in others.
truths are not well understood or publicized in the United States.
Indeed, sophistry and demagogic polemics are very effective tools,
especially in a political year. Executives of the American automobile
industry would have us believe that the problems occasioned by
their industry are not caused by competitive value comparisons
on the part of American or Japanese consumers, but are the result
of a Japanese government plot, one that has caused the current
U.S. trade deficit. Maybe so, but just maybe this is an example
of sophistry in commerce which, as Adam Smith described in The
Wealth of Nations, has been applied by merchants and manufacturers
throughout the ages to advance their own special purposes in
the guise of a national necessity.
naturally the citizens of our respective countries generally
support their own government's actions. Americans are conditioned
to believe that Japan has been getting away with unjustified
protectionism, while the Japanese are tired of being blamed for
American trade imbalances. However, as the Wall Street Journal pointed
out, in this dispute Japan has been oddly cast as the champion
of free markets. Its assertion that the U.S. government is intervening
in private commerce and advocating numerical targets is very
close to the truth.
president, and even many prominent Republicans, believe there
is nothing to lose by being tough on Japan. Indeed, politically
the threat of tariffs have increased the President's chances
in the next election of carrying Michigan, Missouri and Ohio,
the three states where the auto industry is critical to local
jobs. But the risk of bringing down the World Trade Organization
(WTO), which the U.S. fought so valiantly to create, was also
very real. If President Clinton had gone ahead with unilateral
imposition of sanctions, the United States would have broken
commitments made at the end of the Uruguay Round. The WTO was
supposed to exclude the possibility of any nation taking unilateral
action. . . . President Clinton's threat of prohibitive tariffs
on selected Japanese autos was the first fundamental challenge
to the WTO, which was supposed to outlaw unilateralism and renegade
nationalism. When the U.S. backed down on June 28, the World
Trade Organization was saved from having to rule against the
the world has found the U.S. actions quite troubling. Admittedly
there is something hypocritical about Europeans coming the defense
of Japan and free trade—on the whole they have many more restrictions
on Japanese imports than does the U.S—still, WTO chief Renato
Ruggiero was correct in stating that Washington is not living
by the new global trade rules that it advocated and drafted.
Leon Brittan of the European Commission was quite blunt in his
condemnation of U.S. actions, stating that U.S. tariffs would
break the trading rule of the World Trade Organization.
was also great concern among many about what this action will
do to the broader U.S.-Japan relationship, which has helped give
Asia an era of peace and prosperity. "We're alienating our principal
ally in the Far East,(1)" warns
Zbigniew Brzezinski, former President Carter's national security
advisor. Most important, what Americans dare not fail to recognize
is that the Pacific Century has dawned. It is this geographical
region that has the potential of becoming the world's leading
market force in the 21st Century. China has already exploded
into a global export power. China already produces half of the
world's toys, most of the world's bicycles, lamps, power tools,
sweaters, and two-thirds of its shoes. And China imposes huge
tariffs, averaging 40%, to protect domestic producers. It protects
inefficient banks, retailers, transport companies and the like
with oppressive restrictions on foreign competitors.
it really in our best interest to teach this region that the
U.S. embraces principles of managed trade and that our free
market philosophy can be corrupted by protectionist practices?
with a population ten times greater than North America, six times
greater than Europe, and a faster growth rate than either region,
Asia has the potential to overtake the other two regions economically
before very long. Additionally, in India and China, Southeast
Asia has the two single most populous countries in the world
as neighbors and potential trading partners. In the not-too-distant
future, Asian countries will become more dependent on each other
than on the West.
Merton Miller, the 1990 Nobel laureate in Economics, regarding
the current American policy toward Japan, "This was outright
protectionism, export support for big contributors. I'm sorry
and saddened that they're lending themselves to this, because
it could have not only short-run consequences but unpleasant
long-run ones as well."
who was the winner in the recent Japan/U.S. automobile trade
dispute after months of tension, heightened by extreme rhetoric
and hysterical press analysis? It is hard to tell. Certainly
not the U.S. There was no Japanese commitment to quantify targets
for increased automotive parts purchase; and there was no Japanese
government official guarantee that Japanese automotive industry
forecasts would be carried out. In fact there was no formal agreement.
Instead the two sides issued a set of "Joint Announcements."
me quote Undersecretary Jeffrey Garten again: "I have been extremely
disappointed in the level of understanding in both the House
and the Senate. I think that what we face here is one of the
biggest challenges in just educating the members about what this
world is like. Economic and commercial issues are what is most
important to virtually every other country in the world. Unless
we can relate to them on that plane, we will lose enormous influence."
have also forgotten that the American free market policy was
not instituted for the benefit of foreign nations. Its primary
principle was to benefit the American consumer and provide him
with the cheapest and best products from wherever they may stem.
This policy resulted in providing the U.S. population with the
highest standard of living. The policy should not be dependant
upon whether other nations follow our lead.
know that protectionism has popular appeal. But we also know
that protectionism is the scourge of markets everywhere. We know
its consequences are devastating and ubiquitous. Dare we allow
the near global triumph achieved by free markets in the past
half century be diminished? Dare we allow the protectionists
of the 1990s to lead us down the Smoot-Hawley path of the 1930s?
Protectionist diplomacy is destined to boomerang.
Trade Flap Intensifies as U.S. Sets Early Date for Tariffs," Wall
Street Journal, 17 May 1995, p. 1
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