The United States can either protect its auto industry from Japanese competition or see U.S. companies close down more plants and move more production overseas, warns Philip Caldwell, chairman of Ford Motor Co.

In an interview with Washington Post editors and reporters, Caldwell restated the case his company and the United Auto Workers union have made to the International Trade Commission for a three-year limit on Japanese auto shipments that would reduce imported auto sales here from an annual rate of 3 million cars to 2 million.

Ford is counting on that protection to improve the prospect for its larger cars and assure higher profits for its new, subcompact models.

Excerpts from the interview:

QUESTION: Just as you're beginning to get into head-to-head competition with existing Japanese subcompact cars, what's going to happen when they start coming in here with the mini-cars that get 45 miles per gallon?

ANSWER: How would you feel if we came in with a Japanese car at 40 or 50 miles per gallon? There's a very obvious way to solve this whole problem: Why don't we all go to Japan and ship back to the United States? Would that be good for this country? I guess that's part of the national debate.

Q: What if you don't get relief from ITC, if you don't win.

A: Our suggested remedy was that the total imports for the years 1981 to 1983 be limited to 2 million units a year rather than 3 million and that this (limit) increase by 5 percent a year in 1984 and 1985. . . .

The industry is engaged in an $80 billion capital spending program. The question is, where does the $80 billion come from?

It's all private, or at least I hope it's all private. Will there be sufficient sources of capital to do this? The one source of capital that the government could provide that would not cost the Treasury anything . . . would be for the United States to take sovereign control over its own auto market, as all the other nations of the world do. So if a million more units are made available to the domestic industry, we would get our share. We would have to compete for it. It would ease the capital crunch.

I can't describe (the $80 billion investment effort) to you in meaningful terms. . . . For the U.S. industry, it's 267 individual auto plants, 89 assembly plants, 30 engine lines, 19 to 20 transmission lines. . . .

We as a country should decide what the rules are for our markets. If we want to decide there are no rules, then why don't we encourage our own domestic producers to go out in the world and locate wherever we should and ship back into the United States?

I will be personal about this. I had quite a conversation with Charlie Schultz (Charles Schultz, chairman of President Carter's Council of Economic Advisers) about this. He told me the economists feel very strong about this (free trade and the value of imorted autos to the economy). It's almost a religion.

I told him, "You've said this is a very good thing for the U.S.: It cuts down the inflation, you say, it gives the consumer a better choice, everything is terrific. Then the logical conclusion is, if that's good, then it would be even better if all of the domestic producers went offshore and set up somewhere and shipped back to the United States. That has to be better."

And he paused momentarily and said, "But you wouldn't do that." But if there's logic to it, why doesn't the logic apply to everybody.

Q: If the diagnosis is right, that the industry was blindsided by a sudden swing in the market, all of the manufacturers are now out with very efficient, very classy front-wheel drive small cars. Won't the situation take care of itself? What is the danger over the next three years for which you're asking protection?

A: I think the danger is bleeding to death before the doctor gets there. We're predicting '81 will be a below-trend year. We haven't seen anything to suggest that the snapback (from the 1980 recession) will be typical.

You're talking about very low volume, and 25 to 30 percent of that is offshore. Its a burden that seems pretty heavy to me.

Q: How would Japan react to import restrictions?

A: The statement is often made that this will set off a big trade war. I think that's the biggest red herring I've ever heard. Look at the types of trade between the U.S. and Japan: What is it that Japan has that we are vitally required to have? The answer is zero.

If you want to talk about retaliation, should we withdraw our military shield that we hold over Japan? We provide Japan's defense.

Q: Isn't the auto industry following the path of steel, where you join hands with the union and come to Washington for help?

A: I've tried to describe what has happened to an industry. It's a basic industry. It's not a question of dealing with the butter cookies industry. And the discussion of who put the dirt in the carburetor, whether it was the government's gasoline pricing policies or the stupidity of Detroit . . . that's really not relevant to the ITC findings.

To suggest that some way or other there's failure on the part of the company and therefore, the company should be punished, is a luxury we cannot afford.

You say, let it go the way of buggywhips. That might be O.K. for buggywhips, but is it really okay to let steel go, to let autos go. . .? You say, let's ship them airplanes, and what's wrong with food? We make plenty of food. And we'll ship them the logs from the Pacific Northwest.

Well, that's a course of action. But is it really satisfactory for the one country that has at least had a leadership role in the free world?

And if the answer is no, then doesn't it behoove us to try to come together in some kind of consensus? What should this country be doing to maintain its industrial base and how should we go about it?

And don't we have to get away from what seems to be legalized adversary relationships between business and government, which I think have cost us dearly in the past decade? Hasn't the time come for a different approach?