The free-market folks in the Reagan administration have a unique opportunity to put their policy where their mouth is: They can reject, in terms no one can misunderstand, the quota bill proposed by Sens. John C. Danforth (R-Mo.) and Lloyd Bentsen (D-Tex.) to cut Japanese car imports from 2 million last year to 1.6 million a year for three years.
But there is reason to believe the Reagan administration, which professes to be free-trade, in fact welcomes the Danforth-Bentsen bill for the leverage it provides with the Japanese. And Prime Minister Zenko Suzuki, who will visit Washington this spring, may be persuaded to let political diplomacy intrude, rather than follow a market-oriented solution.
Bentsen freely describes his and Danforth's proposal as "protectionist" and admits that "no one would suggest that quotas constitute a solution to the problems of American automakers." But he says that he and Danforth reluctantly abandoned their traditional free-trade posture to give a vital American industry "time to retool and regroup."
This seems to me a totally specious argument. The only thing certain to follow from a cutback in the availability of Japanese cars is that the prices of small cars will go up about $750, while larger-car prices will be unchanged. This would add to inflation, do nothing to encourage energy efficiency and, of course, would not address the problem of unemployment nor of necessary capital formation.
As The Washington Star pointed out in an excellent editorial, Detroit's pressure for quota protection is pretty much the same as if TV-set makers here, "unable to master color technology, sought import limits in order to boost sales of black-and-white sets. Such an approach may relieve the symptoms of distress for a time, but it does nothing to solve the problem."
A high Reagan administration official confesses that any help that Detroit would get from quotas would be "marginal if at all. Trade restrictions will not settle the underlying problems of the American auto industry." But the Reagan administration sees the Bentsen-Danforth bill as a tool in a complicated psychological war: The threat of legislation, they hope, will stiffen Japanese resistance to formal European quotas on Japanese cars, which might divert even more Toyotas, Datsuns, etc., into the American market.
Most European countries already have in effect severe limitations on sales of the popular Japanese cars and threaten stronger measures. Reportedly, France keeps Japanese cars sitting on the docks, a classic and vicious nontariff barrier.
A few days ago, William Brock, President Reagan's trade representative, called in Japanese Ambassador Yoshio Okawara and told him flat out that if Japan -- as rumored -- agreed to new formal auto-export restraints by Europe, the Reagan administration couldn't hold back protectionist forces on Capitol Hill.
Brock's threat has worked -- at least temporarily. When the Japanese diplomat passed on the Brock warning to Tokyo -- where officials were scheduled to meet with European Economic Community leaders (on that issue and on color TV exports) -- the result was only a vague Japanese promise to be "prudent" in export dealings with Europe, but no clear commitment.
American officials also have received some assurance from Japanese trade officials who were in Washington this week that the fear of overcapacity operations, outlined in former Transportation secretary Neil Goldschmidt's report before leaving office, is exaggerated.
Japan does have some new capacity to build very small cars, becoming increasingly popular there, these officials say. But there are no plans, it is said, to push for overtime, full utilization of capacity for the standard small cars of the kind sold here.
Japanese automakers, various sources here and abroad suggest, fear they will be sold down the river by Tokyo bureaucrats, who believe that auto exports to the United States, if unchecked, will create a political negative for Japan in its budding relations with the Reagan administration.
Their private bet is that Japanese officials would welcome an Orderly Marketing Agreement (OMA) that would hold exports to the United States stable or on a modest decline. With a U.S. OMA in place, Japan then might return to its negotiations with the EEC.
Privately, knowledgeable Reagan administration officials think that a U.S.-Japan OMA for cars is precisely what is likely to happen in the end. Like formal quotas, an OMA -- which is another name for a voluntary quota -- will do nothing to help Detroit produce better and more competitive cars.
The OMA may be a less noxious solution than legislated quotas, but it is playing with fire. So long as Detroit can't get its own act together, the pressure will be there for more and better protection.