The Reagan administration, in its desperation to do something that will help this country compete with Japan, has proposed the creation of a new Department of International Trade and Industry. It's one of those things that looks logical at first blush, but turns out to be a flawed idea.
On the urging of Commerce Secretary Malcolm Baldrige, and over the objection of U.S. Trade Representative William Brock, Reagan has proposed to merge Brock's trade office into the Commerce Department, which would get a glamorous new name. It seems to have a good chance of passage in the Senate, less so in the House--unless Reagan puts a lot of personal pressure behind it.
Baldrige is convinced there is a critical need to consolidate trade activities into an efficient department. "There's nothing in and of itself that would make this new department either protectionist or free-trade," he said in an interview. "It would be a stronger department, and if the president is a free-trader, he will appoint the kind of people who support his program, and the department would be stronger for free trade."
The Commerce boss says he's no protectionist, but like 80 percent of American businessmen--his estimate--he favors "freer trade." In the real world, he argues, "there's no such thing as free trade." But others in Washington, including some businessmen, worry that if he gets his way, a Commerce Department by any other name would tilt toward restrictions. "There's a strong base of protectionism there," says William Kay Daines, executive vice president of the American Retail Federation.
"It's not just Baldrige. A lot of the staff consider themselves industry people, completely ignoring the service sector of the economy."
To reduce Japan's competitive edge in many products, some basic changes in policy and attitudes will have to be made in this country: the federal government will have to quit running enormous deficits that inflate the value of the dollar, which makes it tough for American exporters; the nation will have to give more attention to educating its young people; and industry together with its unions will have to convince consumers they are learning the meaning of the words "quality" and "service."
A shuffle in the bureaucracy like the president and Baldrige propose isn't likely to produce these necessary reforms.
Baldrige asserted that the USTR unit would continue to have an important policymaking input, and that the president himself would make key policy calls as head of the Cabinet Council on Trade. But he thinks that it's time that "those that are carrying out policy should be in the same department as those making it."
Baldrige's dream agency would come to be known as "DITI," rhyming with "MITI"--the acronym for the Japanese Ministry of International Trade and Industry. The new DITI bureaucracy would also absorb the Export-Import Bank (now semi-independent), and the Overseas Private Investment Corp.
But critics point out that it excludes agriculture--our single biggest export--and leaves outside of its jurisdiction other important agencies, notably the departments of State, Treasury, and Defense, which often are in conflict on trade issues.
"I don't think the secretary of Commerce, even if he were God, could pull this together," says former assistant Treasury secretary C. Fred Bergsten. "There are too many heavy hitters."
The major flaw in the plan cited by critics is the notion that trade policy should be centralized in a weak but oversized and unwieldy bureaucracy like the Commerce Department, while the powers of the trade office, which has been able to play an "honest broker" coordinating role, are emasculated. Historically, Commerce has reflected narrow business interests, while the trade office, with access to the president, has been able to exercise a broader point of view.
In the Carter administration, when Robert Strauss was the trade representative, he had the president's ear, and was credible when he claimed to speak for the White House on trade policy. From the beginning of the Reagan administration, Brock has had to share the lead role with Baldrige, much to the confusion of our trade partners in Europe and Asia.
Brock is regarded as the more open-trade minded of the two, while Baldrige is considered the "hawk," especially by the Japanese.
When asked about this, Baldrige responds: "Well, I'm a hawk in believing they the Japanese should open up their markets to our products. You could paper the walls with a list of things they keep out. If that makes me a hawk, I'm proud to be one." He notes, defensively, that he has been among the most vigorous opponents of local content auto legislation, the major protectionist response by the U.S. auto industry and the United Auto Workers union.
In a recent article in The New York Times, Carter adviser Stuart E. Eizenstat observed that an "advocacy" agency like Commerce can't effectively coordinate policy among disputing departments or agencies. He said that when he was in the Carter White House, he could always predict exactly what Commerce's views on trade issues would be.
"The[Reagan]administration wants the trade department to be both a trade advocate and an interagency coordinator," Eizenstat said. "It cannot do both."
Baldrige's response to that is two-fold: first, that every "department in the United States government is an advocacy department, except trade . . . which has been relegated to a second-class status." And secondly, he snaps, in the Carter administration, "Commerce didn't have much access to the president."
Looking at the whole picture, it seems to me hard to ignore the fact that the Commerce Department has been the natural government "home" for business interests. Therefore, putting trade into Commerce, regardless of any president's leanings, would enhance the power of business interests seeking protection from import competition, and tend to leave consumers--who benefit from the healthy competition generated by imports--out in the cold.
Daines observes: "There is a lack of international awareness in the Commerce Department that is built into Treasury, Agriculture, State and elsewhere in the government."
Loyd Hackler, president of the American Retail Federation, recently warned influential congressmen and senators that DITI would be a serious backward step because of the junking of the USTR office.
"The timing of the president's proposal for a new department could not have been worse," Hackler said.
"Protectionist pressures are stronger today than at any time since World War II; our trading partners are less sure of the direction of American trade policy than at any time in many years." He added that the USTR could not concentrate on its job "when it is under threat of dismemberment."
A better route than the president's would be to strengthen the role of the USTR, making him better able to negotiate with his opposite numbers abroad. The next best thing would be to do nothing at all.