We are at that season of the year when Congress once again gears up its annual push for new protectionist trade legislation. This time the push is strengthened by the distressing fact that the dollar has depreciated 35 percent against the Japanese yen in the past year, but the Japanese trade surplus nevertheless continues to set records.
The House Democrats' version of the legislation, born out of what they label deep frustration with a lack of presidential leadership to force a level playing field with our major competitors, is almost sure to pass this week.
Then the real fight will take place in the Senate, and ultimately in conference with the House, as the Reagan administration struggles to keep its big wheels such as Majority Leader Robert J. Dole (R-Kan.) from slipping too deeply into the protectionists' clutches.
At the moment, the House Democrats have a good political issue, one that also holds attractions for Republican senators up for election this year: We suffer a huge trade deficit, manufacturing jobs are being lost, and there is a depression on the farms. So blame it on unfair competition, especially from Japan.
Last year, House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), Rep. Richard Gephardt (D-Mo.) and Sen. Lloyd Bentsen (D-Tex.) proposed a 25 percent surcharge on imports from countries running "excessive" trade surpluses.
Now, in a new omnibus bill, we have "son of surcharge," as International Trade Commission Chairwoman Paula Stern calls it, even though Democrat Stern is sympathetic to the idea that the president has failed to evolve a cohesive trade policy and needs to be pushed to do so.
The new bill, using a formula devised by Gephardt, would hit Japan, West Germany and Taiwan. In essence, if negotiations that it mandates the president to undertake fail to curb what is defined as an "excessive trade surplus," the bill would force a 10 percent cut in the surplus of such countries each year for four years.
This Rube Goldberg formula, as Stern suggests, is an attempt to deal with the symptoms of the trade problems, not its causes. Take Japan: If the Office of Trade Representative concludes that Japan's $50 billion trade surplus in 1985 was the result of a "pattern of unjustifiable, unreasonable or discriminatory trade policies or practices," it could order the following:
In 1987, a reduction in the surplus by 10 percent, to $45 billion; in 1988, by another 10 percent, to $40.5 billion; and so on, through 1990. Gephardt argued in an interview that, without setting this kind of timetable, Japan will make promises and issue conciliatory statements, but never take meaningful action.
"The loud and clear message of this bill is: 'If you stop the pattern of discriminatory practices, you won't be affected. What we're asking these countries to do is have an open market, expand their imports and abandon a consistent pattern of unfair trade practices," he said.
Gephardt insists that those who had urged Congress to be patient, citing the overvalued dollar, have been proved wrong by events. "The impact of the overvalued dollar was overestimated," said the Missouri congressman, one of the hopefuls in the Democratic presidential sweepstakes.
"The underlying fact is that we are not getting back those markets we had lost to the high dollar. We've had structural damage to our industrial system. We're not trying to be protective of American industries, just trying to insure them of that level playing field."
That all sounds pretty reasonable -- but it's not. Our loss of markets to Japan and others can be traced in many cases to weakness in the American effort to compete with good products, and to superior management skills in production or marketing abroad. That's a bitter pill for Americans to swallow.
Gephardt's "controlled entry" of imports (a wonderful euphemism, I think) to solve the problem doesn't do anything to reinspire a competitive American edge. It suffers from the same deficiency as the 25 percent surcharge: It attacks the trade deficit by closing our markets, instead of getting our trading partners to open theirs. That's why, although Gephardt and other Democrats shun it, it deserves the tag "protectionist."
An impressive group of manufacturing and farm organizations banded together as the "Pro Trade Group" observes that the omnibus bill "will raise prices for American consumers and endanger American jobs and exports." The "Pro-Trade" people say that the unilateral ceilings Gephardt would place on exports from other countries is a clear violation of the General Agreement on Tariffs and Trade.
But the Democrats' committee report makes clear that they care little about GATT. In fact, the report chides President Reagan for "a slavish devotion to the rules of GATT which few of our trading partners take as seriously." In effect, they say that the United States must set its own rules, a dangerous and arrogant approach, indeed.
U.S. Trade Representative Clayton Yeutter put it this way in a conversation on the bill: "If Japan and West Germany and any others comply [with the annual 10 percent reduction in surplus], they simply will cut their exports here, rather than open markets. If our major objective is to expand world trade, this surely isn't the way to go about it."
C. Fred Bergsten, head of the Institute for International Economics here, says scornfully: "The Gephardt amendment is grossly inadequate in its targets, and completely unacceptable in its instruments." Bergsten predicts that, by 1987, the 40 percent appreciation of the yen since February will cut the Japanese surplus with the United States from 1985's $50 billion to under $30 billion.
If everyone were as sure of that as Bergsten is, there would be little chance for passage of any trade bill. But if, in fact, the dollar's depreciation does begin to work to reduce the U.S. trade deficit, then something positive has to be said for protectionist bluster.
There is little doubt that the administration's stepped-up efforts to enforce existing trade laws, and Treasury Secretary James A. Baker III's vaunted initiative through the Group of 5 at the Plaza Hotel on Sept. 22, 1985, to devalue the dollar got their impetus from last year's threat of protectionist legislation.
Japanese officials admit privately that their willingness to go along with the Plaza agreement, which forced the yen to appreciate, was prompted by a desire to avert an even more unpleasant consequence -- the "Japan-bashing" proposals then on the Hill.
"These congressmen," says the ITC's Stern, "observe that the administration is reactive. It takes two to Rambo. Because of that, you've got this bill, and many of the more extreme ideas are out of it."
It's clear to me that, on balance, the Democratic omnibus bill is bad legislation, violative of the GATT. But it's time for the administration to do more than denounce the bill. It must do something positive. Above all, the Reagan administration, which has given the back of its hand to workers who are affected by import competition, must evolve a policy to ease the transition.
The trade deficit -- with or without dollar depreciation, with or without abandonment of unfair trade practices (ours along with all others') -- is going to remain high for years, and manufacturing employment is likely to suffer. If the administration doesn't come up with a plan for more generous adjustment assistance for workers, Congress surely will.