IN HIS AMIABLE and ingenuous way, the chairman of the Federal Reserve Board, G. William Miller, has given new life to a dangerous old idea. Testifying before a congressional committee, he suggested that a further decline of the dollar might require "a surchagre to limit imports." A surcharge is an additional tariff. Mr. Miller went on to say that it was merely a hypothetical possibility, since he is confident that the dollar is not going to fall further. But since most of the world is less confident than Mr. Miller on that point, it pays close attention to his views on contingency plans.
Mr. Miller often gives the impression of having stepped new out of the egg on the day that he arrived at the Fed. He appeared not to be aware of the recent, and unhappy, history of the import surcharge. As other readers may recall, the surcharge was part of President Nixon's 1971 economic blitzkrieg, along with the wage-price freeze. The purpose of the surcharge that time was to serve as the bludgeon with which John Connally, then secretary of the treasury, pounded the other trading nations into accepting the first devaluation of the dollar -- commencing, you will observe, the long decline that Mr. Miller is now struggling to end.
An import surcharge is wrong in principle, since it attempts to push the price of one country's policy failures off onto its neighbors and allies. It also happens to be illegal under the international trade agreements in which the United States has joined. It would, further, hit the wrong target. The brunt of a U.S. import surcharge is inevitably born by Canada, which sells much more to the United States (and buys more here) than any other country. But the U.S. dollar is not falling in Canada. On the contrary, the Canadian dollar has been falling sharply against ours. As a remedy for the falling U.S. dollar, an import surcharge is like Laetrile for a broken leg -- the most questionable kind of medicine for the least appropriate ailment.
Perhaps Mr. Miller was thinking of oil imports. What about a special surcharge on oil alone, leaving all other kinds of imports aside? Unfortunately, oil is considered sacred and untouchable by Congress. President Ford tried to put a surcharge on imported oil in 1975, and Congress forced him to back off by threatening to revoke his legal authority to do it. And the more recent efforts to tax crude oil have been no more successful. Details can be obtained from Secretary of Energy James Schlesinger.
But it's not merely that the surcharge idea is inept. For the chairman of the Federal Reserve to talk seriously about it has harmful effects in two places. One is Geneva, where years of slow and complex trade negotiations are now drawing to a close. The negotiators in Geneva will assume that, through Mr. Miller, the United States is threatening them; they are not likely to react well to that kind of pressure. There will also be damage in Congress, where they are not likely to react well to that kind of pressure. There will also be damage in Congress, where the protectionists are now organizing the opposition to the trade legislation that the Carter administration will bring back from Geneva this spring. In Congress, Mr. Miller's words will be read as a hint that perhaps higher tariffs can be substituted for good policy.
The White House tries to maintain good diplomatic relations with Mr. Miller, but this time the transgression is too serious to permit polite toleration. The White House will only compound the damage if it does not declare, promptly and explicitly, that import surcharges are not acceptable.