Pulled in divergent directions by his divided Cabinet, President Reagan is now facing a crossroads decision on the future of the ailing American auto industry -- a decision that has became a critical test of his entire economic plan in the eyes of his quarreling advisers.
The immediate question is whether to roll back Japanese auto imports by demanding a three-year "voluntary" limit on car shipments by Japan, to give the American auto makers time to recover from a crushing $4.2 billion loss last year and to retool to meet the next round of import competition.
Transportation Secretary Drew Lewis, Commerce Secretary Malcolm Baldrige and Labor Secretary Raymond Donovan from the side that wants voluntary import restrictions. Lined up against them are Budget Director David A. Stockman, Treasury Secretary Donald Regan, and Murray Weidenbaum, chairman of the Council of Economic Advisers.
But the Japanese auto import issue is just the surface layer of much deeper debate over the new administration's policy toward business and labor and what "Reagan economics" really means in practice.
Supported by Republican governors from hart-hit industrial states, the faction calling for import limits privately warns that Reagan may be writing off his political future if he turns his back on the auto industry when hundreds of thousands of jobs and the survival of Ford Motor Co. as well as Chrysler Corp. is in jeopardy. By aiding Detroit now, the Reagan administration would gain leverage to constrain wage demands by auto workers and persuade the American auto companies to invest in jobs here rather than abroad, this faction says.
The other side says that helping the auto industry now would be a fatal sign that the president doesn't believe the promises of his own economic program.
There is widespread skepticism that Reagan can make good on his forecast that inflation will drop from last year's 12.6 percent rate to 6 percent by the end of 1983, his advisers concede. In particular, there is doubt that the Reagan administration can crack the linkage between higher prices and higher wage demands, which reinforce each other in a steady upward spiral.
Ford and the General Motors Corp. have asked the United Auto Workers for wage concessions such as those given Chrysler this winter, and Stockman has argued that the UAW is much more likely to make those concessions if the U.S. industry still faces the threat of Japanese cars unrestrained by import limits, officials said.
If the administration grants the import relief, undercutting hopes for UAW wage restraint, it would be a concession that the cycle of inflationary prices and inflationary wage settlements cannot be broken, the Stockman-Reagan-Weidenbaum faction argues.
An inflationary UAW settlement in 1982 would set a pettern for other crucial industries such as steel, this side warns.
A 30-minute Cabinet debate March 3 and two subsequent meetings by the contesting Cabinet members have not resolved the issue.
Although Reagan has asked that such disputes remain within the administration until a decision is made, this one has spread far beyond the Cabinet room.
Lewis and Baldrige have told congressional committees where they stand, and the other side has encouraged a counteroffensive by newspaper columnists and others in the media.
Next Tuesday, the two sides are scheduled to try again to compromise as they discuss a Treasury list of possible tax breaks that could increase the auto industry's cash flow, particularly for Chrysler and Ford, which are expected to face continued losses this year.
A proposal to give such companies cash grants in place of deductions, which was rejected when the Reagan plan was assembled, is again being considered, officials said.
Thwarting a compromise is a dispute among the Cabinet members about the condition of the industry.
Lewis, a former business consultant from Pennsylvania who specialized in managing financially crippled corporations, is convinced that Ford's cash problems are very serious.
After meetings with company and union officials last month, Lewis was persuaded that Ford and Chrysler cannot raise funds needed for modernization unless the pressure of Japanese imports is relieved.
Ford's problems are particularly severe because it lacks the new models to compete with front-wheel-drive cars that Chrysler and General Motors are offering in the compact and mid-sized lines.
Privately, Lewis and Baldrige warn that the Reagan economic plan is not likely to provide enough help to Ford, Chrysler and the network of 40,000 auto industry suppliers that depend on them.
Stockman, Reagan and Weidenbaum reportedly insist that the economic growth they expect will improve auto sales from last year's level of 9 million cars to 10 1/2-11 million. That would lift Ford and Chrysler with the rest of the industry.
In that environment, Ford can borrow investment funds it needs, as long as the financial markets have confidence in its management. If they do not, there is a dispute about why the administration should offer a bailout.
Fundamentally, the issue has nothing to do with free trade, one participant said, but is a basic disagreement about industrial policy.
By restricting Japanese imports to help Ford, the administration would be carrying out a new version of the Chrysler bailout, this official said, and inviting demands for equal treatment from special interests hurt by budgetary spending reductions.
The rubber and chemical industries and farmers see themselves in as much trouble as the auto companies, and the Reagan strategy of equal sacrifice for the sake of overall economic recovery will begin to unravel, one official predicted.
Lewis counters that the auto industry is too important to be left to sink or swim. By pressuring Japan to accept a limit on imports, from 1.9 million cars annually to 1.5 million, the administration would create a climate in which auto workers would accept wage sacrifices and American manufacturers would rebuild facilities in hard-hit industrial states, he says.