Last week at Washington's exclusive Metropolitan Club, attorney Lloyd Cutler introduced German Economics Minister Otto Lambsdorff to his dinner guests as the symbol of a dying breed. "If Sophie Tucker was the last of the 'red-hot mommas,'" Cutler said, 'Otto Graf Lambsdorff is the last of the red-hot free-traders."
Count Lambsdorff, a rising power on the German political scene, has been a "true believer" that world prosperity has its roots in a free-trading system over since Ludwig Erhard keyed the postwar German economic "miracle" to those principles.
But Lambsdorff admits that he isn't really entitled to Lloyd Cutler's accolade, because he counsels "prudence" on the part of Japan. "I would like to be a pure free-trader," Lambsdorff smiled during an interview later, "but I know that nobody these days can be pure. Of course, we do have limits -- we are ready to compromise where we see that it's necessary and unavoidable. But if there are restrictions, you have to find a way of eventually reducing those limits on the free market. Overall, the direction must go to more free trade, not less free trade."
In just a few days in Washington, Lambsdorff provided ammunition for the anti-protectionist forces in the Reagan administration who are resisting strict import quotas on Japanese cars. Lambsdorff warned Trade Ambassador Bill Brock -- wavering under pressure from Transportation Secretary Drew Lewis -- that formal U.S. quotas on cars, or even a so-called "Orderly Marketing Agreement," would touch off a nasty trade war with Europe.
Lambsdorff reminded Brock and others that he had been influential in staving off protectionist action against Japanese cars in the European Council of Ministers by citing the U.S. International Trade Commission's decision last November against U.S. quota limits. "But if the United States goes to restricions [now], then it will take us only two weeks in Europe for the council to do the same thing," he told me.
"That would be a very unfortunate development, and it would not be confined to cars and to Japan only, and that's what I told Mr. Brock, too. You would find that if one industry does get the protection, then the others say, 'Why don't we get the same protection?' The textile people would be there right away, steel and others, too -- and it would spread like a fire all over the place."
Free-traders in the Reagan administration agree. Worst of all, they hold, quota limits on Japanese cars would take the heat off both the companies and the United Auto workers union that is needed to whip the American industry into better competitive shape. That means not only a higher quality product but narrowing the big wage gap that the UAW has opened between its pay scales and lower wages elsewhere in American industry.
Secretary Lewis, who has embittered Secretary of State Alexander Haig, Treasury Secretary Donald Regan and others by his pro-industry pressure tactics, could do worse than to lend an ear to Lambsdorff. Although Japan has doubled its share of the German car market in a year's time -- from about 5 to 10 percent -- Lambsdorff sent the German auto companies packing when they begged for help. When German workers complained, they were told to "work harder" to keep up with the Japanese.
"The slogan is always the same," Lambsdorff said. "The companies say, 'We are against protectionism, but in our case, we need a little bit of it.'" Lambsdorff says he responds: 'I'm sorry, when I look back at the beginning of each year, typically, you gave a pay increase, and two weeks later you had a price increase. That game is over -- there's competition in the market from the Japanese and others -- and you should ask yourselves, 'Why are they successful?' And I do not play the game of being the economics minister, taking care of the economy, and losing sight of the consumer.
"So what you have to do in my view -- I tell them -- is go ahead, do capital spending, develop better techniques, build better cars, do more innovation -- and do it yourself. Government subsidies are out of the question. For if we start government subsidies in the auto sector, where do we end?"
Nonetheless, Lambsdorff said, Japan in its own self-interest "must be careful, be moderate and have a long-term strategy in its export activities," that won't push countries like West Germany and the United States into overt protectionism.
As Lambsdorff and the anti-protectionist bloc in the Reagan administration view the auto problem, the voluntary road -- nothing on paper, and no rigid numbers -- is the lesser of evils. But in a real as well as pure sense, voluntary restraints by Japan, for which the Reagan administration has been pushing in the past few days in talks with Japanese Foreign Minister Ito, would violate free-trade principles. "Prudence" on the part of Japan, if it is meaningful, translates into a significant reduction in Japanese auto sales here, rising prices and fewer choices for consumers. And at best, this will gain only short-term help for Detroit's balance sheets.
Free-traders need to stick to their principles. Remember what happened to Dr. Faust?