When Transportation Secretary Drew Lewis walked into the Cabinet Room, he had no idea what was about to hit him. Gathered around the handsome mahogany table were friendly Republican faces -- George Shultz and William E. Simon, both former secretaries of the Treasury, former Federal Reserve Board Chairman Authur F. Burns, economist Milton Friedman, among others.
These are the members of the President's Economic Advisory Group, a collection of conservative businessmen and economists on whom Reagan had leaned during the campaign.They now are assembled as an outside sounding board for economic policy-makers.
Lewis, the administration's leading protectionist, launched into the same theme he has been selling all over Washington -- a recommendation that the U.S. automotive industry be bailed out of its current troubles by choking off 400,000 or more Japanese cars from the American market. Oh, said Lewis, he would only threaten actual legislation -- the Japanese, with suitable arm-twisting, would estabish "voluntary quotas" that would accomplish the same end, and give the U.S. industry "time to adjust" to current problems.
Reaganhs advisory group has adopted a simple rule for itself: Individuals, of course, are free to expound their own views, while the discussions with government officials are off the record. But it can be reported without fear of contradiction by Secretary Lewis that Shultz, Simon, Burns, Friedman and other freetrade advocates tore into his proposals.
"They really blew him out of the water," said one observer of the scene, "and Milton Friedman capped it all by advising him to acquire a sense of history by reading appropriate parts of [Henry] Kissinger's book on the textile fiasco during the Nixon years."
When President Reagan came into the session for a brief stay, he reportedly was impressed with the vigor of the case being made against Lewis' protectionist proposals. In an interview given last Friday to Lou Cannon and Lee Lecaze of The Washington Post -- just two days after the advisory group meeting -- Reagan warned that protectionism could bring "a reprisal by the other side," and pointedly refused to follow the lead of a question that dealt with what the "level of [Japanese car] imports" ought to be. He shunned any mention of numbers, although White House sources earlier had been talking in just such terms.
In a telephone interview this week, Shultz said that "there shouldn't be any quotas -- mandatory or voluntary, they're the same thing. But we should have a full-court press to uncover everything we can that makes it difficult for the American companies to complete with Japan."
Shultz added, "It comes with ill grace for the Japanese to come here and preach to us about the virtues of free trade, when we practice it more than anybody else does. If we were to institute the Japanese methods of inspection, we could stop the flow of their cars here overnight."
Burns told me that quotas "would hurt Reagan's credibility, and do serious damage to the president's ability to carry through his economic program." It can be assumed that Shultz, Burns and the others delivered exactly this message to Lewis.
I don't know whether Lewis took Milton Friedman's advice, but I looked up Kissinger's account in "The White House Years" of the problem with Japan on textile exports in 1969. Change "textiles" to "autos," and shift Nixon's foolish campaign promise in 1968 to win some southern votes to Reagan's slip from free-trade purity last year to win some votes in the Midwest auto belt, and Kissinger could be writing about present-day events.
Referring to "the comedy" that had gone on for two years over Japanese penetration of the U.S. textile market, Kissinger observed in summary: "The vulnerability of American policy to protectionist measures, which forced us to stake so much on the effort to get such an agreement with Japan [if only to head off more brutal legislative impositions] remains a serious weakness of the American system.
"Protectionism is the resort of the economically weak; a wiser national policy would seek to enhance the mobility of labor and resources so that we can shift out of declining industries and expand our more productive sectors. And protectionism is above all an untenable posture for a nation that seeks to be the leader of the alliance of industrial democracies. . . . Economic clashes of mounting bitterness could undermine that very unity of interest and aspiration that is the bulwark of our freedom. We have yet to rise to this challenge."
Are you listening, Secretary Lewis?