In pushing Japan into a "voluntary" agreement to cut car exports here by 14,000 units in the next 12 months, the Reagan administration blocked a mad congressional rush to legislated quotas. But President Reagan also sent out a series of signals to the rest of the world, all wrong.
The first is that, like his predecessors, Reagan is willing to bend free-trade principles when practical politics intervenes. Although Reagan and his key aides have been trumpeting the virtues of supply-side economics up and down the land, they didn't hesitate to sacrifice a supply of 14,000 cars -- thus driving up prices -- to make good on an ambiguous campaign commitment to "do something" about Japan and the car problem.
In the course of "doing something," the administration played an elaborate and duplicitous charade. Officials spouted a free-trade line, insisting they would not negotiate or suggest specific quota "numbers" to the Japanese. This turns out to be untrue, since Secretary of State Alexander Haig sent a demand through Ambassador Mike Mansfield that the Japanese restrict car sales to between 1.4 million and 1.6 million for more than one year.
Second, and equally important, the Reagan administration has now established a precedent for any industry that -- like the auto industry -- seeks protection through the established procedure at the International Trade Commission and is rebuffed. Such an industry can make an end-run around the ITC by getting a friendly White House to suggest a "voluntary" pattern.
And third, the deal that U.S. trade ambassador Bill Brock won in Tokyo now frees the Europeans and Canadians to place similar restraints on Japan. Worried that those 140,000 cars will be diverted to Europe, the Common Market Commission in Brussels has already said it "will ask for comparable treatment."
Protectionism, as we all know, begets protectionism -- and that's why it's important to stick to basic principles. Within the Reagan administration, influential advisers such as OMB Director David Stockman, Economic Council Chairman Murray Weidenbaum and White House assistant Martin Anderson initially fought hard to presever the free-trade principle. They had important outside support from highly respected conservatives like Arthur F. Burns and George Shultz (who early in the game were fooled into thinking that free trade had scored a victory).
The fact that protectionism won out is a measure of the pressure that was brought to bear on Reagan by politicians in the administration who profess faith in the free-market system -- but were quick to show a "pragmatic" streak when the auto industry leaned on them. They include Transportation Secretary Drew Lewis, Commerce Secretary Malcolm Baldridge, Haig and Brock.
The Japanese government itself, it must be said, threw in the towel, over the objections of its own auto companies. As between strict adherence to free-trade principles and a loss-limiting arrangement, the Japanese government decided to minimize the risks.
As explained by Robert M. McElwaine, president of the American International Automobile Dealers Association, "we were frightened" by the prospect of legislation that would "lock us in " to a 1.6 million annual rate, just at the time that experts here and in Japan calculate that the 1982 market for cars in the United States may "take off," rising from a possible 9.5 million sales this year to as much as 11.5 million sales, the underlying economic assumption being a sharp decline in interest rates. Under the formula Brock brought back, Japanese imports could rise from 1.6 million this year to 1.9 million in 1982, if total sales hit 11 million.
But it is ridiculous to suggest, as Brock has done since returning from Tokyo, that the voluntary quota won't affect prices. McElwaine says that last week "you could get a discount of $200 to $300" on most Japanese imports. "I bet you won't get anything off now, and on the most popular models, you may pay a premium." Moreover, Japanese car dealers here will maximize their profits by concentrating sales on more expensive models.
American manufacturers last week had already marked up their cars in anticipation of Brock's arm-twisting operation in Tokyo. Further, as Chevrolet's "J" car and other new-generation American models move off the Detroit assembly line this summer, you can be sure that the American companies, less worried about Japanese pressure, won't be inhibited about pricing them.
President Reagan should have denounced import restrictions of any kind as inflationary and a threat to his recovery program, adding that he was prepared to veto, if necessary, the Bentsen-Danforth bill establishing specific quotas. Brock's deal does nothing to force the U.S. auto industry to face up to harsh realities in a competitive world. Ford and GM are still paying dividends to stockholders and enormous salaries and bonuses to management. Their workers are still being paid 20 percent more than the average for all production workers. These excesses, which the Reagan-Brock deal preserves, are, simply, a subsidy for which American consumers are picking up the check.