The use of tariffs and quotas to reduce the flow of foreign goods into the United States will do little to cut the nation's growing trade deficit, according to a government study issued yesterday.
In fact, the study by the Federal Trade Commission said such protectionist policies could make U.S. products less competitive by raising the cost of imported products that are then re-exported in different forms. "Such policies are much more likely to hurt, rather than help, the productive capabilities of the U.S. economy," the 218-page report said.
The findings by the FTC, which has consistently taken free-market positions under the Reagan administration, are in sharp contrast to recent moves by Congress and the administration itself to protect U.S. industries and jobs from foreign competition.
The report, written by FTC economists John Hilke and Philip Nelson, blamed the trade deficit -- which climbed to a record $166.3 billion last year -- on shifting currency exchange rates and growing U.S consumer demand.
Other factors commonly blamed for the deficit, such as foreign trade practices, deteriorating U.S. industrial competitiveness, high labor costs and government restrictions on mergers added little to the problem, it said.
"Although each industry's competitiveness affects the level of imports and exports in that industry, in general we find that there have been no significant industry-specific changes affecting competitiveness that would explain the increase in the overall trade deficit," the study said.
Supporting its conclusion that broad-based economic shifts were the cause of the increase in the trade deficit, the report said it found that nearly all U.S. industries have lost some domestic market share to foreign competitors in the 1980s.
The report also said it found a "fairly direct relationship" between the deficit rise and shifting currency exchange rates, U.S. economic growth and domestic demand for goods and services, which has outpaced foreign consumer demand.
The study examined seven factors that are commonly blamed for the trade deficit: subsidies and trade barriers to protect foreign industries, a lack of investment in U.S. industry, declining research and development in U.S. industry, high labor costs, union work rules, the oil-price rises of the 1970s and U.S. antitrust regulations.
In each case, the trade commission's study found little or no evidence that there was any impact on the trade deficit.