If Baldrige couldn`t get the White House`s attention, Congress eventually did. By mid-1985 the U.S. trade deficit had soared to new heights. The nation had never gone through a period when it was importing so much more than it was exporting. And even though much of the country had recovered from the recession, many industrial and farm areas remained depressed.
The trade figures set off a new flurry of protectionist activity in Congress. And once it became clear that both houses were determined to force some kind of crackdown on imports, alarm bells started going off in at least a few offices at the White House.
Baldrige also got a boost about that time when Yeutter, the former Chicago Mercantile Exchange president, succeeded Brock as U.S. trade representative. Because Brock was still in the Cabinet–he had switched to labor secretary earlier in the year–Yeutter`s arrival provided another administration voice urging a tougher trade strategy.
By early August Yeutter and Baldrige had put their top aides together to flesh out their ideas. ”The U.S. trade representative had a text, and we had a text, so we sat down with scissors and paste and put together a joint paper,” recalls Bruce Smart, under secretary of commerce for international trade.
Yeutter and Baldrige then took this ”white paper” to the Cabinet, where, Yeutter says, ”there was pretty good resistance around the table.”
When they described the part of the plan that called for their agencies to initiate inquiries into questionable foreign trade practices rather than wait for complaints from industry, as had been done in the past, he adds, ”You`d have thought we had started World War III.”
But, he says, ”the President himself put that to rest. Amid all this intense debate, he just nonchalantly said, `It sounds like a great idea,`
adding that if somebody would bring him good solid cases, he would act on them.”
There was only one thing left to do: Coordinate plans with Treasury`s Baker, who had begun contemplating something else Baldrige had been seeking, namely, government intervention to push down the value of the American dollar. On Sept. 22 Baker met with leaders from Japan, Britain, France and West Germany at the Plaza Hotel in New York and worked out a dramatic plan for coordinated action in currency markets to lower the dollar`s value. The next day Reagan appeared before business and trade leaders at the White House to announce Baldrige`s and Yeutter`s new ”fair trade” strategy.
The President agreed to let the two men force greater market access for U.S. products overseas and clamp down on dumping of foreign goods here. Reagan also called for a $300-million fund to fight ”mixed credits,” a blend of export subsidies and foreign aid payments that France and Japan had instituted to get around the 1982 agreement limiting straight export subsidies.
In addition Reagan said he would push for a new round of general trade talks and start pressuring Japan and West Germany to rev up their economies so their consumers would have more money to buy American goods.
Baldrige, of course, was overjoyed. He proclaimed the President`s program ”a winner” and quickly geared up. Since then, he and Yeutter have challenged allegedly unfair foreign tactics nearly two dozen times, and they can point to some progress in stopping them.
Their biggest victory came in late July, when they forced Japan to quit dumping semiconductors–the tiny electronic chips that run computers–in the U.S. and to widen its markets to U.S. chipmakers. Japan made the concessions, which could mean $1.5 billion to $2 billion in new business for U.S. firms, the day before Baldrige and Yeutter were to impose surcharges on imports of Japanese chips.
The five-year agreement had great symbolic importance because both countries see such high-tech industry as a key to future economic growth. Baldrige and his top deputies say the computer-chip business also provides a perfect example of how unfair trade practices have distorted the natural workings of the world economy. U.S. firms invented the tiny chips, they say, but by dumping copies here and limiting U.S. sales to its consumers, Japan overtook America in total sales of certain key chips. That then enabled Japanese firms to spend more on research and develop new generations of chips more quickly.
”If you look at that fundamental fact, that more market access created the competitive edge, then you can see that`s an unfair edge that you ought to do something about,” says Smart, the commerce deputy who handled some of the negotiations.
Top U.S. officials also have convinced Japanese Prime Minister Yasuhiro Nakasone to support a U.S. drive to win greater access to such Japanese markets as telecommunications equipment, wood products and medical equipment. And Baldrige has used his newfound clout to talk the White House into seeking voluntary quotas on imports of machine tools–machines that grind and shape metal into finished goods–from Japan and other nations.
In other areas Baldrige and Yeutter have used the threat of retaliation to reach a temporary truce in a farm-trade skirmish with the European Common Market. They also have talked major allies into a new round of general trade talks, set to open in Uruguay in mid-September.
But there have been frustrations as well. Canada has reacted to new U.S. duties on its wood-shingle sales by slapping penalties on imports of a host of U.S. goods. And Japan and West Germany have been reluctant to give more spark to their economies out of fear of rekindling inflation.
What`s more, even though the dollar has plunged more than 30 percent since September against the Japanese yen, the total U.S. trade deficit hit a record $148.5 billion last year and grew at an even faster clip in the first half of this year.
The problem, economists say, is that it normally takes 12 to 18 months before currency-rate changes start affecting trade patterns. Still, most economists expect the deficit to peak later this year as the lower dollar finally starts making U.S. exports cheaper and imports more expensive. But unless the dollar drops even more, they say, the deficit is likely to remain relatively high.
That would mean bad news not only for the economy but also for the administration`s efforts to ward off protectionist pressures in Congress, the analysts say.
In a bid to save U.S. jobs, Congress passed a bill late last year that would have slapped quotas on textile and shoe imports from Taiwan, Hong Kong and Korea, reducing current shipment levels by about 40 percent. But because U.S. competitive problems in those industries stem mainly from extraordinarily low wages in Southeast Asia rather than from unfair trade tactics, Baldrige and Yeutter argued that the U.S. itself would be flouting world trade rules if it enacted the law. They also feared that the measure might give the three countries justification to retaliate by cutting their purchases of other U.S. goods, such as farm products. So Reagan vetoed the bill.
House leaders tried earlier this month to muster the two-thirds vote needed to overturn the veto, but they fell eight votes short after the administration compromised and negotiated agreements allowing the current flow of textile imports from those countries to continue but limiting its growth to less than 1 percent a year.
(Baldrige`s only brother, Robert, owns a textile business in New York City. Their sister, Letitia, says Robert Baldrige ”is a protectionist, of course. His business friends are always asking him, `Why don`t you get your brother to help us out?` ” The secretary says, however, that his brother doesn`t pressure him for import relief because ”he knows it wouldn`t do much good.”)
The Democratic-controlled House, again citing the need to save American jobs, also this year approved a much broader plan to use quotas or surcharges to discourage imports of various products from Japan and other key nations if they don`t help the U.S. start to balance its trade with them.
Reagan responded with another veto threat, arguing that this bill also is protectionist because it would not tie the penalties to specific violations of trade laws. He has referred to the proposal as ”kamikaze legislation” that
”would force American consumers to pay billions in higher prices . . . and strangle our economy as foreign markets slam shut in retaliation.”
The President also charges that the Democrats are manipulating the issue to try to pick up congressional seats in this fall`s midterm elections.
But some analysts think the Republican-controlled Senate will pass a bill similar to or only slightly more moderate than that of the House later this year or early in 1987. And some congressional leaders feel they must require U.S. retaliation because, they say, they don`t trust top White House officials to keep the pressure on other countries.
”They are acting only because they`re smelling the hot breath of an angry America on them,” says Rep. John Dingell (D., Mich.), chairman of the House Energy and Commerce Committee. Still, like many of the administration`s critics in Congress, he says he thinks ”very highly” of Baldrige for pushing the White House to address the issue. ”And if the administration doesn`t get solidly with him,” Dingell declares, ”it will find itself surrounded by a sea of outrage.”
Most economists, however, applaud the administration`s drive to head off protectionist solutions. A few worry that even the administration`s campaign against unfair practices could lead to trade wars if some countries stubbornly refuse to mend their ways. But most think the risk is worth taking.
”It`s much better to try to open up others` markets for our products than to close off our markets,” says John A. Mathieson, senior international economist at SRI International, a policy-research center in Arlington, Va. Jeffrey Schott, an economist at the Institute for International Economics in Washington, adds that combating unfair practices is vital if ”you want to maintain credibility” in pushing for free trade.
Businessmen, too, praise the administration`s strategy. ”It`s a good one, it`s a sound one,” says Lee Morgan, who headed a task force of businessmen seeking government help on trade issues before he retired last year as chairman of Caterpillar Inc., the Peoria-based construction-equipment maker. Like Dingell, however, labor leaders commend Baldrige for sparking action but argue that even sterner measures are needed.
A few liberal economists agree with this last view. The mounting trade deficit has forced American businesses and consumers to borrow huge amounts of money from abroad to pay for all the imports. So ”somewhere down the line there will be a big reduction in the American standard of living” when all the debts come due, warns Lester Thurow, an economist at the Massachusetts Institute of Technology. As a result, he says, ”I think that historians are going to treat Ronald Reagan very tough in the trade area.”
Baldrige agrees that the repercussions from the huge deficit could be severe and that a recovery in U.S. trade ”will not take place overnight.”
He says Japan`s efforts to open its markets ”are improving, but we think the improvement should be faster. And even if all the trade barriers are greatly reduced,” he adds, ”we`re still going to have problems with the Japanese market itself because the Japanese people`s natural instinct is to buy Japanese.”
On the agricultural front he also warns that ”unless the European community and the U.S. get their policies together, we are going to be looking at the possibility of a very serious wreck.”
He notes that there is a huge worldwide surplus of all major crops and that increasing subsidy payments to farmers have helped push U.S. and European commodity prices well above those charged by growers in South America and other parts of the world.
”It`s going to take a mutual phased drawdown of subsidies on both sides of the ocean,” he says. ”If we could share the pain of withdrawal by lowering the subsidies over 10 years, that would be the best chance.” But he concedes that slashing the subsidies would be hard to do politically on both continents.
Baldrige in fact favored Reagan`s recent decision to offer a discounted price to the Soviet Union to encourage it to buy 4 million metric tons of U.S. wheat this year as required under a long-term agreement. The discount, which could cost taxpayers more than $50 million, is designed to lower the U.S. price to levels offered by subsidized European competitors. Baldrige says, however, that he opposes expanding the discount program to more countries and more crops as a means to force the Europeans to drop their subsidies. The discount program ”is enough to irritate (the Europeans) but not enough to get the job done,” he says.
He thinks the government also could do more to help U.S. business by revising antibribery laws to permit ”palm-greasing”–small payments to minor foreign officials who demand them to move goods–and by relaxing antitrust laws for failing companies trying to merge. But so far Congress hasn`t shown much enthusiasm for either proposal.
Still, he says, he sees some hopeful signs, particularly in U.S. industry`s efforts to cut costs and modernize its plants.
”I wouldn`t say that we as competitors are there yet,” he says. ”But we are seeing much higher-quality cars and automation in that industry. Steel has changed, but it needs to change more.
”None of this is easy. But it`s what`s happening in the world, and unless U.S executives lead the charge, we could be left behind. I feel optimism now that business leaders understand that.”
