Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, May 25, 1995 TAG: 9505250049
SECTION: EDITORIAL PAGE: A-17 EDITION: METRO
SOURCE: JAMES K. GLASSMAN
DATELINE: LENGTH: Long
The photo is jokingly inscribed to Choate by Ross Perot, his collaborator in the unsuccessful fight to kill two treaties to remove trade barriers: NAFTA and GATT.
Perot himself was handed the photo by Vice President Al Gore during their famous debate over NAFTA on the Larry King show. Gore's gesture was meant to remind Perot and America of the terrible consequences of moving away from free trade.
But that is exactly what President Clinton and his trade representative, Mickey Kantor, are doing - just six months after they won the fight to approve GATT.
Last Saturday, they slapped 100 percent duties on 13 models of Japanese luxury cars. This Clinton-Kantor Tariff would effectively double the price of cars like the Lexus, Acura and Infiniti and knock them out of the United States - to the delight of U.S. automakers, who were beaten by the Japanese to the upscale baby-boomer market.
The tariff is meant to punish the Japanese for not buying enough American autos and parts. That may be a legitimate gripe, but the way to address it is through the World Trade Organization, which was set up under the GATT treaty.
Now, in a tale that piles irony on irony, it's the Japanese who have filed a complaint with the WTO because we've punished them unilaterally, a clear violation of trade rules. According to every trade expert I've talked to, they'll win their case. ``The president is going to end up destroying the WTO,'' says Choate, barely able to contain his delight at the prospect.
Choate didn't like the WTO to start with because it gave other countries too much power at our expense. But to free traders, undermining the WTO would be disastrous. The WTO could have made the entire world richer; now its authority has been placed in jeopardy by Clinton and Kantor, who last year were among its staunchest advocates.
But forget the WTO. The Clinton-Kantor Tariff is just plain bad for America. To understand why, you'll need to jettison some myths.
Politicians and journalists jabber so much about competitiveness that it's easy to forget that ``the purpose of international trade, the reason why it is useful, is to import, not to export.''
Paul Krugman of MIT wrote those words last year in his book ``Peddling Prosperity,'' and most serious economists agree with him. Thanks to trade, we can buy certain things from other countries cheaper than we can afford to make them ourselves.
Without imports, the cost of living decently would be far higher. We'd have to get along with fewer conveniences, and we'd have less money left over to save. (Those consequences, in fact, may be the legacy of the Clinton-Kantor Tariff. Its 1930 predecessor, Smoot-Hawley, immediately led to retaliatory tariffs by Asian and European countries, and it took the world nearly 20 years to recover.)
But back to imports: We buy them with exports. Writes Krugman, ``The need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.''
But if we import more goods and services than we export, it's no tragedy. We simply make up the difference by giving other countries little pieces of paper called dollars. The other countries either hold those dollars in U.S. banks or invest them in U.S. assets.
Writing a few years ago, economist Herbert Stein used this timely example: Japan sells us automobiles, and we sell Japan ``dollar-denominated assets such as Treasury bills and New York office buildings.''
This is really not such a bad deal - especially when the Japanese pay too much for the office buildings (for instance, Rockefeller Center).
Stein writes that ``few subjects in economics have caused so much confusion - and so much groundless fear - in the past 400 years'' as this notion.
Yes, exports are beneficial, too, and it's good that the Clinton administration has been pressuring the Japanese. But there are other weapons to use - like cracking down on tax breaks for Japanese companies in the United States - that aren't as self-destructive. Trying to open markets abroad by raising tariffs at home is like telling a robber that, if he steals your watch, you'll retaliate by shooting yourself.
A second reason for the imminent trade war is domestic politics. Clinton and most members of Congress view bashing Japan as a sure vote-getting device, and, unfortunately, they're right.
Then, there's the power of domestic automakers, America's biggest crybabies. For decades, they've made expensive, mediocre cars (just check out their repair records in Consumer Reports if you don't believe me), but they've used their clout to win loan guarantees, government money for research, environmental concessions and protection from tough competition. And they're at it again.
Would the Japanese buy more American cars even if they were freely available in every showroom in the country? ``Absolutely not,'' James Harbour, president of Harbour & Associates Inc. a Troy, Mich.-based manufacturing consultant, told me.
The Japanese won't buy many American cars for the same reason we don't buy many Japanese computers or watch many Japanese movies. We like our own better - which is our privilege.
Clinton has threatened the Japanese before, but he's gone so far this time that he can't possibly turn back (though he's leaving the door ajar until June 28). It's unlikely the Japanese will back down - the loss of face would be horrendous politically. So we may soon get a chance to see what a trade war looks like. The ghosts of Sen. Smoot and Rep. Hawley will be hovering.
James K. Glassman writes regularly on financial affairs for The Washington Post.
- The Washington Post
by CNB