A Forward-Looking United States Trade Policy

Abstract

A FORWARD-LOOKING _________ UNITED STATES TRADE POLICY Clayton Yeutter U,NTiL recently, international trade was not a subject that attracted much interest in the United States. Rich in natural resources, endowed with the world's largest economy, and generally isolated from the rest of the industrialized nations, America produced within its own borders most of the goods it needed. Indeed, as recently as 1960, its combined export-import trade totaled only $35 billion. As the United States usually had a trade surplus, the effects of trade, when they were considered at all, were typically viewed as benign. All that has now changed. Imports and exports today amount to $550 billion, accounting for 21 percent of the U.S. gross national product. One-eighth of all manufacturingjobs depend upon exports and 40 percent of U.S. farm production is sold abroad. As international trade has become vastly more important to the American economy, trade policy has developed into a political issue of considerable controversy. The bipartisan consensus that once existed for the principle of open markets has dissolved into partisan wrangling and posturing. The advantages of open markets were obvious in the postwar period when America consistently ran trade surpluses; exports meantjobs and imports did not seem threatening. Now that the United States is running trade deficits, however, some want to abandon traditional U.S. trade policies in favor of protectionism. There is no question that the trade deficit—$123 billion in 1984 and projected higher for 1985—is troubling and could lead to serious economic dislocations. A long-term trade imbalance of this size would Clayton Yeutter is the U.S. Trade Representative. 2 SAIS REVIEW erode the United States' industrial base, reverse recent employment gains, and shackle U.S. exporters. Yet such protectionist measures as surcharges, quotas, and higher tariffs would be classic examples of cures worse than the disease. The best way to right the trade imbalance is to convince foreign countries to open their markets and accept more U.S. goods. Protectionism would do nothing to open markets; in fact, it would result in higher trade barriers around the world and fewer opportunities for American exporters. Those who favor protectionism forget that as the world's biggest trading nation, the United States would suffer most from a global trade war. A better way to reduce the trade imbalance would be to emphasize freer and fairer trade among all nations. We want other nations to buy more of our goods; we do not want to deny American citizens the right to buy products from our trading partners. President Reagan's trade policy, as articulated on 23 September 1985, recognizes that free and fair trade produces more jobs, results in a more productive use of the nation's resources, stimulates rapid innovation, and leads to a higher standard of living. Open markets also improve national security by strengthening the economic and political systems of U.S. allies. Since World War II the United States has been the world's leading advocate of an open trading system—a system that has helped bring about unparalleled prosperity for the American people. This leadership role is one we cannot now abandon without bringing about the collapse ofthe international trading system as we know it. It is not hard to imagine a scenario in which an American wave of protectionism sets off a worldwide trade war, with one nation after another acting to protect its own domestic industries. In fact, this is exactly what happened in the 1930s, when the United States imposed the restrictive Smoot-Hawley tariffs. Ofcourse, America's role as the leading advocate of an open trading system does not absolve its trading partners of their obligation to support more open markets. Free trade must be reciprocal if it is to survive politically; no democracy can stand by and see jobs lost to a nation that erects trade barriers, subsidizes its industries, or engages in other unfair trade practices. Protectionism in other countries undermines support in America for the international trading system built since World War II. It is incumbent upon all nations to join the United States in working to improve this system and prevent its collapse. To...