THE Free World's 40-year period of unprecedented prosperity may soon come to a crashing halt. Support in the United States — the West's leading trading nation — for maintaining free trade is crumbling fast. Instead, there reverberate in the halls of Congress warnings to trade partners to open markets or face the retaliation of heightened tariffs and quotas. President Ronald Reagan is caught in a political vise. He defends his economic policies by pointing to the seven to eight million jobs created during his tenure in office. But many of these jobs are in the service area. Hundreds of thousands of jobs are fading from older manufacturing fields, from primary industrial products such as steel to soft goods such as textiles and footwear. The swing away from free trade is so pronounced that there are now 180 trade protection bills under consideration in the House of Representatives and about 300 in the Senate. Many of these deal with specific problem cases, but a few are broad — based "omnibus bills" such as one calling for a surtax of as much as 25 percent on goods from Japan, Taiwan, South Korea and Brazil unless they dramatically open more markets to U.S. products. Mr. Reagan is painfully aware of where unbridled protectionism could lead. In recently rejecting a protectionist plea from one industry, the President evoked memories of the Depression — era Smoot-Hawley Tariff Act. "Some of us remember the 1930s, when the most destructive trade bill in history, the Smoot-Hawley Tariff Act, helped plunge this nation and the world into a decade of depression and despair," he told a radio audience. "From now on, if the ghost of Smoot-Hawley rears its ugly head in Congress, if Congress creates a depression — making bill, I'll fight it." But the ghost is rising, and support for the President's trade policy is waning, even from those within his own party.
What Smoot-Hawley Did
Just how disastrous was the Smoot-Hawley bill? The devastating role it played in the Great Depression was explained in the September 5 issue of The Wall Street Journal, in an article written by its editor, Robert L. Bartley. "The stock-market crash of 1929 came in the midst of debate in Congress over the tariff," wrote Mr. Bartley. "It had spent the year adding item after item to the protection list. In mid — 1930 the Smoot-Hawley Bill became law, with the highest tariffs in the nation's history." What might have been an ordinary correction, continued Mr. Bartley, "turned into the Great Depression.... As the international accounts closed down, the world economy choked." Are there parallels to the Smoot-Hawley disaster today? Indeed there are! "What is troublesome," continued the editor of America's largest circulation newspaper, "is to see the same politico — economic scenario working itself out today: International debts, falling primary prices, agricultural distress, an end to foreign lem1.ing, and now rising clamor for protection. "No one intends to write another Smoot-Hawley, of course, but no one intended to write the first one. Once the notion of protection was let loose... more and more protection was claimed by special interest after special interest.... If we toy with protectionism, we will be toying with another depression." Recently, a deeply concerned Japanese Prime Minister Yasuhiro Nakasone warned that protectionism is a "narcotic" that would put world trade in a coma. The Japanese, polls show, reject charges of unfair competition, stressing instead the high value of the U.S. dollar plus the chronic American budget deficit. The trade issue unfortunately revolves less now around facts than emotions.
Dangerous Security Changes
Other experts warn that American political leaders — responding to calls for immediate competitive relief from their constituents — may be ignoring another lesson of the Great Depression: that the severe contraction of world trade gave added impetus to imperialist surges in Asia and Europe, specifically Japan and Germany. Since 1945 Japan has chosen the mercantile road as its path to power, prestige and national restoration. Germany, specifically the Federal Republic of Germany, is heavily dependent upon world trade, exporting a full third of its manufactured goods. Access to the U.S. market is central to the economies of Japan and the other nations of the Pacific Basin, writes National Review executive editor John McLaughlin, "and hence perhaps to their stability." If protectionism takes hold, what would happen to Japan and to Western Europe, whose economic heart is in Germany? Protectionism, leading to a full-blown trade war, would likely break the extensive joint defense relationships between the U.S. and its primary World War II foes, now allies for the past 40 years. Americans should then prepare to witness the emergence of a nuclear — armed Japan as well as a nuclear — armed united Europe with Germany at its core. It's doubtful whether the American public and its elected representatives have thought out the likely end results of actions now under way. Former Senate majority leader Howard H. Baker Jr. sounded this warning: "The disastrous Smoot-Hawley Tariff Act of 1930 was rushed through Congress... and it took 14 years and a world war to straighten out the mess."