(3 of 3)
Will President Nixon have the courage to veto the trade act that reaches his desk? His record in fighting for free trade is not impressive. On the other hand, he must realize that a great leap backward to the protectionism of the early 1930s would be disastrous. Two former chairmen of the Council of Economic Advisers, Walter Heller and Raymond Saulnier, last week warned that such regression would be highly inflationary. Competition from inexpensive imports is one of the few forces that have moderated U.S. prices.
If Congress enacts a Christmas-tree bill for protectionists, foreign countries are sure to retaliate against U.S. exports. Ironically, the U.S. surplus of exports over imports rose by $300 million in the second quarter, to a $3.8 billion annual rate. Administration officials fear that friendly governments might even be angered enough to begin redeeming for U.S. gold the dollars that they now hold. Such a move could shake the world monetary system because the U.S. does not have anywhere near enough gold to buy back all the dollars that chronic balance of payments deficits have deposited abroad. The economic isolationism and trade wars of 40 years ago prolonged and deepened the world Depression of the 1930s; the post-World War II move toward free trade has been a mighty engine of global prosperity. Abandonment of that progress for the sake of temporary relief for some high-price U.S. industries would be the height of economic folly.