The New Economy

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Starobin, director of research at the International Ladies' Garment Workers Union: "At some point there will be no apparel industry left in this country. Hundreds of thousands of poorly educated Americans could be cut off from the American dream of being able to improve their living standards." But protectionism aimed at Latin America could be particularly dangerous. Two of the biggest apparel exporters, Mexico and Argentina, owe U.S. banks nearly $35 billion. "If we protect our markets against their goods," says Harvard Economics Professor Richard Cooper, "Latin American countries would have an excuse to repudiate their debts." That could trigger a worldwide banking crisis.

President Reagan praises the virtues of free trade in speeches, but his Administration has been unable to resist the outcry for protection. Admits William Brock, the U.S. trade representative: "None of us is without sin." In the case of autos, the U S has politely but firmly persuaded the Japanese for three straight years to put a 1 68 million limit on the cars they export to the U.S., about 20% of the American market. Detroit is still not satisfied. Iacocca wants the Japanese to be held to 15%. The United Auto Workers are pushing in Congress a "domestic content" bill that would shut the largest Japanese auto manufacturers out of the U.S. market by decreeing that most parts of their cars be made in America. So far, the bill has the support of 148 Congressmen, 16 Senators and, among other interested onlookers, Democratic Presidential Candidate Walter Mondale.

Such a law would be an ill-advised step that could easily spark an all-out trade war. The U.S. would have more to lose than gain in the crossfire. While the country has been importing more in the past decade, it has also become more dependent on world markets. In 1972 the U S. exported only 9% of its production. It now exports about 17% and would be a tempting target for domestic-content laws in other countries.

For more than two centuries, most economists have maintained that a system of free trade benefits all countries. But supporters of protectionism contend that "free trade" has become merely an academic abstraction. Reason: governments routinely subsidize key industries to give them an advantage in international trade AFL-CIO President Lane Kirkland has made this case by proposing—in jest, but with a serious message—his Free Trade, Antiprotectionism and Antihypocrisy Act of 1983. The law would prohibit Americans from buying imports at prices that have been subsidized in any way by foreign governments or influenced by anything other than free-market forces. "For the first offense," the bill says, the perpetrator shall have his right hand severed at the wrist." This law, Kirkland implies, would quickly eliminate the U.S. import problem. He offers an added proviso: "Any person ... apprehended in the act of making a free-trade speech to the Council on Foreign Relations ... or to any other such forum shall have his tongue extracted by heated tongs."

Kirkland is right that many imports are subsidized by a foreign government, but when the U.S. retaliates, both countries lose. The steel trade is a good illustration. For well over a decade many European nations have protected their national steel industries with steady infusions of