Waging a Case-by-Case War

In times of recession, nations inevitably turn toward protectionism as a means of shielding jobs from the threat of foreign goods. Even though the West and Japan are now recovering from the deepest economic slump since the 1930s, protectionist tendencies remain powerful. In an effort to defuse those tendencies in the U.S.--where they are strong in Congress and among the trade unions--President Carter, a committed free trader, is trying to solve trade problems one at a time. The unpleasant alternative would have been to resort to high tariff barriers that might set off a global trade war and raise havoc with the fragile world economy.

Last week Carter brought off a success in his case-by-case strategy when the Japanese, after complex negotiations, agreed to cut back drastically their exports of color TV sets to the U.S. In the early 1970s, the Japanese share of the U.S. TV set market was about 16%. Then last year Japanese imports spurted to 2.9 million sets--38% of the market--and the trend has continued.

U.S. unions and four manufacturers banded together in a Committee to Preserve American Color Television. The International Brotherhood of Electrical Workers calculated that 70,000 jobs already had been lost to the Japanese imports. Last March the International Trade Commission, a six-member watchdog group appointed by the President, recommended an increase in the tariffs on Japanese sets from 5% to 25%, effective in August. Displeased by that prospect, Carter summoned his trade negotiator, Millionaire Dallas Lawyer Robert Strauss, the recently retired Democratic Party chairman. "Bob," asked the President, "why don't you see what you can work out?"

On a get-acquainted trip to Tokyo in April, Strauss found the Japanese eager to talk. Their message, as one U.S. trade expert summarized it: "So sorry. We were taken by surprise by the immense demand for our sets. We are willing to level off exports at 2.5 million per year." But U.S. manufacturers were pressing for a rollback to no more than 1.3 million Japanese sets. Later, Strauss met in Washington with Japan's Vice Minister of Trade, Minoru Masuda; they continued their talks during the early May economic summit in London. Last week Strauss and the Japanese ambassador signed an understanding that obliges Japan for the next three years to cut its color TV exports to the U.S. to just 41% of the 1976 level--1.75 million sets a year.

However, the Japanese are allowed to assemble as many sets as they wish in the U.S.--so long as American workers provide 40% of the labor required to turn them into finished products. Three big TV makers--Sony, Sanyo and Matsushita--already own U.S. plants. Two others, Toshiba and Mitsubishi, are on the verge of opening production facilities in the U.S., which will, of course, create jobs for Americans.

Too Hard a Sell. The Japanese reaction was surprisingly positive. For months the Japanese, who are running a big trade balance in their favor, have been pressed by their Western trading partners to hold down their exports and import more foreign goods. Reported Yomiuri Shimbun, a Tokyo daily: "A realization has been deepening in the industry that Japan had gone too far in pushing sales to the U.S."

But that is normal. The Japanese push their exports--motorcycles, autos, microwave ovens, optics--to the limits that their markets can bear. There is even a name for it--shuchu gou, literally "localized downpour."

Next on the Carter-Strauss trade agenda is an agreement on the shoe problem, which politically is even more explosive than TV sets. Says one White House official: "TV has maybe two dozen Senators. Shoes have 80 Senators." Since 1968, lower-priced imported shoes have captured 46% of the U.S. market. Result: 300 American shoe factories have been forced to close, ending 70,000 jobs. While Congress has been clamoring for tariffs and quotas to protect what remains of the U.S. shoe industry, Strauss has negotiated a tentative agreement with two big exporters to the U.S.--Taiwan and South Korea--that would provide for cutbacks in their shipments. The White House hopes that other major exporters, notably Spain, Brazil and Uruguay, will continue to restrain their shoe exports.

Though Carter appears to be battling for free trade, he is, in reality, fighting a delaying action. The institutions of quotas and market-sharing arrangements undercut the free-trade principle that the U.S., with some lapses, has supported since World War II. But the Europeans, as well as the Japanese, have been chipping away at that principle steadily--for example, by setting up deals that guarantee commodity prices for a number of developing countries. This bodes ill for the so-called Tokyo Round of international trade talks under way in Geneva, originally intended to be another breakthrough, like the Kennedy Round of the 1960s, in the elimination of trade barriers. But as the talks proceed, the world appears to be heading in a different direction.

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