Saturday, March 3, 2018

Protectionism Under Ronald Reagan

Steve Hanke writes:

Alas, I have seen this horror show before, when I was a Senior Economist on President Reagan’s Council of Economic Advisers. Reagan’s rhetoric on free trade was flawless — a free trader to the core. However, the reality was quite different. Longtime colleague and close friend Bill Niskanen, who was a member of Reagan’s Council of Economic Advisers, summarized it all in his definitive book: Reaganomics: An Insider's Account of the Policies and the People (Oxford University Press, 1988):
Trade policy in the Reagan administration is best described as a strategic retreat. The consistent goal of the president was free trade, both in the United States and abroad. In response to domestic political pressure, however, the administration imposed more new restraints on trade than any administration since Hoover. A strategic retreat is regarded as the most difficult military maneuver and may be better than the most likely alternative, but it is not a satisfactory outcome.
For those who want even more detail and a confirmation of that provided by Nisknanen, there is nothing better than the magisterial treatise by Douglas Irwin, Clashing Over Commerce: A History of U.S. Trade Policy (University of Chicago Press, 2017).
Just what was it like trying to defend Reagan and his free trade rhetoric against the protectionists within the administration? It was a battle royale. The Council of Economic Advisers led the charge against the protectionists. We were joined by the Treasury and State Departments and the Office of Management and Budget.
I was in the trenches with Bill Niskanen at the Council of Economic Advisers. Bill and I had worked together for many years: at the Office of Management and Budget, when Bill was the assistant director for evaluation during the Nixon years, and at the University of California at Berkeley, where we were professors. Bill was a most knowledgeable, capable and principled economist. After receiving his doctorate from the University of Chicago, he started his professional career at the RAND Corporation. He then moved to the Office of the Secretary of Defense, Robert McNamara. Bill was one of McNamara’s “Whiz Kids.” At the ripe old age of 29, Bill’s civilian rank was equivalent to that of a brigadier-general.
As for principles on trade, recall that Bill was fired from his position as Director of Economics at Ford Motor Company in 1980 for his outspoken opposition to government quotas, tariffs, and restrictions on Japanese auto exports to the U.S.  As Bill told the Wall Street Journal, “In the meeting in which I was informed that I was released, I was told, ‘Bill, in general, people who do well in this company wait until they hear their superiors express their view and then contribute something in support of that view.’ That wasn’t and isn’t my style.” Well, it’s not my style either.
Even though we had the firepower, we lost the battle on trade within the Reagan administration. Remember the infamous “voluntary restraint agreement,” in which the Japanese agreed to restrict car exports to the U.S.? It was all a total horror show, one that Reagan supporters like to sweep under the rug. But as Douglas Irwin suggests, that’s hard to do. Indeed, the share of American imports covered by some sort of trade restriction soared under “free-trader” Reagan, moving from only 8% in 1975 to 21% by 1984.