Remarks at a White House Briefing for Trade Association Representatives on Free and Fair Trade
July 17, 1986
I know you've already been briefed by Don Regan, Mac Baldrige, Al Kingon, and Clayton Yeutter, so I also understand the importance of brevity in a speech. You'll remember that George Washington gave an inaugural address of just 135 words and became a great President. Of course, there was William Henry Harrison. He spoke at his inauguration for nearly 2 hours, caught pneumonia, and died within a month. [Laughter] I told him to keep it short. [Laughter] Well, I'm going to try to stay someplace between the two of them.
But it's an honor to speak to you. And before addressing the matter at hand, I want to take a moment to acknowledge all that you've done to provide our administration with encouragement and support. I'd especially like to note the work of the Pro-Trade Group and of COMET, Citizens for Open Markets and Expanded Trade. Of course, some of us have had our differences, but I think that's to be expected. But on issues from deficit-cutting to tax reform, the men and women in this room -- all of you -- and the organizations you represent, have stood with us, sharing our same enthusiasms and braving the same battles. So, for all you've done, my friends, I thank you. And something else. I just happen to have a feeling that we'll look back on these years with a certain amount of pride. I hope you feel the same way.
To come now to the issue of the day: world trade. I'd like to begin, if I may, with first principles, with the absolute fundamentals. It was David Ricardo who first advanced the theory of comparative advantage back in 1817. And it's absolutely not true that I remember reading about it at the time in the newspapers. [Laughter] But I do remember studying comparative advantage back at Eureka College, in Illinois, just as you studied it when you were in college, and just as economics students continue to study it today. The reason Ricardo has proven of lasting importance: His formulation was a breakthrough. He held, simply, that if each nation concentrated on the production of the articles that it could produce most efficiently, then traded those with other nations to obtain the articles it needed, not some but all nations would be likely to see their living standards rise. And with that insight, it became clear that tariffs and trade barriers blocked rather than promoted prosperity, that, indeed, the advance of nations was itself bound up with the advance of free trade.
And so widely is this accepted as a fundamental of economic thought and so clearly is it understood that our own nation earns tens of billions of dollars every year in foreign markets and has millions of jobs tied to exports, that it's safe to say everyone in this room supports the principle of keeping world trade unfettered and free. So, too, does virtually every serious economist in the country. And so, too, I believe, does nearly every Member of the Congress. What then is it that brings us here today? Well, I'm afraid there's only one term for it, and it isn't all that pretty: special interests.
Yes, the adjustments that we've had to undergo in recent years to put our economy back in good health has been especially difficult for certain sectors of our economy, notably sectors that are import-sensitive. But there can be no excuse for protectionist legislation. Really, it's destructionist legislation, legislation that would, in fact, hurt the Nation and injure even those few it was originally designed to serve. And there can be no excuse whatever for bills like the omnibus trade bill that the House has already passed. Forgive me; I called it a trade bill. What I meant to say was antitrade bill. Even when we took the small step of assisting the shakes and shingles industry, legal under international law, we encountered immediate retaliation as the Canadians imposed restrictions on U.S.-produced books, computers, and semiconductors -- an indication of the bitter trade war the House bill would provoke. Within America itself, the House bill would pit industry against industry, worker against worker, and region against region.
Those who support this and other protectionist legislation often claim that our administration doesn't have a coherent trade policy. Well, I have to tell you, that one sort of touches my temperature control. What they really mean, of course, is that we don't have a protectionist trade policy, and they're right. What we have instead is a policy, every aspect of which is aimed at keeping world trade free while making it more and more fair. This policy contains three main elements. First, we're going after unfair trading practices more aggressively than any previous administration. And permit me to mention just a few.
Action: In September 1985 I imposed deadlines for resolving two longstanding GATT disputes, one with Japan on leather goods, the second with the European Community on canned fruit. Result: In December of 1985 Japan improved market access for American leather goods and reduced tariffs on 137 items to bring the leather dispute to an end. At the same time, the European Community agreed to eliminate canned fruit subsidies, giving American producers the chance to compete.
Action: In March 1986 I indicated my intention to retaliate, effective July 1st, against new European Community restrictions affecting as much as $1 billion in U.S. farm exports. Response: On July 2d we announced a provisional agreement with the European Community: an agreement that will keep its markets open to our exports and thus avoid a trans-Atlantic trade war while we negotiate this dispute in GATT.
Action: In December 1985 I directed the Commerce Department to investigate whether Japanese semiconductor chips were being dumped in the United States. Response: Last month I announced that we had reached the framework of an agreement with the Japanese that would bring an end to predatory pricing in the U.S. market and in turn improve American producers' access to the Japanese market. These negotiations should be made final at the end of this month, and if not, we'll go forward with the enforcement of our trade law.
The list goes on and on. In addition to the cases just mentioned, I've instructed Clay Yeutter to bring other unfair trade cases against Japan, the European Community, Korea, Taiwan, and Brazil. The message to the world is clear. The United States stands for free trade, of course. But make no mistake, trade must also be fair.
The second element of our trade policy centers on new and more liberal agreements with our trading partners -- agreements under which they would fully open their markets and treat American products as they treat their own. This is vital. International trade, as measured by the GATT, rose only 3 percent last year, down considerably from the 9-percent growth rate of 1984. So it is that our administration has for months now been advocating a new round of GATT talks. And I'm pleased to say that the preparatory committee is now meeting in Geneva. Indeed, it could have its work completed as early as this week or next. When it does, the stage will be set for the trade ministers to commence the new round of talks this September. This new round will prove of particular importance in removing barriers to those areas of trade, such as agriculture and services, that are growing so rapidly in importance.
I've saved perhaps the most important aspect of our trade policy for last: exchange rates. As you know, exchange rates have a tremendous impact on trade flows. In recognition of this, last September Secretary [of the Treasury] Baker hosted a meeting at the Plaza Hotel in New York of the finance ministers and central bankers of the five major industrial nations. There, all five agreed to engage in much closer economic cooperation. And since then, the dollar has dropped against European currencies and even more markedly against the yen. Needless to say, this will prove helpful to American exporters and import-sensitive industries. Later this year, as order books begin to reflect the new exchange rate relationships, our exports should begin to grow relative to our imports -- a good start in bringing the American trade deficit into balance. And to prevent undue currency fluctuations from disrupting this improvement, at the Tokyo summit we forged an agreement with the other national leaders to coordinate economic policies more closely.
An aggressive stance toward unfair trading practices, a new round of GATT talks, and exchange rate stabilization -- these represent a sound and formidable trade policy, a policy that has already done much to achieve results. Indeed, I would submit that the realities of world trade have already begun to shift in our order -- or our favor, I should say, and that, as I mentioned a moment ago, later this year we'll see our trade deficit begin to shrink. But that still leaves us with the special interests. In this town, opinions tend to lag well behind the realities. How then should we deal with protectionist sentiment?
Well, no doubt we can all agree that the House omnibus trade bill is out. We might as well declare an open trade war as pass that monster. Beyond that, dealing with special interests becomes a question of tactics. Perhaps there's as many answers as there are men and women in this room to that one. For my own part, I want to stress that there is a great deal of common ground between the administration and thoughtful Members of the Congress. We support, for example, legislation to permit a new round of trade talks, a $300 million war chest to combat unfair foreign subsidies, stronger protection for intellectual property rights, and reform of antitrust laws to make American business more competitive in world markets. At the same time, we understand that there's much under consideration in the Congress that we simply cannot accept.
So, we're determined to press on with the right trade policy and, most important, to do all we can to shift the political focus away from negative, protectionist legislation to positive, progrowth policies -- policies like comprehensive tax reform and spending reduction. For in the end, the protectionist sentiment has about it something of the side-show. The main question is not how to shelter the American economy but how to bring it into still wider contact with the rest of the world; not how to protect it from competition but how to release our boundless talent, creativity, and know-how so that America comes out of the competition a winner. After all, it's not protectionism but economic growth that in the past 3\1/2\ years has created more than 10 million American jobs.
You know, I've lived to see American agriculture become the most productive on Earth. I've seen American entertainment, from movies to rock 'n' roll, become popular around the world. And I've seen American innovation transform the world economy for all time with the development of the computer and the microchip. And after all that, well, I just have to believe the Americans can still outdesign, outproduce, outsell, outinnovate, and outcompete anybody on Earth.
My friends, you and I and virtually everyone in government know that Ricardo was right, that vigorous world trade leads to higher standards of living for all. So, I ask you to stand with us again in our dealings with the Congress on this matter. And please, join us in urging the Congress to stop shirking and get back to its real work -- not fostering economic timidity, but promoting economic incentives, innovation, and growth. Now, I took more than 135 words, but it was a little less than 2 hours. So -- [laughter] -- I'll call it quits here. And again, just thank all of you, and God bless you for all that you're doing. Thank you.
Note: The President spoke at 11:34 a.m. in Room 450 of the Old Executive Office Building. In his opening remarks, he referred to Donald T. Regan, Assistant to the President and Chief of Staff; Malcolm Baldridge, Secretary of Commerce; Alfred H. Kingon, Assistant to the President and Cabinet Secretary; and Clayton Yeutter, United States Trade Representative.