Reciprocal Tariffs U.S. CONTRIBUTION TO FREER WORLD TRADE

Press, Volume XCVII, Issue 28671, 22 August 1958, Page 10

Reciprocal Tariffs U.S. CONTRIBUTION TO FREER WORLD TRADE

I By

"LYNCEUS”

of the "Economist”]

[From the ‘'Economist' Intelligence Unit]

London, August 10.—After a struggle such as few administration measures have ever had to endure, the American Reciprocal Trade Bill has been passed with its main original provisions largely unscathed. It falls short of what the Administration had originally proposed. President Eisenhower and his Ministers had tabled their proposals as part of a wide programme to gain the support of the uncommitted nations of the world, and to reinforce their allies in the cold war. They had asked for the power to reduce tariffs on a reciprocal basis over a period of five years, and had suggested that the maximum tariff reduction on any single article should be 25 per cent. The Administration, naturally enough, wanted to escape from the appalling predicament of having to enact renewals of the Trade Agreements Act at comparatively short periods, thus making it impossible to provide any real consistency in the foreign trade policy of the United States, or give other countries with which they were negotiating the assurance of continuity in the tariff concessions that were being bandied about. Hence the demand for a five-year renewal. The opposition to the administration’s proposals was inevitably intensified by the business recession which strengthened all the lobbies of protection in Congress. The prospects for the bill were also damaged by the weakness of the American Administration and .by the fact that so many of the key Ministers are not economic liberals at heart. The fate of this measure was in the end swept up in the sudden interteification of the cold war and the political tensions that followed recent events in the Middle East. All the arguments based on the need to reassure friends and attract new allies gained added strength, and the measure has now been voted by the House and the Senate very much more as part and parcel of the Administration’s foreign aid policy than as an expression of basic American attitudes to foreign trade.

Constructive Measure Let us not, however, look gift horses in the mouth. Whatever motives may in the end have prevailed in securing the enactment of this law, the fact is that it must be counted as a highlyconstructive contribution to the cause of more liberal trade by the United States and, therefore, as part of the cement which may yet bind the free nations of the world in the economic struggle which unquestionably faces them. Under the act, the programme of reciprocal tariff reduction is being extended for four years instead of the five that had been asked for by the Administration. The maximum tariff reduction on any single article is to bei limited to 20 per cent, instead of 25 per cent. There has also been some weakening of the executive power to veto recommendations of the Tariff Commission, but hot of such proportions as had at one time been proposed. Recommendations of the Tariff Commission for increased protection have in the past been subject to Presidential veto, and it is to the credit of successive occupants of the White House that this veto has on many occasions been used in the cause of foreign trade liberalism. While the present act was going through Congress, an amendment was introduced which would have given Congress power to override the Presidential veto by a simple majority of each House. That power remains in the act as now passed, but it can be effective only if two-thirds majorities in each House can be mobilised. It is highly unlikely that such majorities could be mustered both in the Senate and in the House of Representatives in order to countermand a decision of the President Credit to Administration

The act, as it emerges, reflects considerable credit on the Administration, which has fought for it doggedly and in the end with considerable success. It has. admittedly, some weak points. The weakest of these is the provision of the act relating to special “escape clauses” which will allow the President to raise tariffs for industries suffering from foreign competition to higher levels than under the previous legislation. On the other hand, the act has its strong points; and perhaps the strongest of these is the new power of the President to commit the United States over a period of four years. This is a particularly significant period, •since it coincides with the first four-year period in the European Common Market and of the potential Free Trade Area programmes for the dismantling of tariffs, and quotas It is not unreasonable to suggest, and hope, that when this dismantling of quotas dnd tariffs begins in Europe it may go hand in hand with parallel negotiations with the United States which would allow at least a partial echo of the freeing of trade in Europe, in reducing the restrictions on trans-Atlantic trade/ This would deprive the coming move towards freer trade in Europe of some of the elements of discrimination which must inevitably attach to it. Weapons which have been forged by Congress and put into the President’s hands could be used in a most constructive manner to give the great plans that have been conceived for freeing trade within Europe a desirable trans-Atlantic flavour. It should be stressed, however, that these twists and turns in American tariff policy can now be viewed by the rest of the world in a more dispassionate manner than would have been the case a few years ago. The dollar gap and the persistent tendency for American exports to leap ahead of imports are no longer the dominant and crucial problem that they were in the immediate post-war years. The United States, therefore, is no longer the leader without whose •guidance the cause of liberalisation in international trade would be lost. Closing Dollar Gap The dollar gap has tended to disappear partly because dollar prices have risen to a level at which many dollar goods are now clearly priced out of world markets. The latest increase in

American steel prices is one more straw in the wind which suggests that the divergence between dollar and other world prices is continuing to widen. Beyond this, however, industry in the test of the world, and especially in Europe. has recovered to the point at which it is creating its own problems of over-production. We no longer

depend, as we did a few years ago, on American capital goods; and for this reason we are no longer as concerned as we were about the wherewithal to pay for those American goods. The rest of the world, therefore, could regard with greater equanimity a retreat by the United States into economic isolationism than would have been the case in the decade that followed the end of World War 11. This, however, is not to say that such a move by the United States would be desirable. It would, on the contrary, be a highly regrettable development. even though its economic consequences would be less shattering than would have been the case when the rest of the world hungered for and depended on American goods for its reconstruction. On political grounds alone, any increase of economic isolationism tn the United States would in the present circumstances be deplorable. A great welcome should, therefore, be given to the new Reciprocal Trade Act which has just emerged from its battle on Capitol Hill. It shows that in the matter of trade policy the United States is still on the side of the angels.