Reagan`s Protectionism


It`s interesting to compare the different American policy responses to the rise of Japanese industrial might in the 1970s and 1980s to the rise of Chinese industrial might in the 1990s and 2000s. The Reagan Administration negotiated a “voluntary export restraint” agreement with the Japanese government that limited the number of Japanese cars imported into America. The limitation stayed in place until 1994. In the meantime, Japanese automakers built numerous car factories in the U.S., which have proved highly successful.

Today, most mass market Japanese cars like the Honda Accord and Toyota Camry sold in the U.S. are of majority North American content. The Japanese sell their Japan-assembled versions of these models in the U.S. under their luxury nameplates (e.g., Infiniti and Lexus) with a price premium of something like $5,000.

This strike me, and, I would guess, most Americans, as a reasonable outcome–at the cost of 13 years of protectionism, Americans wound up with a long-run solution in which American consumers now get quality cars at reasonable prices built primarily by American workers, while fashion-conscious Americans can buy even higher quality cars at less reasonable prices made by Japanese workers.

And yet, despite all these huge factories providing good paying jobs to large numbers of Americans, this bit of recent history has disappeared down the memory hole, so complete is the victory of the free trade ideology. While the U.S. government took effective action in the early 1980s regarding Japan, doing anything about the rise of China to industrial dominance has simply been off the intellectual table over the last 15 years.

Back in 2004, I blogged:

Why I`m a true believer in utterly free trade — The theory of free trade has never been contradicted by history. For example, as we all know, the tremendous growth of the American economy in the 19th Century was due to Alexander Hamilton`s insistence that free trade be the absolute cornerstone of our economic policy. Every schoolboy knows Abraham Lincoln`s 1860 campaign slogan: “Free Labor and Free Trade!”

In contrast, Britain`s slow, sad decline from its position of economic supremacy after 1846 was due to Prime Minister Peel`s betrayal of Britain`s traditional free trade policy in favor of protectionism.

Likewise, Bismarck`s insistence on zero tariffs enabled outnumbered Germany to almost conquer Europe in WWI using its free trade-nourished industrial might.

And who can forget how contemptuously Ronald Reagan rejected a plan to impose quotas on Japanese car imports to get Toyota and Honda to build car factories in the U.S.?

Oh, wait a minute… Excuse me. Those were the policies of America, Britain, and Germany in the Bizarro reverse world.

Never mind…

On National Review`s Corner, two normally level-headed people attacked me for daring to joke about the sacred ideology of free trade:

Ramesh Ponnuru answered, “I respect Steve Sailer`s intellect too, Derb, but it`s sad to see him embracing every bit of paleocon dogma.”

Yup, there`s nothing more dogmatic than satire.

Former Reagan speechwriter Peter Robinson, author of “How Ronald Reagan Changed My Life,” jumped in to attack my examples. I particularly admired his alternative explanation of how Bismarckian Germany became an industrial powerhouse: “Industrialization.” Now I`ve often expressed my taste for nearly-tautological explanations, such as “survival of the fittest,” but this one might be a tad too tautological even for me.

It`s hard to say exactly why the dogma of free trade has triumphed so completely, but status striving can`t be ruled out. Economists are terribly proud that Ricardo`s Law of Comparative Advantage is both significant and not trivial, so showing that you understand has become a major status marker.

Comparative Advantage theory should have starring role in the sequel to Stuff White People Like.