World Trade: Shades of Smoot & Hawley

Tacked onto the 10% tax-surcharge legislation that sailed through the Senate last week was a quiet proviso that could become the first shot in an economically devastating trade war between the U.S. and most of its close allies.

The measure would limit imported woolen and man-made textiles to 8.6% of domestic consumption, a level well below the 10.1% of the market that such foreign products snared last year. The Senate came within a single vote (38-37) of adding a quota on dairy imports to the same tax bill. House negotiators may well resist heavy pressure to agree to the textile quota in the Sen ate-House conference on the final form of the bill. Still, the rising strength of protectionist sentiment in Congress has brought serious threats of retaliation from a dozen countries.

Strong Backing. High-tariff advocates, concerned over competition from rising imports, have laid a score of quota proposals before Congress. They could affect $12 billion, or 75% of the nation's dutiable imports: not only textiles and dairy items but also apparel, steel, shoes, glass, oil, lead, zinc, pot ash, electronic products, ball and roller bearings, meat, honey, frozen strawberries, mink fur and watches. The three major bills have impressive senatorial backing: 29 co-sponsors for oil quotas, 36 for steel and 68 for textiles—in the third case enough to override a promised presidential veto. In the House, "there is a growing tendency to protectionism," said Majority Leader Carl Albert of Oklahoma last week, including "a lot of support for quotas."

If enacted, such bills would undermine last year's Kennedy Round of tariff cuts, an achievement that came after 34 years of U.S. effort to tear down the barriers to expanding trade and prosperity in the free world. Moreover, quotas would mean U.S. repudiation of the 1947 General Agreement on Tariffs and Trade, history's first major code of fair play for international commerce. Backers of liberalized trade compare today's proposed restrictions to the 1930 Smoot-Hawley Tariff Act, which by lifting import duties to record levels prompted reprisals abroad that helped to cut U.S. exports by 66% during the Depression. "The protectionists are peddling medicine more likely to kill than cure," warns William M. Roth, President Johnson's special representative for trade negotiations. "The U.S. would be responsible for initiating a major trade war."

How to Lose a War. The prime target for the inevitable retaliation would be U.S. agriculture, by far the nation's largest exporter. Many other industries now contributing to U.S. export earnings would also be hard hit, among them chemicals, electronic equipment and industrial machinery. The consequence, Administration leaders predict, would be higher prices, lower profits and fewer jobs at home, as well as shrinking markets for U.S. goods abroad. "To incite trade war would be a fool's game," says Treasury Secretary Henry Fowler, "since the U.S. would be bound to end up as a loser."