Trade Protectionism Failed for Ronald Reagan, Too

It is economic alchemy now, as it was then.

Letter to WSJ.

"Dan DiMicco correctly reports that Ronald Reagan sometimes compromised in his opposition to protectionism (Letters, Oct. 8). But he incorrectly insists that Reagan’s compromises are evidence of protectionism’s wisdom.

Consider the three examples of President Reagan’s protectionism that Mr. DiMicco applauds. The 1983 tariff on motorcycles meant to save Harley-Davidson were, as described by leading trade economist Douglas Irwin, “completely ineffectual.” These tariffs applied only to bikes with 700cc or larger engines, while Harley’s engines were 1000cc to 1300cc. Japanese manufacturers adjusted easily to the tariff by producing for the U.S. market motorbikes with 695cc and 699cc engines.

Even worse were the “voluntary export restraints” that, starting in 1981 under Reagan administration pressure, the Japanese used to restrict their exports of automobiles to America. A 1984 FTC report estimated that these VERs annually cost U.S. consumers $1,109.2 million (in 1983 dollars), nearly 10 times as much as the $115.3 million of annual gains reaped from these VERs by U.S. auto makers. The annual cost per job created was $216,137—nearly 13.5 times the average annual earnings ($16,068) of the American worker in 1983.

Finally, Mr. DiMicco praises the 1985 Plaza Accord for boosting U.S. exports. But it attempted to do so by devaluing the dollar—that is, by reducing Americans’ purchasing power. While a few domestic producers might have gained from the resulting dampened competition from imports, we Americans as a whole can only have lost from that engineered reduction in our ability to acquire on global markets consumer goods, inputs for businesses here at home and investment opportunities.

Even in the hands of Ronald Reagan, protectionism is economic alchemy.

Prof. Donald J. Boudreaux

Mercatus Center, George Mason U.

Fairfax, Va."