July 10, 2018 / 9:39 PM / 3 months ago

Breakingviews - "Back to the Future" trade war lacks Reagan vision

WASHINGTON (Reuters Breakingviews) - America’s “Back to the Future” trade war lacks Ronald Reagan’s vision. President Donald Trump is using 1980s tactics to hit China with tariffs. The Gipper did the same thing to curb Japanese chips, computers and TVs. But Reagan also helped kick off global talks that created the World Trade Organization.

U.S. President Donald Trump and China's President Xi Jinping shakes hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj

Trump likes to compare himself favorably to Reagan, who was president when the former reality-show star made a name for himself in New York’s real-estate scene. His administration has embraced a favorite Reagan trade tactic - Section 301 of the U.S. Trade Act of 1974 - to punish China for intellectual-property theft and forced technology transfers. The law allows the president to unilaterally impose tariffs in cases of trade-agreement violations or unfair trade practices.

Reagan’s administration launched 49 Section 301 probes, many targeting Japan, the trade bogeyman of the day. A 1985 investigation of Japanese semiconductor exports led to a landmark agreement the following year under which the country agreed not to dump chips in the United States and to set a 20 percent target share of its own market for American producers. In 1987, Washington imposed a 100 percent tariff on Japanese computers, TVs and power tools after accusing Tokyo of violating the chip deal.

U.S. trade officials at that time said Japan had too much at stake to not concede. Robert Lighthizer, who was deputy U.S. trade representative for a time under Reagan and holds the top job now, makes a similar argument about China today. But Japan counted on the United States for security against China and North Korea and eventually conceded to several U.S. demands. Today, Beijing is militarily challenging America in the South China Sea and shows no sign of backing down on the trade war.

That’s not the only difference. While the Reagan administration was targeting Japan, it also helped kick off the Uruguay round of trade talks in 1986. Those wide-ranging negotiations eventually led to the creation of the WTO in 1994 with a dispute-settlement mechanism designed to reduce the need for unilateral trade actions.

Trump has derided the WTO as a “catastrophe” and his administration is ratcheting up tariffs. The inevitable foreign retaliation is already hurting American soybean farmers, carmakers and bourbon producers. By wielding sticks with no carrots, the president isn’t doing U.S. exporters any favors.

Breakingviews

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