Experts See Grave Implications In US Shift Away From Free Trade

SOME happy fallout from President Bush's trip to Japan came through this week: American and Japanese officials signed an agreement to open Japanese government bids to American computer companies.

Within a few years, the industry expects this agreement to mean from $3.5 billion to $5.5 billion worth of new annual sales. As the Bush administration calculates it, that should be support between 70,000 to 110,000 American jobs.

But advocates of free world trade see more ominous signs in the aftermath of the Bush trip to Japan.

The American commitment to free-trade principles - on which the US has led the world since World War II - is shifting toward government-managed trade.

"The US has now shifted," says Gary Clyde Hufbauer, a trade expert at Georgetown University. Even if Mr. Bush's commercial trade mission to Japan were just an election-year aberration, he says, "the echo of that around the economy and around the world is really quite large."

Along with the computer agreement, the Japanese government helped Bush extract commitments from Japanese business to open paper, glass, auto, and auto-parts markets to American sellers as well.

Within days of the Bush summit in Tokyo, a French delegation was there asking similar treatment for French cars.

Likewise, says Dr. Hufbauer, other American industries may begin to ask for similar government help.

To many Americans, such help is little and late. On Wednesday, as administration officials were signing the computer agreement with Japan, House majority leader Richard Gephardt (D) of Missouri, introduced a hard-line trade bill to Congress. The bill would require Japan to cut its $42 billion trade surplus with the US by 20 percent a year for five years or face import restrictions on Japanese-made cars.

The bill goes way too far into market protection for the White House, which opposes the bill.

But the Bush administration has moved away from its purist, free-trade rhetoric on several fronts. Many observers were surprised that the administration recently extended the voluntary quotas on machine-tools from Japan.

In Tokyo this month, Bush asked for some very specific results in the auto-parts market - for Japanese carmakers to increase their US purchases from $9 billion to $19 billion a year.

The next signal may be the Bush decision on the voluntary quotas on steel. The conventional forecast is that steel restrictions will not be extended, but the political weather is changing on trade.

The US has carried the banner for the world on free trade for decades. During the first 20 years of the General Agreement on Trade and Tariffs (GATT), which established the rules of the game, the US made two trade concessions for every one it received.

Both President Reagan and President Bush spoke resolutely in support of free trade. Neither was quite so consistent in practice, according to Hufbauer, who is a free-trade advocate. Reagan introduced managed trade regimes, in the form of voluntary import restrictions, to protect the auto, steel, semiconductor, and machine-tool industries.

Bush has already extended the steel agreement once, but he has also pushed hard for negotiating a more liberal GATT and for spreading free trade throughout North America.

Bush clearly believes in free world trade, but pragmatic concerns intrude. "Free trade is most in danger from its supposed friends," says Hufbauer. Meanwhile, he says, the most enthusiastic movement to liberalize trade is coming from mid-sized countries, he notes: Chile, Argentina, Mexico, New Zealand, Australia, and Hong Kong. Many of these countries were strong protectionists until recently.

Still, the US government currently does far less to support its exports than nearly any other developed country in the world, says R. K. Morris, director of international trade for the National Association of Manufacturers.

NAM is not going to support the Gephardt bill either, although its auto industry members do. But in a world where most countries actively manage the flow of goods across their borders, says Mr. Morris, the Japan trip marked a more pragmatic approach by the White House.

This was the first time an American president has undertaken such a commercial mission, and it signaled that industries such as the auto industry are important, says Morris.

High unemployment has raised the profile of trade as a political issue, but the trade deficit has not dragged the country into this recession. The US trade deficit has shrunk since 1987. So progress in foreign trade has worked to soften the recession.

Nonetheless, job layoffs have made foreign competition a major campaign topic. m always unhappy when trade issues surface in election years," says Anne Krueger, a professor of economics at Duke University, "because it always brings on protectionist measures."