Ronald Reagan: Trade Realist

americaneconomicalert ^ | Monday, June 07, 2004 | Alan Tonelson

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Lost in the flood of Ronald Reagan retrospectives and testimonials is a crucial fact with special relevance for all Americans today: To a great extent, Ronald Reagan was a trade realist.

The conventional wisdom about Reagan as free enterprise, free market champion is largely true. But on trade policy, Reagan acted decisively in five instances to save major American industries from predatory foreign competition. Moreover, as I detailed in a 1994 article in Foreign Affairs, in each case, the temporary import relief succeeded spectacularly, resulting in improved performance by these industries and avoiding the captive market prices that conventional economics teaches will always flow from restricting foreign competition.

Reagan's best-known protective policy was a tariff placed in 1983 on imported motorcycles at the request of American icon Harley-Davidson. The tariffs were to last five years, but the company's comeback proceeded so quickly that it relinquished the final months of import relief. Moreover, the tariffs encouraged Japanese rivals like Honda and Kawasaki to build or expand factories in the United States and create still more jobs for American workers.

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Reagan was a trade realist in another vital sense -- understanding the need for carefully regulating trade with current and prospective adversaries. Indeed, soon after his inauguration, Reagan became convinced that the Soviet Union had run into a series of potentially crippling economic problems, and he implemented a policy of strategic denial that undoubtedly played a role in hastening communism's demise.