Ronald Reagan is, famously, known for being a free trader, a globalist perhaps, in today’s parlance. He believed very firmly in the importance of American industry but also believed that American industry was best served by lowering our barriers to trade, not by erecting new ones through protectionist policies. A cornucopia of evidence has borne out exactly one thing: he was correct.
But still, for all his speeches and conviction on free trade, Reagan famously compromised in one, major way: Japanese automobiles. Reagan recounted the dilemma he faced in his autobiography:
Although I intended to veto any bill Congress might pass imposing quotas on Japanese cars, I realized the problem wouldn’t go away even if I did. The genuine suffering of American workers and their families made this issue intensely charged politically. And the protectionists in Congress had some powerful ammunition on their side: there was plenty of evidence that the Japanese weren’t playing fair in the trade arena. They refused to let American farmers sell many US agricultural products in Japan, and they imposed subtle but effective barriers that eliminated many of our other products from the Japanese marketplace: American cigarette companies, for example, could advertise their products only in English in Japan.
New Right thinkers like Oren Cass have pointed this out numerous times, calling Reagan a “protectionist” and holding this example up as a paragon of the incredible benefit of protectionism done right. He is not alone in this. In 1988, Sheldon Richman, then at The Cato Institute, called Reagan, “the most protectionist president since Herbert Hoover, the heavyweight champion of protectionists.” In 2017, Victor Davis Hanson referred to the actions of President Trump during his first term as “a return to, or a refinement of, Reagan’s and the elder Bush’s principled realism: the acceptance that the United States has to protect its friends and deter its enemies.”
In doing so, however, these people fundamentally miss the forest for the trees. They look only at the actions of the man without understanding the context within which they took place and the actual (as opposed to the imagined) choices that Reagan and his team faced.
Understanding Context
When Reagan took office in 1981, the US economy was in the throes of one of the most severe economic downturns since WWII, characterized by high inflation, rising interest rates which peaked at an incredible 20%, and an overall weak economy still reeling from the 1980 recession. Particularly hurt by all of this were US automakers and their union workers, especially as we consider that this was also a time where cheaper, Japanese made cars began flooding the US market.
Faced with pressures from domestic automakers, the unions, and a protectionist Congress demanding that the administration “do something,” Reagan established an Auto Task Force to come up with a solution that allowed him to remain committed to free enterprise and avoid import quotas. In a statement given on April 8, 1981, then-Vice President Bush announced, that the White House is not “suggesting to the Japanese what they should voluntarily do” and that “[The administration wants] to avoid starting down that slippery slope of protectionism.”
The Japanese foreign minister was invited to the Oval Office on March 24 where in Reagan’s words, “I told him that our Republican administration firmly opposed import quotas but that strong sentiment was building in Congress among Democrats to impose them. ‘I don’t know if I’ll be able to stop them,’ I said. ‘But I think if you voluntarily set a limit on your automobile exports to this country, it would probably head off the bills pending in Congress and there wouldn’t be any mandatory quotas.’”
The result of these negotiations occurred “when Japan announced it was going to voluntarily limit its exports of motor vehicles to this country to 1.68 million a year” for 1981-1983. According to Reagan, Japan’s “policy paid off” and ultimately “defused the momentum in Congress to impose quotas, which would have been the first shot of a serious international trade war” (An American Life, 274).
Context in Reagan’s decision matters. He saw that a protectionist bill was coming and that, even if he vetoed it, “the problem wouldn’t go away.” The problem here does not refer to “Japanese cars” but to the protectionist demands of Congress. Rather than let Congress have what it wanted, Reagan diffused the situation by asking Japan to take measures into their own hands. This demonstrates that not only was Reagan not a protectionist, but that he actively sought alternative means to the US imposing protectionist policies. Japan’s voluntary reduction in automobile exports should be considered a success precisely because it prevented disastrous protectionist policies from going into effect, not because it was protectionist.
One might argue that Reagan was strong-arming Japan into reducing their exports by pointing out that something worse would happen if Japan did not agree to limit their auto exports and that this is tantamount to “pursuing protectionism.” This is a revisionist version of history, carefully crafted to support an agenda. Reagan understood that choice is necessarily between actual options, not imagined ones. By preventing Congress from passing a protectionist import quota, Reagan deliberately chose the least protectionist option of the actual options available to him, as David Henderson — a member of Reagan’s Council of Economic Advisors — notes.
Reagan vs. Trump
This stands in stark contrast to President Trump’s approach, which is to actively seek increasing protectionism. Where Reagan inherited a struggling economy facing high inflation, rising interest rates, falling output, and weak job prospects, President Trump inherited an economy that was experiencing none of that. While there is a case to be made that the economy had been overheated by excessive government during the previous Administration, there were very few signs of anything in the private sector in need of massive correction in terms of macroeconomic policy.
Despite this, however, President Trump used the The International Emergency Economic Powers Act to formally become “Tariff Man,” ushering in a new era of American protectionism the likes of which we have not seen since the infamous (and disastrous) Smoot-Hawley tariffs.
The comparisons between Trump’s actions and Reagan’s belie a clear agenda: to try to borrow the well-deserved positive legacy of one of America’s most cherished presidents to bolster support for Trump’s disastrous trade policies. Reagan was no protectionist. But unlike so many, he could see the forest for the trees and knew that protectionism was very likely coming. Rather than stand idly by, he did what he did best: promoted free trade as best he could in the face of options that he actually faced.