a OPINION Page 6 Vol. XClV, No. 21-S 94 Years of Editorial Freedom Managed and Edited by Students at The University of Michigan Editorials represent a majority opinion of the Daily Editorial Board No more promises THIS WEEK-JUST as President Reagan was visiting Detroit in one of his first of- ficial campaign swings-the administration back in Washington carefully let it slip that auto import quotas will almost certainly be extended for another year. So falls another Reagan promise. In the past, one of Reagan's few redeeming qualities was his at least rhetorical commit- ment to the principles of free trade. Now, ap- parently, even that commitment has gone the way of his promises to end draft registration, to eliminate the federal budget deficit, and to "get government off the backs of the American people." Although the president may gain a few votes through his shift in policy, further moves toward protectionism could have a devastating impact on the nation's industry and on the consuming public. This time around, the president's blatant bid for votes could have disastrous consequences. Part of the problem with avoiding a trade disaster is that too many groups have an in- terest in seeing the quotas continue. The domestic car companies and much of the leadership of American auto unions are ex- tremely fond of any system which virtually guarantees a certain level of sales regardless of wage or production efficiency. The higher costs-from poor management, lazy design, and high labor costs-are simply passed onto the American consumer, whose option of buying more competitive models hasj been eliminated by the quotas. And, as recent years' experience with im- port quotas has proven, the Japanese op- position to import quotas has been largely 'muted by the tremendous opportunities the quotas themselves have created for the foreign manufacturers. Since, with the quotas, they don't have to worry so much about U.S. competition, the Japanese are able to ship only their more expensive models to the American market, thereby increasing their markup and profits. Everybody wins-except, conspicuously, the U.S. consumer, who gets to pay an average of hundreds of dollars more because of the quotas. But the damage done is even greater thanE that. The import quota system now advocated by the president only encourages the produc- tion inefficiencies which led to the problem with Japanese car imports in the first place. Although the U.S. auto industry has made1 great strides in recent years-mostly out of fear with foreign competition-optimal ef- ficiency in the industry cannot be restored un- til domestic manufacturers are competing head-to-head with their foreign counterparts. Sunday, July 8, 1984 Wasserman 1Th\ OPEN To A SUMAMT \Nl 4} TNT SoVIbTS. YOU HAVEN' T DON N\/ OE IOSE~tfN& BEFORE The Michigan Daily I'M CONSDERING A AU -W6APO't 'TRETY,:ND TMAY EATEV'JTh ICAQAbUA TI' THECAND\DAT of ~ \E FUTUR .0 I I I Interest rate hike rat ab re an( Tri Re the fe ho fin of like wh cr is ca nai se so cr Ar ba: jus ch fla, do cr fla ec de all grc Ar be no ha A triumph of U.S. ingenuity? ply has generally been growing A number of factors have led to By Franz Schurmann and this fourth raise in the prime this remarkable American rate since March was expected. economic buoyancy, but they can The recent hike in the prime MORE SIGiNIFICANT than the all be reduced to one: American te evoked predictable warnings hike itself was the timing. ingenuity. When they lost jobs, a out the long-term threats to the Federal Reserve Chairman Paul lot of Americans simply went out covery by many economists Volker chose to let the rate rise at and created-or "hustled"-new d a lone voice of optimism by a time when national and inter- kinds of income-earning work. reasury Secretary Donald national political waters have Despite Americans egan. It has long seemed that in calmed: The first signs are notoriously low savings rate, economic arena we have a emerging that the Persian Gulf shrewd entrepreneurs went in and w lone bulls surrounded by a war might wind down. created a mass money market; rde of bears. Washington is talking with the now some 14 percent of U.S. per- Hardly a day passes when the Sandinistas; El Salvador's sonal income comes from in- acial news does not remind us President Duarte is offering to terest payments. High interest the federal deficit, portrayed talk with the Salvadoran rebels rates pushed up the dollar :e some tremendous iceberg on and a slight warming has begun abroad, leading to a cascade of hich our Titantic is bound to in frozen U.S.-Soviet relations. foreign investment which the ash. And while the Fed, naturally, is United States, unlike If that isn't enough, there also nonpolitical, it is not farfetched to nationalistic Japan, welcomed the monumental Latin Amer- assume the Fed chairman would with open arms. And American n debt problems. If Latin not mind seeing the re-election of hustlers created vast new in- tions default, the result would Ronald Reagan, with whom he dustries like computers and fast nd domestic interest rates has learned to work. food. aring and wreck the great So the interest rate was timed AMERICAN INGENUITY, in edit system on which to come at a point when the effect, created new economics merica's consumer affluence is recovery is running strong but where oldons were vanishinat sed. also when the overall political AeTchenu beletat A THIRD specter that seems to environmenthbodesrbetter for American ingenuity will be a stify all the pessimism is the Cat- stability. match for all the challenges -22 of unemployment and in- MEANWHILE. THERE is which the economy faces. The tion. If unemployment goes nothing but amazement abroad bears worry that the architecture wn, inflation goes up, and so we at the American economy. othesstraie wofif cumb ean eate unemployment to keep in- Growth rates are far higher than the dilemma of unem d ment tion down, and so on. expected. West Europeansh and inflation can be resolved. If the structure of the U.S. assumed that even with recovery In thent e reled. onomy is subject to such the U.S. would be stuck with end, the real differences stabilizing forces, why hasn't it the kind of permanent unem- between bears and bulls is crumbled before? The bears ployment that characterized philosophical-a question of ay be right, but there are Britain, France, and Italy. In- whether the economy is basically ounds for thinking that the stead, unemployment has been sick or healthy. The circumstan- merican economy is a versatile coming down. Consumer spen- ces of the prime rate hike suggest ast that has learned to bend but ding, especially, has been strong, ° that there was plenty of bullish t break with all the pounding it even with ups and downs in home optimism along with bearish s taken. and automobile sales. And it has prudence in Chairman Volker's The stnek market- notoriously been the American reevr mo. 6 6 0 L MbUA 14 U, 1UU ay neurotic, this time reacted indif- ferently to the hike. After all, it was anticipated. The money sup- MM-1 61C sliulual rcovery which once again has acted as the "locomotive," pulling along other stagnant economies. Schurmann wrote this article for Pacific News Service.