Ronald Reagan was no free-trade purist, and his record proves it

Walk into a Harley-Davidson dealership some Saturday and look at the big touring bikes lined up under the lights. Chrome, leather, that unmistakable sound when somebody fires one up. Now ask yourself a question that has nothing to do with motorcycles: how did that company get to be here? Because in the early 1980s it was staring at the edge of the cliff, and the man in the White House, the great apostle of free markets, used a tariff to help pull it back.

That is a fact, and it is awkward for a certain kind of Republican, the kind who will tell you in a stern voice that a real Reagan conservative never touches a tariff. You hear the line a lot. It sounds right. It sounds like something Reagan would have said. And the record says it is, at best, a serious oversimplification. Let me put the claim at its strongest and then answer it with what actually happened.

The claim at its strongest

Here is the case that a true Reagan Republican rejects tariffs and managed trade, stated as fairly as I can.

Reagan believed in free markets. He said so, over and over, in speeches and radio addresses, and he often warned that protectionism was a trap, pointing to the Smoot-Hawley tariff of 1930, which I discuss in Smoot-Hawley, 1930, what the tariff did and what it did not do. In his 1979 announcement for the presidency he called for a "North American accord," a vision of a continent with open borders for trade. He was advised by economists, Milton Friedman among them, who thought that import restrictions are a tax on your own consumers. The cost of protecting a job through a quota is almost always higher than the wage of the job protected. And Reagan was the President who, late in his term, signed a free trade agreement with Canada.

The critics go further. They say that every restraint the administration imposed was a concession to a lobby, that the restrictions raised prices for families, and that Reagan himself regarded them as temporary expedients. A real free-trade conservative, they conclude, would have held the line. If you argue for tariffs today, you are departing from the Reagan tradition.

That is a respectable case. It is the one economists have been making for forty years. Now let me answer it.

The record, item by item

Five episodes make the case. I will give them in order, with dates, and you can check every one of them.

1981: the limit on Japanese cars

In the spring of 1981, the American auto industry was in deep trouble. Sales were falling, plants were closing, and Chrysler had needed a federal loan guarantee to stay alive. Japanese imports were taking a growing share of the market. Congress was talking about legislation to impose quotas.

The administration took a different route and negotiated a "voluntary" export restraint. In May 1981 Japan's government agreed to limit exports of passenger cars to the United States to 1.68 million vehicles a year. The word voluntary deserves quotation marks. Tokyo agreed in large part because Congress was threatening quotas of its own. The ceiling was later raised, to 1.85 million and then 2.3 million cars, and the American government stopped pressing for it in 1985. But for several years, one of the country's largest industries operated with a federally brokered cap on its biggest competitor.

1983: the Harley tariff

Harley-Davidson petitioned the U.S. International Trade Commission for relief, arguing that a surge of Japanese heavy motorcycle imports threatened to destroy it. The Commission agreed that the imports were a threat, and in April 1983 Reagan raised the tariff on imported motorcycles over 700 cubic centimeters. The tariff started at 45 percent in the first year and stepped down over five years: 45, 35, 20, 15 and 10 percent. In 1987 Harley asked for the tariff to be ended early, saying the company had recovered, and it was. Reagan went to Harley's plant in York, Pennsylvania, that year to praise the workers.

1984: steel

By 1984 the steel industry had lost market share and thousands of jobs to imports. The Commission found that imports were hurting the industry. In September 1984, Reagan declined to impose across-the-board quotas but announced a policy of negotiating voluntary restraint agreements with the main steel exporting countries, with the goal of holding imports to about 18.5 percent of the American market. In practice, the agreements acted as quotas for several years.

1987: the 100 percent tariffs

In 1986 the United States and Japan signed a semiconductor arrangement, in which Japan promised to stop selling chips below cost and to open its market to American chips. By spring of 1987 the administration concluded that Japan was not keeping the deal. On April 17, 1987, Reagan announced 100 percent tariffs on roughly $300 million worth of Japanese goods, including some computers, televisions and power tools. They were a retaliation and a lever. Some of the tariffs were lifted in the following months as Japan's compliance improved.

1988: Canada

On January 2, 1988, Reagan and Canadian Prime Minister Brian Mulroney signed the United States-Canada Free Trade Agreement, which took effect on January 1, 1989, after both countries' legislatures had approved it. It phased out tariffs between the two largest trading partners in the world. This is the agreement that grew into the North American deal I trace in From the 1989 Canada deal to USMCA, a timeline of North American trade. Earlier, in 1985, the administration had concluded a free trade agreement with Israel.

Put the five together and you get a President who did both things. He restricted imports when he thought a specific industry was being harmed unfairly and he signed the most ambitious free trade agreements of the era. The record does not show an inconsistency. It shows a method.

A worked example, and the escape clause behind it

Two things are worth understanding about the motorcycle case, because they show how the machinery works and how a tariff lands on a buyer.

First, the machinery. The Harley tariff did not come from a presidential whim. It came from the "escape clause" in the Trade Act of 1974, usually cited as Section 201. Under that law an American industry can petition the International Trade Commission, a body of commissioners who act like a court of fact. The Commission asks whether imports are a substantial cause of serious injury, or the threat of it, to the domestic industry. If it says yes, it recommends a remedy to the President, who may accept it, change it or turn it down. In the motorcycle case the Commission found a threat and the President chose to act. In the steel case a year later the President chose a different remedy than the Commission's finding pointed to. The point is that the statute asks him to weigh the national economic interest, and a President who uses it is not breaking from free-trade doctrine so much as using a tool Congress built for the purpose.

Second, the arithmetic. Here is a hypothetical, labelled as one. Suppose a heavy imported motorcycle arrives at the dock with a value of $5,000 before the tariff. At the first-year rate of 45 percent, the tariff is 0.45 times $5,000, or $2,250, so the bike is $7,250 before the dealer adds his margin. In the fifth year, at 10 percent, the tariff is $500 and the bike is $5,500. The tariff on that same bike fell by $1,750 over the life of the program, which is exactly the point of a declining schedule: it gave a struggling American company a few years of breathing room and then took the shield away. A buyer paid more in the early years, and that is the real cost that economists are right to emphasize. The company, meanwhile, used the time to retool, improve quality and cut its costs. You can decide whether the trade was worth it, but you cannot say it was a trade made blind.

What the method was

Reagan's own phrase for it was "free and fair trade." The second word did a lot of work. His administration's position, stated repeatedly, was that open trade was the goal but that it rested on other countries playing by the rules. When they did not, the United States should respond with the tools it had. In September 1985 the administration announced a tougher posture toward foreign trade barriers, including the use of Section 301 of the Trade Act of 1974 on the government's own initiative, a statute that allows the United States to retaliate against practices it deems unfair. That same month, at the Plaza Hotel in New York, the finance ministers of the leading economies agreed to coordinate a weaker dollar, an intervention in the currency market that no purist would have favored.

In 1988 the story continued on Capitol Hill. Reagan vetoed an omnibus trade bill in May of that year, partly because of a requirement that businesses give notice of plant closings. Congress passed a revised version, and he signed the Omnibus Trade and Competitiveness Act on August 23, 1988. It strengthened the government's ability to retaliate against unfair trade practices, including the provision known as Super 301. A true purist does not sign that bill. A pragmatist who wants leverage does.

So here is a definition that fits the evidence. Reagan was a free-trade believer in principle and a bargainer in practice. He used restrictions as bargaining chips, as temporary shields for industries in trouble, and as retaliation for violations of agreements. He did not treat them as a permanent policy.

The answer, in five points

1. The record is too long to be an accident. One tariff on one product could be an exception. Cars, motorcycles, steel, electronics and the Section 301 and Super 301 tools, across eight years, is a pattern. You cannot call a pattern a mistake.
2. The restrictions were mostly temporary and targeted. The Harley tariff was scheduled to fall every year and ended early. The car limits were not renewed by the administration in 1985. The 1987 tariffs were lifted in stages. This is what makes Reagan different from a protectionist: he put the restrictions on a clock and tied them to a deal.
3. He opened markets at the same time. Canada and Israel are the proof. A man who wanted to close the country off would not have signed them.
4. The results were mixed, and an honest argument admits it. The car quotas raised the price of Japanese cars and made them more profitable, and the Japanese automakers responded by moving up-market and building plants in America. Honda started producing cars in Marysville, Ohio, in 1982, Nissan opened in Smyrna, Tennessee, in 1983, and Toyota joined with General Motors on a joint plant in Fremont, California, in 1984, followed by its own in Georgetown, Kentucky, in 1988. So the tariff and quota story is not simply a story of consumers losing. Some of the response was investment in American factories. But consumers did pay more for cars for a time, and the economists are right to say so.
5. A conservative judges policy by results, not by purity. Milton Friedman was not wrong to warn about the cost of protection. Reagan was not wrong to use leverage to open foreign markets and keep an industry alive through a crisis. The two points can both be true, and a mature trade policy weighs them.

The best remaining objection

There is one more objection and I will give it room. It runs like this: the exceptions made later conservatives too comfortable with protection. If Reagan could do it for cars, the argument goes, so can anyone, and there is no principled stopping point.

That is a fair worry. My answer is to borrow Reagan's own test. A restriction fits the Reagan tradition when it is targeted at a specific problem, tied to a negotiation or a recovery plan, set to expire, and paired with an effort to open markets elsewhere. A restriction that is broad, permanent and unconnected to any bargain is something else, and you can argue it on its merits, but you cannot call it Reagan's. The test cuts in both directions. Those who say Reagan would never have used a tariff are wrong, and those who say Reagan would have loved any tariff are wrong too.

For the full range of ideas conservatives bring to the question, read free trade, tariffs or managed trade, three theories side by side, and for the way trade policy lands in a family's budget, see who really pays a tariff, following the dollar from dock to shelf. If you want the longer Republican tradition, Republicans were the tariff party first, from Lincoln to McKinley shows that the party once believed in tariffs as a matter of faith, and seven trade myths both parties repeat, tested against the record tests the slogans on both sides. Seen in that context, Reagan was a hinge between two traditions, the party of the tariff and the party of the open market, and he held on to some of both.

Why this matters now

I don't care whether you are for tariffs or against them. I care whether you know the record. If you are a free-trader, you do your own cause no good by pretending your hero never raised a tariff. When a skeptic quotes the 1987 Japanese electronics tariffs, you will be caught flat-footed, and you will look like someone who has not done the reading. And if you favor tariffs, do not make the equal and opposite mistake of claiming Reagan as a protectionist. He believed in trade, and he signed agreements to expand it.

What he really believed was in the dignity of the American worker and the strength of the American economy, and he judged the tools by whether they served those ends. That's a more useful lesson for a voter than a slogan about purity.

The bottom line

• Reagan gave free-trade speeches and also limited Japanese cars in 1981, taxed heavy motorcycles in 1983, restrained steel in 1984 and hit Japanese electronics with 100 percent tariffs in 1987.
• He also signed free trade agreements with Israel and Canada. The pattern is bargaining from strength, not protection for its own sake.
• His restrictions were targeted, tied to negotiations and set to end. Use that as the test when someone invokes his name for a tariff or against one.
• The costs were real. Consumers paid more for cars for a time, and economists have good reason to warn about it.
• Check the dates and the laws yourself: the Trade Act of 1974, the 1988 Omnibus Trade and Competitiveness Act and the Canada agreement are all public.