The Reagan veto message was almost as weak as we expected, but the mere fact that protectionism was mentioned was a plus, enough to cheer our trading partners. The likelihood of a bad bill being negotiated after the veto is sustained next week in the Senate is still high, though, better than 50-50. USTR Clayton Yeutter is already acting as if it's a done deal. In response to a critical letter from Rep. Jack Kemp, Yeutter writes: "Where the bill does have shortcomings, we have worked extremely hard to obtain language that will give the Executive Branch sufficient discretion so that it need not tilt protectionist. I believe we have done that successfully in every case, though we are not making a lot of public comment about that. Those who wish for this country to go protectionist will soon discover that this legislation offers them little or no comfort -- but I would prefer that they not discover that just yet!" [Psst! It's a secret free trade bill! But note Yeutter says the "Executive Branch" retains discretion, side-stepping the fact that the President himself is taken out of the loop by the language of the bill]
If Congress does not send back the omnibus bill stripped of the plant closing provision, Yeutter says the Administration will send up a new, simple trade bill asking for GATT negotiating authority. With Dan Rostenkowski pushing, the House almost surely will agree to the omnibus bill that Yeutter wants. A Democratic rationale is now developing that if the Democratic Congress walks away from the bill solely because of the plant closing provision, it will appear totally in the grip of organized labor. Once a new omnibus bill is patched together in the House, the dubious Senate warnings that time would not permit it to act would likely disappear. The best outcome is if the Senate does get tangled up in politics and procedure, killing the bill for the year, but this would be almost pure wishful thinking at this point.
At least we can surmise that the market has largely discounted final enactment of the bill, since the Administration signaled in late August that it wanted a compromise with Congress. If the bill is in fact enacted in June as is, minus plant closing and with no alteration to the transfer of power from the President to the USTR, I'd imagine the Dow could come off another 5 to 10 percent, but no more. It's unambiguous that the bill's mechanisms invite protectionism and a dimunition of world commerce, at the same time subtracting from U.S. leadership as the premier free-trade nation.
On the other hand, this could be offset by genuine clarification of the bill's language, as Yeutter asserts has already been done. There is a fair chance VP Bush, who we continue to hear is not happy with this aspect of the trade bill, will raise the issue in some way after the Senate vote. If he does, arguing for retention of final sign-off of all trade actions by the President, not the USTR, the omnibus bill would unravel, I think. The cloud it has cast over world markets would dissipate, and we would feel much less hesitant about the positive course of stocks, bonds, interest rates and commodity prices.