Commentary

Bad Trade

Considering the disposition of the 110th Congress, it’s probably just as well that the Doha World Trade negotiations failed to produce any new agreements. Litigation and enforcement — not cooperation or negotiation — are in vogue with the trade leadership on Capitol Hill.

Administrations and congressional majorities from both political parties have been supportive of trade liberalization for several decades. But that is no longer the case. Recently introducing the Trade Enforcement Act of 2008, House Ways and Means Committee Chairman Charles Rangel and Trade Subcommittee Chairman Sander Levin wrote: “America’s trading partners are running roughshod over our trade agreements [and] the Bush Administration has failed to insist that our trading partners abide by the same rules we do.” Last month, Levin attributed the large trade deficit to the “Bush Administration’s hands-off approach to trade enforcement,” and decried its adverse effects on economic growth and job creation.

Only a tiny fraction of trade violates the rules, and the cost of responding to breaches often exceeds any benefits.”

That is an alarmingly uninformed view to be held by the trade-subcommittee chairman, who really should know that the trade balance has virtually nothing to do with trade policy and everything to do with fiscal policy, monetary policy, and disparate patterns of savings and consumption around the world. Besides, as the trade deficit ballooned during the past quarter century, the U.S. economy grew by an average of 3.2 percent and added an average of 1.8 million net new jobs every year.

Rep. Levin’s statement is consistent with the congressional leadership’s carefully cultivated message that trade has fallen out of favor among Americans because the Bush administration has failed to enforce existing agreements. The House enforcement bill joins a similar Senate version, introduced late last year by Senate Finance Committee Chairman Max Baucus.

Among other things, the enforcement bills require the U.S. Trade Representative to appoint a Chief Enforcement Officer who will identify, investigate, and prosecute cases of incompliance by our trade partners. The legislation undercuts the president’s discretion to block the imposition of trade barriers in so-called China Safeguard cases. The bills ease the evidentiary requirements for imposing antidumping duties against imports, and the Senate version calls for creation of a panel of judges to review adverse WTO dispute settlement decisions and advise Congress as to whether the United States should comply.

Note the irony in that last provision. The bill would force our trade partners to toe the line with respect to every legal provision in every trade agreement, yet it blithely gives Congress carte blanche to regard U.S. commitments as optional.

Some of the enforcement provisions make for bad policy and most are simply unnecessary. But the biggest concern is that the legislation confers priority status on enforcement, thereby reinforcing misconceptions about our trade partners and trade in general. This strategy is a sinister political play that serves a narrow set of interests at potentially heavy costs to the broader economy.

About 95 percent of the world’s consumers live outside of the United States. U.S. manufacturers have been availing themselves of those large and growing markets, achieving record exports and buffering their bottom lines from the effects of a slowing domestic economy. But Congress’s enforcement fetish ignores this trend and, indeed, threatens it.

Rules are an important part of the trading system, but enforcement requires lots of discretion because violations are often inadvertent or inconsequential. Only a tiny fraction of trade violates the rules, and the cost of responding to breaches often exceeds any benefits.

Reps. Rangel and Levin are right that Americans need to regain faith in the trading system. The polls speak of a growing antipathy toward trade. But Americans have soured on trade because they are routinely barraged with exaggerations about the costs.

The media’s motive in scaring its customers is that fear sells advertising. In Congress, blaming foreigners for problems real and imagined provides the basis for press releases, photo opportunities and strident calls for action. And the fact that the most unpopular president in modern history is associated with trade liberalization makes it good politics to bash the policy.

But the rationale for such opposition is untruthful. The congressional leadership has perpetuated this enforcement myth to legitimize the protectionist agenda of some of its biggest benefactors. Selling that myth has undermined Americans’ support for trade.

Daniel Ikenson is associate director of the Cato Institute’s Center for Trade Policy Studies.