Commentary

Bush as Trader

As of this moment, the Bush administration’s trade-policy record is a mixture of big wins for protectionism and modest advances for free trade. Which means that, so far, everything is going pretty much according to plan.

On the debit side of the ledger are two glaring sellouts from the spring of 2002: first, the decision in March to impose tariffs of up to 30 percent on imported steel; second, the May signing of an atrocious farm bill packed with market-distorting subsidies. Although both moves were bitter disappointments for free-market supporters, they were not random concessions to political expediency. Rather, they were elements of a conscious, high-risk strategy to revive U.S. trade leadership after years of drift. Whether the gamble will pay off won’t be known for some time.

The Bush trade strategy arose as a response to the failures of the prior administration. The Clinton years did see some significant trade accomplishments, but the biggest two—NAFTA and the Uruguay Round of global trade talks—came early. Indeed, Bill Clinton entered office in 1993 with NAFTA already signed and the Uruguay Round on the verge of completion. After those initiatives were wrapped up, the Clinton team allowed trade momentum to sputter. With the notable exception of permanent normal trade relations with China, the last six years of the Clinton administration produced few trade successes. Meanwhile, two debacles—the failure to win renewal of “fast track” trade-promotion authority (which expired in April 1994) and the collapse of WTO talks amid rioting in Seattle—called into serious question the U.S. commitment to continuing market-opening negotiations.

The Bush administration resolved to turn things around. The first step was renewing trade-promotion authority (TPA), since a congressional commitment to vote on trade deals up or down, without amendments, would greatly facilitate the task of negotiating new agreements. Unfortunately, getting TPA took much longer and cost much more than anticipated. Although the new administration began pushing Congress to move almost immediately after the inauguration, it wasn’t until August 2002 that President Bush was finally able to sign legislation. By that time, he had caved on steel tariffs, the farm bill, and protectionist demands from textile and lumber producers in an effort to procure the necessary votes.

Making specific protectionist concessions to cement congressional support for broader market-opening negotiations is nothing new: This “one step back, two steps forward” strategy has been a recurring feature of U.S. trade policy since World War II. It has worked in the past, and in the narrowest sense it worked again this time—that is, President Bush got his TPA and, with it, the congressional mandate to seek and sign new trade deals. However, a strong case can be made that the price was too high. The combined effect of the administration’s various protectionist moves was to swing only a very few votes into the pro-TPA column; other vote-buying strategies—corporate welfare for import-competing industries or added subsidies for their dislocated workers—could have brought in as many votes with less damage to U.S. trade policy. The steel tariffs and new farm subsidies provoked howls of protest around the world and dealt body blows to U.S. credibility. How could the United States lecture the rest of the world about the virtues of free trade, and the need to take political risks on behalf of same, when it couldn’t even stand up to 200,000 steelworkers? The one step back, it has turned out, was much bigger than the Bush team had planned. Consequently, coming out ahead in the end will be that much more difficult.

The steel tariffs in particular continue to produce headaches. A dispute-settlement panel has ruled that the tariffs were imposed in violation of WTO rules. The United States is appealing the decision, but it’s virtually certain to lose again—and then face European retaliation against U.S. exports. Just as the 2004 campaign is gearing up, the White House will have to confront the agonizing choice of ending the tariffs—and risking the ire of voters in battleground industrial states—or else bowing to trade sanctions that have been designed by the Europeans to target key industries in other swing states.

But enough about the spilt milk. U.S. Trade Representative Robert Zoellick and the rest of the Bush trade team are now working aggressively to make the most of their investment in TPA. The big prize is a new WTO agreement that reduces barriers to trade and investment on a global basis. In November 2001, the Bush administration overcame the obstacles that had proved insuperable in Seattle and launched a fresh round of WTO talks at a ministerial meeting in Doha, Qatar. The Doha Round is scheduled for completion at the end of 2004—but don’t hold your breath. Negotiators will have to sort out a host of contentious issues, none more complicated and politically explosive than agriculture trade barriers and subsidies. The Bush administration has signaled its willingness to make deep cuts—in effect, to undo much of what was signed into law last year—but only if the E.U. and Japan, whose farm policies are even more horrendous than ours, agree to cut even deeper. The first outlines of a possible U.S.-E.U. compromise position emerged recently in preparation for the WTO ministerial meeting in September in Cancun, Mexico. But barring an unexpected breakthrough in Cancun, the Doha Round is likely to drag on for years past the scheduled deadline.

Although strongly committed to seeking progress at the WTO, the Bush team is not putting all its eggs in that basket. Instead, it has launched an ambitious new program of “competitive liberalization”—in other words, entering into bilateral and regional trade agreements with a growing “coalition of the willing.” Singapore and Chile are the first partners to have signed up; free-trade agreements with those two countries were finalized earlier this year and recently sailed through Congress.

In addition, FTA negotiations are now under way with Australia, Morocco, five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua), and the five nations of the Southern African Customs Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland); negotiations will soon commence with Bahrain and the Dominican Republic. Meanwhile, talks for a hemisphere-wide Free Trade Area of the Americas (FTAA) continue to putter along, although differences over agriculture subsidies probably ensure that the FTAA, if it is to happen at all, will have to await the conclusion of the Doha Round.

This flurry of activity for regional and bilateral deals has raised concerns that the United States is abandoning its traditional commitment to the broader multilateral trading system. Don’t lose sleep over that one: This administration has been quite active at the WTO and is pushing hard for progress there. The fact, though, is that global trade rounds are few and far between; since the Kennedy Round ended in 1967, only two other agreements (the Tokyo Round and the Uruguay Round) have been concluded over the subsequent three-and-a-half decades. To its credit, the Bush team isn’t content to wait around for the next return of the multilateral comet.

Other administration critics have sniped at the selection of FTA partners. And it’s true that the current list of countries is long on economic lightweights. Nevertheless, as my Cato colleague Dan Griswold has pointed out, combining Chile, Singapore, and the other countries now negotiating FTAs with us would make for the world’s ninth largest economy and the U.S.’s fourth biggest export market. That’s not chump change. Furthermore, trade policy serves more than purely commercial objectives; it’s also a useful instrument of diplomacy. Encouraging economic reform in Central America and southern Africa through trade agreements is a smart and effective way to lend a helping hand to people struggling to escape poverty. And expanding U.S. economic engagement with the Muslim world—the Bush administration has announced that the planned FTAs with Morocco and Bahrain (as well as existing ones with Israel and Jordan) will serve as building blocks for an eventual U.S.-Middle East free trade area—is a critical adjunct to the larger war on terrorism.

Can the Bush administration make good on its ambitious plans? Time will tell. The achievement of a real and lasting trade legacy will require threading the needle with often-fractious trading partners and an always demanding Congress. And it will require reelection in 2004 to get the time needed to finish the job. For now, give the Bush trade record a flawed but promising “incomplete.”

Brink Lindsey is vice president for research at the Cato Institute