Mixed Signals on Trade Barriers

This article appeared in The Wall Street Journal on July 30, 2002.

After an eight-year lapse, reauthorization of Trade Promotion Authority — also known as fast track — now stands on the verge of clearing Congress. The House and Senate passed different versions of TPA months ago, but efforts to hammer out a compromise between the rival bills bogged down in tedious gamesmanship. Last Thursday a deal was finally worked out, and in a pre-dawn vote on Saturday, the House approved the final bill, 215-212. The Senate is expected to vote on the measure later this week.

Whereupon free traders will be tempted to pat themselves on the back for chalking up a big win. They should resist the temptation. The fact that TPA was hard to get doesn’t mean it’s worth that much. TPA, after all, doesn’t open a single market or cut a single tariff. All it does is commit Congress to vote up or down (i.e., without amendments) on trade agreements, thus allowing trade negotiations to proceed with the assurance that Congress won’t rewrite whatever deals are eventually struck. Actually striking those deals and getting them through Congress are what’s needed to knock down trade barriers — and doing those things will make the TPA fight look like a cakewalk.

Too Many Concessions

Indeed, the way the TPA fight has been fought will make the real job of trade liberalization more difficult. To get TPA through Congress, the Bush administration made one concession after another to protectionist and pro-subsidy lobbies — imposing steep duties on steel and lumber; caving in to textile-industry pressure against opening markets to Caribbean, South American, and Pakistani goods; and, perhaps worst of all, acquiescing in egregiously profligate new farm subsidies.

After this string of sellouts, U.S. credibility with our trading partners is currently hovering near zero. As a result, America’s ability to assume its normal role in leading trade negotiations is now in serious doubt. How can the U.S. tell other countries to take political risks for freer trade when we are unwilling to follow our own advice? The administration may find that, in winning congressional authority to promote trade, it has lost the moral authority to do so.

Defenders of the administration dismiss this kind of gloomy talk as the naive criticism of ivory-tower purists. In the real world, they say, compromise is unavoidable. And indeed it’s true that the path of American trade policy since World War II is strewn with protectionist side-deals to buy off the opposition. The administration’s deviations from free-trade principle come straight out of this “one step backward, two steps forward” playbook. The problem is that the playbook is now badly out of date.

What has changed? First, the U.S. has gradually shed most of its trade barriers. The remaining enclaves of protectionism are the politically hard cases — steel, textiles and agriculture. Once it was possible to buy off these hard cases and still have plenty of goodies (i.e., trade barriers) to put on the table in trade negotiations. Now, unless free traders are willing to take on some sacred cows, they are forced to come to the table empty-handed. That is exactly what the Bush administration has been doing: conducting negotiations at the World Trade Organization and for a Free Trade Area of the Americas while doggedly maintaining, and even raising the remaining U.S. trade barriers. That is a negotiating posture that is doomed to yield disappointing results, if not lead to outright failure.

Second, the need for U.S. leadership is especially acute at the present time. Our most pressing trade-policy interest is to encourage further liberalization in developing countries, where trade barriers remain very high, and where reductions in those barriers are needed as a catalyst for broader, pro-market reforms. And never has the example we set been more important in the developing world.

Until the 1980s, most developing countries were ideologically committed to “import substitution” and high trade barriers. Accordingly, what the U.S. did or didn’t offer in trade negotiations made little difference. From the early 1980s through the early 1990s, developing countries began to embrace trade liberalization as a response to the failures of past policies (and in mimicry of East Asian success). Much of this liberalization was unilateral — and thus, once again, what the U.S. did or didn’t put on the bargaining table had little effect.

Now, however, there is very little enthusiasm for further market-opening in the developing world. The payoff from earlier reforms has been less than was hoped for; there is consequently a widespread temptation to blame pro-market reforms — and trade liberalization in particular — for current tough times. Furthermore, many in developing countries also blame (with at least some justification) rich-country trade barriers for blocking their path to prosperity.

In the current situation, a “do what I say, not what I do” U.S. negotiating position discredits free trade as nothing but a rich-country scam. And it lends aid and comfort to anti-reform politicians throughout the developing world, since they will point to U.S. defense of its barriers and argue that poor countries should do no less.

So what should the Bush administration do after TPA is signed? First, it needs to recognize what a deep hole it’s in. Next, it should start climbing out of that hole with bold moves to restore U.S. credibility and revive flagging momentum for trade liberalization. Last week’s unveiling of new U.S. proposals in the WTO to slash farm tariffs and subsidies was a good start — but only a start. Coming on the heels of the dreadful new farm bill, those proposals ring a little hollow. The president needs to demonstrate their seriousness by admitting that signing the farm bill was a mistake and committing his administration to making amends. Also, he needs to stop appeasing the steel lobby and end U.S. opposition to reforming protectionist antidumping rules. And he should expedite the phaseout of textile quotas, now scheduled for the end of 2004.

Use the Bully Pulpit

The president then has to sell his program here at home. He must take to the bully pulpit and explain to the American people why the national interest in world-wide economic growth and pro-market reforms must trump the parochial interests that resist openness to foreign competition.

Doing what’s right won’t be easy. To make real progress, a significant expenditure of political capital will be needed. But as we fight to rid the world of terror, we should likewise labor to fill the world with hope. Strengthening the bonds of peaceful commerce among nations can serve that mission — but only if the White House is willing to take on special interests that oppose it.

Brink Lindsey is director of the Cato Institute’s Center for Trade Policy Studies. He is the author of the book “Against the Dead Hand: The Uncertain Struggle for Global Capitalism” (John Wiley & Sons, January 2002).