Bush as Trader

This piece originally appeared in the National Review on September 15, 2003.
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As of this moment, the Bush administration's trade-policy recordis a mixture of big wins for protectionism and modest advances forfree trade. Which means that, so far, everything is going prettymuch according to plan.

On the debit side of the ledger are two glaring sellouts fromthe spring of 2002: first, the decision in March to impose tariffsof up to 30 percent on imported steel; second, the May signing ofan atrocious farm bill packed with market-distorting subsidies.Although both moves were bitter disappointments for free-marketsupporters, they were not random concessions to politicalexpediency. Rather, they were elements of a conscious, high-riskstrategy 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 ofthe prior administration. The Clinton years did see somesignificant trade accomplishments, but the biggest two--NAFTA andthe Uruguay Round of global trade talks--came early. Indeed, BillClinton entered office in 1993 with NAFTA already signed and theUruguay Round on the verge of completion. After those initiativeswere wrapped up, the Clinton team allowed trade momentum tosputter. With the notable exception of permanent normal traderelations with China, the last six years of the Clintonadministration produced few trade successes. Meanwhile, twodebacles--the failure to win renewal of "fast track"trade-promotion authority (which expired in April 1994) and thecollapse of WTO talks amid rioting in Seattle--called into seriousquestion the U.S. commitment to continuing market-openingnegotiations.

The Bush administration resolved to turn things around. Thefirst step was renewing trade-promotion authority (TPA), since acongressional commitment to vote on trade deals up or down, withoutamendments, would greatly facilitate the task of negotiating newagreements. Unfortunately, getting TPA took much longer and costmuch more than anticipated. Although the new administration beganpushing Congress to move almost immediately after the inauguration,it wasn't until August 2002 that President Bush was finally able tosign legislation. By that time, he had caved on steel tariffs, thefarm bill, and protectionist demands from textile and lumberproducers in an effort to procure the necessary votes.

Making specific protectionist concessions to cementcongressional support for broader market-opening negotiations isnothing new: This "one step back, two steps forward" strategy hasbeen a recurring feature of U.S. trade policy since World War II.It has worked in the past, and in the narrowest sense it workedagain 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. Thecombined effect of the administration's various protectionist moveswas to swing only a very few votes into the pro-TPA column; othervote-buying strategies--corporate welfare for import-competingindustries or added subsidies for their dislocated workers--couldhave brought in as many votes with less damage to U.S. tradepolicy. The steel tariffs and new farm subsidies provoked howls ofprotest around the world and dealt body blows to U.S. credibility.How could the United States lecture the rest of the world about thevirtues of free trade, and the need to take political risks onbehalf of same, when it couldn't even stand up to 200,000steelworkers? The one step back, it has turned out, was much biggerthan the Bush team had planned. Consequently, coming out ahead inthe end will be that much more difficult.

The steel tariffs in particular continue to produce headaches. Adispute-settlement panel has ruled that the tariffs were imposed inviolation of WTO rules. The United States is appealing thedecision, but it's virtually certain to lose again--and then faceEuropean retaliation against U.S. exports. Just as the 2004campaign is gearing up, the White House will have to confront theagonizing choice of ending the tariffs--and risking the ire ofvoters in battleground industrial states--or else bowing to tradesanctions that have been designed by the Europeans to target keyindustries in other swing states.

But enough about the spilt milk. U.S. Trade RepresentativeRobert Zoellick and the rest of the Bush trade team are now workingaggressively to make the most of their investment in TPA. The bigprize is a new WTO agreement that reduces barriers to trade andinvestment on a global basis. In November 2001, the Bushadministration overcame the obstacles that had proved insuperablein Seattle and launched a fresh round of WTO talks at a ministerialmeeting in Doha, Qatar. The Doha Round is scheduled for completionat the end of 2004--but don't hold your breath. Negotiators willhave to sort out a host of contentious issues, none morecomplicated and politically explosive than agriculture tradebarriers and subsidies. The Bush administration has signaled itswillingness to make deep cuts--in effect, to undo much of what wassigned into law last year--but only if the E.U. and Japan, whosefarm policies are even more horrendous than ours, agree to cut evendeeper. The first outlines of a possible U.S.-E.U. compromiseposition emerged recently in preparation for the WTO ministerialmeeting in September in Cancun, Mexico. But barring an unexpectedbreakthrough in Cancun, the Doha Round is likely to drag on foryears past the scheduled deadline.

Although strongly committed to seeking progress at the WTO, theBush team is not putting all its eggs in that basket. Instead, ithas launched an ambitious new program of "competitiveliberalization"--in other words, entering into bilateral andregional trade agreements with a growing "coalition of thewilling." Singapore and Chile are the first partners to have signedup; free-trade agreements with those two countries were finalizedearlier 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 theSouthern African Customs Union (Botswana, Lesotho, Namibia, SouthAfrica, and Swaziland); negotiations will soon commence withBahrain and the Dominican Republic. Meanwhile, talks for ahemisphere-wide Free Trade Area of the Americas (FTAA) continue toputter along, although differences over agriculture subsidiesprobably ensure that the FTAA, if it is to happen at all, will haveto await the conclusion of the Doha Round.

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

Other administration critics have sniped at the selection of FTApartners. And it's true that the current list of countries is longon economic lightweights. Nevertheless, as my Cato colleague DanGriswold has pointed out, combining Chile, Singapore, and the othercountries now negotiating FTAs with us would make for the world'sninth largest economy and the U.S.'s fourth biggest export market.That's not chump change. Furthermore, trade policy serves more thanpurely commercial objectives; it's also a useful instrument ofdiplomacy. Encouraging economic reform in Central America andsouthern Africa through trade agreements is a smart and effectiveway to lend a helping hand to people struggling to escape poverty.And expanding U.S. economic engagement with the Muslim world--theBush administration has announced that the planned FTAs withMorocco and Bahrain (as well as existing ones with Israel andJordan) will serve as building blocks for an eventual U.S.-MiddleEast free trade area--is a critical adjunct to the larger war onterrorism.

Can the Bush administration make good on its ambitious plans?Time will tell. The achievement of a real and lasting trade legacywill require threading the needle with often-fractious tradingpartners and an always demanding Congress. And it will requirereelection in 2004 to get the time needed to finish the job. Fornow, give the Bush trade record a flawed but promising"incomplete."