TCS Daily

Free Trade at Low Tide

By Ramesh Ponnuru - January 14, 2004 12:00 AM

The 2004 election is likely to offer America an important choice about global trade. It is, alas, a choice between different orders of badness. On one side, we have a president who has imposed tariffs on imports of steel, lumber, and Chinese lingerie. On the other, an opposition that largely agrees with these tariffs and objects only to the president's promises to free trade in the future.

Understanding how we came to this pass requires, first, putting President Bush's protectionist sins in perspective. His tariffs fall squarely within the mainstream of American trade policy since the Great Depression. For seventy years, American presidents have followed a strategy for promoting free trade that Brink Lindsey, a trade-policy analyst at the Cato Institute, calls "diversion and appeasement." The idea has been to liberalize trade without ever arguing in favor of opening America's markets. Instead, the acceptance of imports has been presented as the necessary, though regrettable, price of getting other countries to accept our exports. As Lindsey puts it, our trade debate has not pitted free traders against protectionists so much as it has pitted optimistic mercantilists against pessimistic ones.

When diverting attention from imports to exports has failed, presidents of both parties have attempted to placate enough discrete protectionist constituencies to win support for broadly free-trade policies. One of the reasons President Bush imposed the steel tariffs, for example, was to mollify enough congressmen to get Congress to give him the authority to negotiate new free-trade agreements.

Some free traders, especially liberals, have tended to regard President Clinton as a hero and Bush as a betrayer. There is an element of truth to this depiction: Clinton did, in fact, take greater risks to promote free trade than Bush has been willing to take. But Clinton also benefited from timing. The North American Free Trade Agreement was essentially waiting for him when he took office, and global trade talks were nearing completion. So his trade bureaucracy could churn out protectionist policies, as the trade bureaucracy always does, starting a steel anti-dumping action here and flouting trade agreements there, without affecting his overall free-trade credentials. He was, however, unable to start any new movement for free trade (with the significant exception of the China trade deal). His power to negotiate trade deals lapsed in 1994, and he was never able to persuade Congress to give it back to him. Another round of global trade talks was launched but crash landed during the Seattle riots of December 1999 -- with Clinton expressing sympathy for the anti-trade rioters. In 2000, as hard as it may be to believe now, Bush's campaign aides believed that they could contrast his strong support for free trade with the Democrats' wavering to good political effect.

The timeline has worked against Bush since he has been in office. He had to make protectionist concessions early, in order to win the authority to make trade agreements that, he hopes, will be successfully completed in his second term. So for now the ledger records only negative entries.

Why were these concessions necessary in the first place? And why did President Clinton prove unable to get the authority to make trade deals? The simple answer is that support for free trade in the Democratic party has collapsed. In part, this may be because as the party has shrunk, it has become more dependent on unions that oppose free trade for the most practical of reasons and left-wing activists who oppose it for ideological ones. This is particularly true of the party's congressional wing.

The deeper answer may be that the divert-and-appease strategy has reached its endpoint. Clinton's way of winning support for trade in his party was to devise a new form of appeasement: side agreements to trade deals that purported to protect labor and environmental standards. This strategy had two flaws. First, it conceded that trade degraded the environment and immiserated workers but then proposed administrative solutions that were plainly inadequate to these problems. Second, it made it possible for anti-trade constituencies to achieve their ends by raising the bar for purity on labor and the environment.

Dick Gephardt is both acting within the Clinton-Democrat consensus and pulling that consensus to the left when he says that he supports trade pacts on the condition that all the nations of the world establish satisfactory wage minima. Howard Dean also wants strong labor and environmental standards, and has repudiated his previous strong support for NAFTA. Its side agreements are now judged too weak. John Edwards bristles indignantly when accused of having supported free-trade deals. Wesley Clark echoes the labor-and-environment mantra of his party, wants to punish companies that outsource, urges a strict buy-American policy for the military, and criticizes Bush for not acting against Chinese textile imports sooner. Most of the Democrats have condemned Bush not for imposing tariffs on imported steel, but for lifting them. Joe Lieberman is the only Democratic presidential candidate to resist this tide, and his nomination is widely regarded as unlikely.

Unlike Bush's policies, the new Democratic position on trade is a decisive break with the last seventy years of American trade policy. It means that the Democrats are, at the very least, effectively opposed to any further moves to liberalize trade. Poor countries are not going to agree to labor and environmental standards that will hammer their economies. So the Democratic position amounts to favoring trade liberalization only on the condition that it is impossible.

By 1997, only an estimated 40 or so House Democrats were willing to vote to give Clinton the authority to negotiate trade agreements. Under Bush, that number has shriveled further. Only 21 House Democrats voted to give him that authority -- even though his bill language went further than the 1997 language to address labor and environmental concerns. Keep in mind that the Democrats were not even being asked to vote for an actual trade agreement. They were being asked to allow the president's men to negotiate a trade deal that would then be subject to an up-or-down vote in Congress. Members who felt that a deal ravaged workers and the environment would be free to vote it down. In other words, the vast majority of Democrats voted against even starting trade talks.

There have always been members of each party who were protectionist by conviction, or concerned about the impact of trade on some industry in their district. When a substantial number of Democrats were willing to vote for free trade, it was unnecessary to round up as many Republican votes. The new Democratic rejectionism means that President Bush has to get Republicans from protectionist districts to vote for free trade. He has to twist arms and cut deals. No wonder the House Republican leadership hates holding trade votes -- and no wonder Bush has caved on steel and textile protectionism.

There is some hopeful news. The diversion-and-appeasement strategy has always generated a lot of small-scale protectionism, but the lifting of the steel tariffs suggests that two of the reasons for this may be fading. In the past, workers in export industries have shown no more free-trade proclivities than other workers. And while tariffs impose net costs on an economy, the benefits tend to be concentrated and the costs dispersed -- hence leading to a disparity in lobbying. This time, however, the bearers of the cost got organized. Steel-using industries fought hard to get rid of a policy that hurt them. Europe, by threatening retaliation against industries in key states, got exporters with clout to fight the steel tariffs as well.

It is a mostly inauspicious political moment for free traders. But the choice for free traders in this election should be clear. Only Bush and Lieberman hold out the hope of significant new trade deals. Under a Dean or a Gephardt, there is no chance of one. It is a strong argument for Bush. Given the way his own tariffs have clouded the issue, however, it may not be one he can make.

The writer is senior editor at National Review.


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