Politics and Trade
What the election means for free trade and the global markets.
11:00 PM, Mar 1, 2004 • By IRWIN M. STELZER
YEARS DIVISIBLE BY FOUR are not good for free trade. When Americans go about the quadrennial chore of choosing a president, the candidates seeking their votes know one thing: everyone disadvantaged by the free international movement of goods and services and jobs knows who they are. But the winners--consumers who get cheaper goods, shareholders in businesses that profit from free trade, workers whose jobs are created by free trade--are a diffuse group, often unaware that their good fortune is a result of free trade.
So we are witnessing the spectacle of John Kerry, by nightfall certain to have a lock on the Democratic presidential nomination, calling for a review and possible revamping of all trade agreements, including NAFTA and the Africa/Caribbean trade agreement for which he once voted, and the treatment of businessmen who invest abroad as "unpatriotic" or worse--traitorous Benedict Arnolds, to be shamed and taxed.
In response, a president who once defiantly flaunted his free-trade credentials in the face of protectionists, is forced to appease critics with headline-catching, but minor, concessions, such as the imposition of import quotas on made-in-China brassieres. And to watch with some annoyance as leaders of his party join Democrats in calling for the sacking of his economic adviser because he was sufficiently impolitic to say that outsourcing is a good thing, since it lowers the costs of American firms, making them more competitive in world markets, and keeping prices lower for the nation's consumers.
THE ELECTION-YEAR RHETORIC is not the only reason to worry that the free-trade regime is coming unraveled. The World Trade Organization (WTO) has decided that American tax laws that favor U.S. exporters to the tune of $4 billion annually warrant the imposition by the European Union of punitive tariffs. Those tariffs, which will affect 1,700 products and steadily increase to more than $600 million annually by next year, went into place yesterday after Congress refused to repeal the offending statutes. Indeed, repeal is just about out of the question before Bush or a new president is inaugurated and a new Congress seated in January 2005. Pascal Lamy, the E.U. trade commissioner, is hoping that the new duties, low at first but increasing by 1 percent per month, will pressure Congress into repealing the offending laws sooner rather than later. But since the falling dollar will offset the impact of the new tariffs on the competitiveness of American goods, his hopes are doomed to remain unrealized.
ALL OF THIS to-ing and fro-ing is to be expected in this election year. Also to be expected was that German Chancellor Gerhard Schröder would use last week's meeting with President Bush to call for a strengthening of the dollar, although why an American president should aid a German chancellor who plotted against him at the United Nations during the debates over Iraq, and seems unable to introduce meaningful economic reforms in his own country, remains a mystery.
Fortunately, the picture brightens, at least a bit, if we look beyond the political posturing to what is going on below the political radar.
Most important is the backlash against the protectionists coming from Washington think tanks and what this town calls "opinion formers," a phrase that seems to describe those who influence the opinions of other "opinion formers." Data are being marshaled to show that the bulk of the job losses that so trouble voters (despite a rather low unemployment rate of 5.7 percent) are due to the vagaries of the business cycle, and to the enormous recent improvement in productivity, rather than to displacement of workers by imports. Federal Reserve Board Chairman Alan Greenspan has pointed out that during the free-trading 1990s the U.S. economy created 24 million more jobs than it destroyed, and that in normal times the job "churn" in America totals 2 million jobs every month. Or, as Martin Wolf puts it in the Financial Times, between 7 and 8 percent of U.S. private-sector jobs are lost every quarter, but employment nevertheless increases, thanks to the rapid re-employment of workers in newly created jobs.
WHILE THE BATTLE for the minds of voters and politicians is being waged, laborers in the free-trade vineyard are quietly going about their jobs. Supachai Panitchpakdi, director-general of the WTO, is calling on the United States (which he notes "has been the driving force behind eight rounds of multilateral trade negotiations") to reassert leadership in the battle for freer trade.