Special Section: Trade & Development - Bush as Trader: Ones step forward, two steps back

National Review, Sept 15, 2003 by Brink Lindsey

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.