Bush’s Likely Path Fails to Address Some Issues
By Robert R. Ebert, Ph.D., Buckhorn Professor of Economics
January 2005
President Bush has a philosophical inclination to let markets be the driving force in the economy. That inclination is likely to keep the administration pushing for a new trade pact through the current round of World Trade Organization negotiations, which began in Doha, Qatar, in 2001. Such a pact would be seen as creating a freer and more open world trading system.
However, political realities in the United States and among our trading partners will make it difficult to achieve a meaningful trade-liberalizing agreement. For example:
• politically powerful U.S. farmers seeking to use health and safety issues to create proxy protectionism against imported beef
• Russian restraints on imports of U.S. chicken
• an ongoing battle with Korea over allowing more imports of Korean oranges into the U.S. (White)
The Bush administration also has demonstrated a willingness to engage in protectionist action for industry when it is politically expedient to do so. The steel tariff episode during his first term is evidence of such policies.
In the President’s first four years, a number of bilateral agreements were concluded, including those with Chile, Central America (CAFTA), Australia and Singapore, to name just a few. Economists are divided on whether the cause of free trade is advanced more effectively by these regional pacts than it would be by global trade agreements. The issue is whether regional preferential trading agreements (PTAs) are stepping stones or stumbling blocks to world free trade. That question is argued eloquently in a 1999 article by Anne D. Krueger in the Journal of Economic Perspectives (Krueger).
Whatever the arguments, the second Bush administration is likely to push for more preferential trading agreements and especially for the Free Trade Agreement of the Americas (FTAA).
What the President Should Do
If the premise is accepted that global free trade is a positive-sum game that enhances the economic welfare of many (and there is ample theoretical and empirical support for that position), there remains the question: What do we do for the losers, both in the U.S. and abroad? The U.S. has simply not joined in any meaningful debate on this issue.
There have been meager attempts at trade adjustment assistance for U.S. workers who lose jobs due to import competition. However, that is a Band-aid approach. Meaningful domestic structural reforms are needed, such as:
• strengthening our education system
• encouraging community development and re-development
• improving labor-management relations to ensure that today’s workers - and future generations of workers - are prepared to compete in a world that is converging in educational and productivity attainment
Likewise, we must address working conditions among our trading partners. How can we assure that workers abroad have humane wages and working conditions - without reverting to self- and mutually destructive protectionism? Nobel laureate economist Paul Samuelson has elaborated on some of these ideas in a recent article in the Journal of Economic Perspectives (Samuelson).
Tackling these issues and questions is not going to be easy politically or economically. But if President Bush wishes to exercise true leadership on trade issues in his second term, one hopes he will have the political courage to engage the debate.
Ebert Works Cited
White, Gregory L., Scott Kilman, and Roger Thurow. “In Global Food-Trade Skirmish, Safety Is the Weapon of Choice.” The Wall Street Journal. December 15, 2004. p. A-1.
Krueger, Anne D. “Are Preferential Trade Arrangements Trade Liberalizing or Protectionist?” Journal of Economic Perspectives. Vol. 13, no. 4. Fall 1999, 105-124.
Samuelson, Paul A. “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization.” Journal of Economic Perspectives. Vol. 18, no. 3. Summer 2004, 135-146.
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Rearranging the Proverbial Chairs On the Deck of a Sinking ‘Global Titanic’
By Param Srikantia, Ph.D., Associate Professor of Business Administration
I have taken the liberty in this piece of departing from the mandate given to me to comment about President Bush’s foreign trade agenda. While I could go into specifics of President Bush’s trade policy, I believe that its details are irrelevant to fivesixths of the world’s population because there is a sense that either way, there is going to be very little change in their fate. Despite his best intentions, whether President Bush’s preferential trading agreements (PTAs) will weaken or strengthen the vitality of the world economy is immaterial to many. Most of the world’s population is so marginalized that either way, President Bush’s trade policy will amount to little because so many live and breathe outside the circle of benefits that free trade offers.
Much of U.S. trade policy is predicated on the desirability of free trade and the celebration of the free movement of market, goods and capital (and not people) across national boundaries. Some object to the fact that the United States has never been willing to adhere to the same free market standards that it has vociferously demanded from poor countries. In fact, the United States and the other industrialized countries that control the dynamics of the international economic system constitute an exclusive elite in the eyes of the rest of the world: The top one percent of the world’s population makes more income than the bottom 57 percent. Against this background, of what practical consequence is President Bush’s trade policy?
Global practices of free trade and free market capitalism have unleashed exponentially high levels of economic and social disenfranchisement upon the indigenous societies of the world. The continuing imposition of these practices will only fuel flames of rising global discontent.
Policymakers in Washington, communicating only with the governing economic elite in the poor countries, are out of touch with the needs of the marginalized five-sixths.
Like the tsunami that wreaked havoc in Asia in December, this rising tidal wave of discontent will burst forth one day. Then, ironically, only the military might of the “free world” will be able to suppress this popular eruption effectively.
The practices of foreign trade, in their current form, are a denigration of human dignity. Many of the so-called developing societies are great repositories of cultural, spiritual and relational wealth that the industrialized countries do not understand. This is a type of wealth that is socio-culturally embedded in complex subterranean systems of relationships that foreign trade frameworks do not recognize. In the era of free trade, for example, China represents a source of cheap labor or access to a large market. Rarely does the CEO take time to wonder what an embryonic, developing society like the U.S. (about 200 years old)
could learn from a fully developed society like the Chinese (about 5000 years old). In the parlance of free trade, the labels are switched, and China is, ironically, the developing society!
At the same time that the world’s business and political leaders converge in exotic places for their annual World Economic Forum, there is another meeting that takes place simultaneously whose voices are silenced by the corporate-friendly U.S. media. The World Social Forum, a multinational congregation of about 30,000 respected scholars, activists, farmers, trade unionists and social workers from all over the world, meets annually to oppose neoliberalism and the domination of the world by capital. This forum’s leaders are committed to reinstating “the person” as the center of their universe.
I would look not to the U.S. trade policy for global emancipation but to the leaders of the World Social Forum for intellectual and spiritual sustenance. Let us follow their work more closely.
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The Bush Trade Agenda: Missing Elements
By Mary Pisnar, D.B.A., Associate Professor of Business Administration
The Bush administration has labeled its trade policies “Competitive Liberalization” (Economist, Failing of Trade), combining multilateral negotiations in the World Trade Organization (WTO) forum, regional deals such as the Free Trade Act of the Americas (FTAA), and bilateral agreements with specific countries. However, this “Competitive Liberalization” has only amounted to limited agreements with countries that do not present any real competitive threat to the United States. While this administration is working to maintain domestic political capital, the developing markets of Latin America are working towards greater competitiveness and sustainability.
Political Capital
President Bush’s trade promotion authority will expire in July 2005. This authority allows the President to negotiate trade pacts and submit them for a Congressional vote without revisions by Congress. Trade promotion authority was granted to President Clinton in 2002 by a margin of one vote (Sparshott).
The Bush administration has taken actions geared toward gaining political capital in order to garner the automatic renewal of trade promotion authority. Protectionist measures, including steel tariffs, softwood lumber protection, an increase in agriculture subsidies, and new quotas on Chinese clothing, serve to send the signal that Bush will protect constituent industries (Frankel).
Developing Markets of Latin America.
While the administration focuses on protecting key domestic industry sectors, Latin America is aggressively moving to solidify regional and global relationships. The hallmark regional agreement that would create a free trade zone encompassing North and South America, FTAA, will not be reached by the January 2005 deadline. Key stopping points for the U.S. are investor protection and intellectual capital rights. The dominant trading block, the Southern Cone Common Market (MERCOSUR), led by Brazil, is protesting U.S. agriculture subsidies. (Economist, Picking up the Pieces). Latin America is showing signs of regional unity. On December 9, 2004, leaders of 12 countries signed a document establishing a union combining the existing trading blocks of MERCOSUR and the Andean
Community (CAN). MERCOSUR includes full members Argentina, Brazil, Uruguay and Paraguay; associate members Chile, Bolivia, Peru and Argentina; and applicant Mexico. CAN includes Bolivia, Colombia, Ecuador, Peru and Venezuela. This Latin American Union agreement is very loose and peripheral to most intra-regional trade agreements. Yet it indicates growing unity and sophistication of these developing countries.
MERCOSUR has moved aggressively to establish trade agreements with the European Union (EU). While initial talks have not resulted in an agreement, it is clear that the EU is preferred to the U.S. Brazil’s president, Luiz Inacio Lula da Silva, sees EU negotiations second only to the current around of the WTO, begun in Doha, Qatar, in 2001 (Economist, Looking South). Latin American countries are also pursuing agreements bilaterally. Chile and China are likely to reach a free trade agreement in the coming year. Chile already recognizes China as a full market economy and is China’s largest trading partner in Latin America.
Bush has had limited success with agreements reached with Central American and Caribbean countries. The Central American Free Trade Act (CAFTA), on which Congress may vote in 2005, has been signed by El Salvador, Guatemala, Honduras and Nicaragua. Costa Rica pulled out over the U.S. demand that it privatize its telecommunications and insurance industries. The Dominican Republic signed in August 2004, but recently enacted a tax on drinks made with corn-based sweeteners, a leading U.S. export. This has put the agreement in jeopardy.
Beyond Latin America
These poverty-riddled countries have a vested interest in signing a free trade agreement
with the U.S. Chinese manufacturing threatens the survival of the key textile and clothing sectors in Central America; CAFTA countries feel this agreement may help them survive the Chinese onslaught. In support of this approach to trade, the administration feels that these limited agreements will create momentum toward larger regional agreements. Beyond Latin America, free trade agreements have been signed with Australia, Singapore and Jordan, with bilateral negotiations taking place with 10 more countries.
The developing markets of Latin America are seeking trade relations with the EU and Asia. Can the U.S. risk being second choice in these markets? A global game of chess is under way, with and the administration choosing to risk access to developing markets in order to gain political appeasement at home.
There is no such thing as free trade. Bush administration policies have attempted to carefully manage trade - and are likely to continue to move in that direction.
Pisnar Works Cited
Economist. “Failing of Trade.” November 29, 2003. p. 3-4.
Sparshott, J. “U.S. threatens to cut Dominican trade pact unless soft drink levy repealed.” Washington Times. November 8, 2004. p. B-3.
Frankel, Jeffery. “Bush’s Spectacular Failure.” The International Economy. Spring 2004. p. 24.
Economist. “Picking up the Pieces: Latin America and the United States.” November 20, 2004. p. 23.
Economist, “Looking South, North or Both?” February 2, 2004. p. 35.
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