June 23 (Bloomberg) -- Even before either Barack Obama or John McCain assumes the U.S. presidency next January, they are complicating governance with the twin Ts: taxes and trade.

McCain is placating economic conservatives in the Republican Party by promising tax cuts that would lead to a fiscal nightmare. Obama is pandering to labor with protectionist threats that would endanger relations with important trading partners.

These stances run counter to major themes in both campaigns that seek to differentiate the two contenders from the unpopular Bush administration: McCain as a bipartisan leader, and Obama as a candidate out to change the my-way-or- the-highway approach to foreign policy.

Moreover, it's difficult to accept that McCain really favors expensive tax cuts tilted heavily toward the wealthy or that Obama really thinks former President Bill Clinton's international economic policies hurt the country.

For Obama ``to talk about a more multilateral world and then be unilateral on trade is a contradiction,'' says I.M. Destler, a fellow at the Peterson Institute for International Economics and a professor at the University of Maryland.

Obama never was a pure free trader, but before the primary season he seemed closer to that than to the protectionism he now talks about. ``We can try to slow globalization, but we can't stop it,'' he wrote in his 2006 book, ``The Audacity of Hope,'' citing former Treasury Secretary Bob Rubin. ``The U.S. economy is now so integrated with the rest of the world, and digital commerce so widespread, that it's hard to imagine, much less enforce, an effective regime of protectionism.''

Running From Nafta

Then came Ohio and Pennsylvania, where free-trade agreements are unpopular with many Democrats. Hillary Clinton didn't help matters when she ran away from one of her husband's policies -- the North American Free Trade Agreement -- and his other successes.

The Obama of the past five months opposes the trade pacts with Colombia and South Korea, says he will force the Canadians and Mexicans to reopen Nafta negotiations and is going to crack down on the Chinese.

Most serious studies of Nafta, 14 years after it was enacted, conclude that it has been a modest success. It's delivered few of the sweeping benefits promised, particularly in Mexico, but it is hardly the job-killer that Obama now alleges. On balance, the economic impact has been minimal.

Bad Deal

Further, if he did force the Mexicans and Canadians to reopen Nafta, it might not be such a good deal for the U.S. The Canadians might want to curtail the priority access the U.S. has to Canadian oil; China may be a better long-term customer. And Mexico might demand better protection for its farmers and easier access for its trucks in the U.S.

(Obama is backtracking somewhat on Nafta, and if he wins, don't be surprised if gives a green light to Democratic congressional leaders to pass the Colombia trade pact in a lame-duck session.)

China is a much bigger deal, economically, than Nafta; here the Democratic nominee has vowed to ``finally confront'' that nation's trade and currency issues and force the Chinese to play by the rules.

If only it were that easy. The Chinese now hold about half a trillion dollars of U.S. Treasury securities, up from about $60 billion in 2000, and are now the largest exporters of goods to the U.S. And no country is more important to Obama's ``multilateral'' vision than China on North Korea, Iran and terrorism, for starters.

Worse on Taxes

If Obama is wrong on trade, McCain may be worse on taxes. The Arizona Republican, a deficit hawk, voted against the Bush tax cuts on both fiscal and fairness grounds -- they were so tilted to the wealthy.

He has done about a 180-degree turn, advocating extending the tax cuts, calling for repealing most of the so-called alternative minimum tax, doubling the personal exemption for dependents, and cutting the corporate tax rate to 25 percent from 35 percent.

This would add more than $3 trillion in red ink during two McCain terms. He says he would offset this with spending reductions, though those he's proposed would only cover a fraction of that cost. Groups such as the Concord Coalition -- a Republican-oriented fiscal-watchdog group -- say the McCain proposals would produce a budgetary train wreck.

McCain also says any discussion of offsetting tax increases is off the table. Whoever is elected faces a fiscal calamity, with entitlement spending soaring as baby boomers retire.

No Straight Talk

The only way to deal with this is to cut back scheduled increases in Medicare and Social Security outlays, which Democrats have demagogically resisted, and increase some taxes, specifically on the wealthy, which Republicans have demagogically resisted.

To issue a unilateral no-new-taxes ultimatum is to sound more like George W. Bush than the ``straight talk express.''

Campaigns, by nature, produce over-promises and wild shots, even from the best. Still, the McCain-Obama contest, as the Economist magazine heralded in a cover story this month, is ``America at its best.''

These are two candidates who have the capacity to grow during this rigorous test. They are distant personally. Last week, at the funeral service for America's premier political journalist, Tim Russert, host of television's ``Meet the Press,'' they sat together. It was awkward for a while; at the conclusion of a moving service, they looked at each other and briefly embraced.

If they remember the legacy of Russert, the toughest and fairest of journalists, they will realize he never would have let them get by with irresponsible promises on matters like taxes and trade. He would have demanded more of Obama and McCain because he respected them so much.

(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net

Last Updated: June 22, 2008 10:21 EDT