By Paul Magnusson
Sometimes it seems as if the Bush Administration is at war with itself over trade policy. One day it's scolding foreigners about the benefits of open trade. The next, it imposes new tariffs on imports. Case in point: As President Bush met with five Central American leaders in San Salvador on Mar. 24 to propose a regional free-trade pact, his Administration prepared to heed the calls of senators from timber-producing states and levy new 29% tariffs on imported Canadian softwood lumber. That came just two weeks after the Administration raised hackles in Europe and Asia by slapping stiff new tariffs on foreign steel.
The seeming hypocrisy is leaving many of America's trading partners angry and confused. After the steel decision, Chinese Trade Minister Shi Guangsheng complained that "advanced economies which once preached free trade are now undermining free trade." Worse, the White House moves could lead to retaliations that boost tariffs and seriously complicate trade relations. Europe has threatened to strike back at U.S. products from oranges to motorcycles, while Japan, China, and South Korea are filing official protests to the World Trade Organization. "The Bush Administration could undercut its moral authority and free-trade credentials in international trade negotiations," says Clyde V. Prestowitz Jr., a former Commerce Dept. official who heads the Economic Strategy Institute, a Washington think tank.
In reality, however, the Bush Administration's dance on free trade isn't new. History shows that combining demands for fairness for U.S. exports with threats of retaliation can work. The past master of the two-steps-forward, one-step-back approach to trade was Ronald Reagan, who faced remarkably similar circumstances: a high dollar that stifled U.S. exports, a large trade deficit, a farm sector struggling with low prices, a Congress partly ruled by Democrats, and the launch, in 1986, of a new round of global trade talks.
Many of the flash points were the same as well. Reagan slapped import controls on foreign steel and Japanese cars. He fought Canadian subsidies on wheat and lumber. The Gipper even placed five years of tariffs on foreign motorcycles, using the same law Bush cited to slap tariffs on foreign steel. In fact, Reagan's rescue of Harley-Davidson Inc. became a model among U.S. trade experts for the benefits of temporary protection. Harley used the respite to retool and, at its request, the tariffs were dropped a year early.
Like Reagan, Bush "is a hardheaded pragmatist," insists Peter Morici, a University of Maryland economist. So far, he notes, Bush has managed two major trade victories that eluded President Clinton. The House, traditionally more protectionist than the Senate, passed a bill granting Bush "fast-track" trade negotiating authority--but only after he offered new protections for the U.S. textile industry. And the WTO agreed last year in Doha, Qatar, to begin a new round of trade liberalization talks focusing on services and reducing farm subsidies, two key Washington priorities.
U.S. Trade Representative Robert B. Zoellick insists the cost of landing congressional support for free trade sometimes means protecting vulnerable industries from temporary import surges. Certainly, the Administration has big ambitions. While pursuing a huge multinational negotiation within the WTO, it is also hoping to wrap up a 34-nation, hemispheric free-trade deal by 2005. To persuade Brazil--Latin America's leading opponent of U.S.-backed efforts--to take part, the Administration is pursuing separate deals with Chili, Peru, and five Central American nations. The plan: isolate South America's largest economy.
Still, the approach has tensions on the rise across the globe. Over the next few months, the U.S. may target Canada for wheat subsidies and Europe for discriminating against U.S. bioengineered foods. In the short run, the moves could bring a new round of tit-for-tat retaliation. But if they push along free-trade talks and open markets, applause will likely drown out criticism. And Bush's Texas two-step will become the model for future trade warriors. Magnusson covers trade policy from Washington.