It could turn out to be President Clinton's best and brightest economic move since his 1993 budget-balancing deal--even if few people noticed it. In May, while Americans mourned Frank Sinatra, caught the last Seinfeld, and watched trustbusters wrestle with Bill Gates, the White House unveiled a bold agenda for trade expansion that--if it succeeds--could provide a growth path for U.S. exports and the economy into the next century.
In a whirlwind swing through Europe, Clinton called for a new round of global trade talks that he would host next year. He renewed negotiations aimed at knocking down barriers to trade between the U.S. and the European Union. At the World Trade Organization headquarters in Geneva, Clinton chided bureaucrats to be less secretive and more accommodating of labor and environmental standards in negotiations. And finally, he hinted he'd launch a new legislative fight in 1999 to renew his fast-track trade negotiating authority from a reluctant Congress.
After three years of getting almost nowhere on trade issues, Clinton is ready to risk some political capital to go down in the history books as the President who presided over the longest economic expansion since the end of World War II--and forged the deals to make sure it continues after he goes off to build his Presidential library. The initiatives are all the more striking given the timing: As Clinton rolls out his plans, the Asian economic meltdown is worsening--illustrating the potential volatility of the new global economy. Already, exports to Asia are down 10% compared with a year ago.
Once again, investors are worrying that U.S. companies won't ride out the storm but will see earnings suffer as a result of the Asian mess. As container ships carry ever larger cargoes of cheap Asian goods to U.S. shores but return empty, and the dollar continues its relentless climb, free trade looks increasingly like a one-way street--and the theory of a never-ending, trade-driven expansion seems more questionable.
BACKLASH. Especially in Washington. Last fall, labor-aligned Democrats blocked Clinton's push for fast-track trade negotiating authority because they say deals such as NAFTA harm U.S. workers and the environment. Now, there's backlash against free trade among Republicans. Angered by religious persecution and terrorism in nations that rely on exports to the U.S., they are turning increasingly to trade sanctions to punish transgressors. Example: On May 20, the House voted to bar high-tech exports to China because of allegations that Clinton let a top campaign donor export satellite knowhow to Beijing.
If the President can pull off even half of his new agenda, he might be remembered as the strongest Democratic advocate of free trade since John F. Kennedy. If not, he stands to be blamed for letting slip the greatest opportunity in years to create truly open global markets. Trade now contributes nearly $1 trillion to the U.S. economy and has accounted for a third of its growth since 1992. With Asian markets drying up, the key to continuing export growth will be hammering out agreements to ensure that U.S. goods can sell easily in Europe and Latin America.
But Clinton has his work cut out for him. His first challenge is convincing the public that America has more to gain than to lose from cracking open foreign markets. The growing trade gap--headed for a record $155 billion this year--won't ease public anxiety. The fear: An ever larger current-account deficit will eventually reduce the value of the dollar. That could fuel inflation and drive up interest rates.
For now, there's little cause to worry. On May 26, the dollar hit its highest level in seven years--above 137 yen--thanks in part to the surge of money from Asian investors seeking safety. And, in the short run, the strong dollar is slashing the cost of imported goods and keeping inflation at bay.
But over time, the dollar could suffer whiplash. "A trade deficit that continues this path could eventually cause the dollar to turn around and come back down, and then the Goldilocks economy could come apart with it," warns C. Fred Bergsten, director of the Institute for International Economics.
Clinton's trade agenda is designed to halt that process by boosting exports. On his European trip, the President won agreement from the EU for a new round of bilateral talks, dubbed the "Transatlantic Economic Partnership." It is intended to speed up talks on a wide variety of old issues--agriculture, intellectual property rights, insurance, and telecommunications--and some new ones, such as electronic commerce. To get the Europeans to agree to the regional trade talks, Clinton pledged to water down sanctions in the Helms-Burton law that punish European companies doing business in Iran and Cuba.
In calling for a new round of global talks in Geneva, Clinton warned that trade negotiators must make their dealmaking more public and include considerations other than commerce. "We must do more to ensure that spirited economic competition among nations never becomes a race to the bottom in environmental protections, consumer protections, or labor standards," he said.
WTO Director-General Renato Ruggiero lauded Clinton's proposals as "historic." But the U.S. Congress will be a harder sell. After Clinton narrowly failed last November to secure fast-track trade negotiating authority from the House, he shelved the matter as too hot for this election year. In the meantime, however, Clinton can't expect progress in new trade talks: Negotiators in Latin America and Europe won't put their best offers on the table unless the President has fast-track authority, which keeps Congress from undoing his deals.
This time, Clinton is going back to try to pick up the Democrats he couldn't convince--in part by reviving environmental and labor safeguards in fast-track bills that were approved for Presidents Reagan and Bush. One of last year's anti-fast track Democrats, Representative Nita M. Lowey of New York, applauded Clinton's pro-environment approach in Geneva and, according to her staff, "would be very supportive" if the green portions of the bill were restored.
Some CEOs like Clinton's plan. "We already have high environmental standards in the U.S.," says W. Douglas Ellis Jr., CEO of Southern Mills Inc. in Union City, Ga. "We want an even playing field." Yet, business is wary of burdening trade with too much regulation. "Penalizing countries that don't conform to our particular standards or ways of life, to use trade as a means of changing social policies--we think that's a bad policy," says Maytag Corp. international affairs Vice-President Douglas C. Horstman.
Will labor go along? The AFL-CIO won't reveal under what circumstances it will back more free-trade deals. But it is likely that the cost of securing labor's support--guarantees on foreign minimum wages, for example--will be more than the Administration wants to pay. And U.S. unions are still unhappy with what they see in Mexico, where, despite NAFTA, maquiladora factories have kept most unions out. "Globalization is being threatened by a public attitude of fear, so Clinton's got to find ways of accommodating these issues," says Daniel C. Esty, a law professor at Yale University who was a Bush Administration trade negotiator.
Aware of the pitfalls, the White House will go slow on its fast-track campaign until after election day. But Clinton can't wait very long. If he wants to go down as the Democrat who knew how to take care of business, he'll have to keep hawking America's exports.