No Time for Protectionism
With much of the global economy edging toward recession, there's a growing odor of protectionism in the air. Japan and China are battling over mushrooms, towels, cars, and cell phones. In Latin America, Brazil and Argentina are fighting over tariffs. Dyspeptic bickering between the U.S. and the European Union has spread to steel, beef, corporate tax breaks, and even antitrust policy. Protectionism is the last thing international markets need right now, but politicians are under increasing pressure to "do something" to help powerful constituencies. They have to find the gumption to resist.
The Bush Administration, for all its free-market rhetoric, is setting a bad example. It has decided to help U.S. steel companies under pressure from foreign competition by proposing to create an international cartel to limit supply. When he was CEO of Alcoa Inc., Treasury Secretary Paul H. O'Neill was able to quietly pressure Washington to join with Russia and others to create an international aluminum cartel. He appears ready to do the same in steel. But all cartels, including OPEC, artificially raise prices and hurt consumers: President Bush on principle should not be party to them. Nor should he go along with the recent congressional vote to keep Mexican truckers out of most of the U.S. Under NAFTA rules, trucks should be able to cross the Rio Grande freely. But Congress, pressured by domestic truckers, is trying to stop them. The President should condemn this de facto protectionism.
Europe also bears responsibility for the surge in protectionism. The EU fought a ridiculous trade war with the U.S. over bananas, of all things. The EU bans hormone-fed U.S. beef and bioengineered corn and soybeans on safety grounds, although Americans eat this food every day. And European antitrust policy is increasingly being perceived as protectionist in Washington. Even though much of the lobbying against the General Electric-Honeywell merger came from U.S.-based companies, the European Commission chose to block the deal after U.S. regulators gave it a pass. The EU's focus on competitors rather than consumers makes the Bush Administration suspicious. If Europe goes after Microsoft Corp., as it might, there could be a big U.S. reaction.
It is time to cool this protectionist heat. U.S. Trade Representative Robert B. Zoellick is scheduled to meet soon with EU Trade Commissioner Pascal Lamy to set the stage for a new November round of World Trade Organization trade talks, the first since the fiasco in Seattle. The U.S. wants targeted, limited trade talks, while Europe wants broader discussions. The two sides should find common ground. Zoellick would also be wise to accept EU antitrust chief Mario Monti's suggestion that they begin discussions on synchronizing standards for antitrust policy around the world. This is a precarious time for the world economy. There is no room for protectionist missteps.