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Bush’s wobbly line on trade

The Bush team is embracing protectionism to curry political favor at home in an election year at the expense of pursuing a policy of open borders for a more competitive economy. — By Christopher Farrell, BusinessWeek Online
/ Source: BusinessWeek Online

When it comes to the economic rebound, I’d take a bet on the optimistic side: Economic growth, job creation, and the stock market will beat the cautious consensus.

JIM GRIFFIN, the always-astute market observer, captured the essential dynamic from his perch at ING Investment Management: “The recovery appears to have real traction now, having broadened out to include a pickup in investment spending and a more promising outlook for hiring. The rest of the world, a long-time drag on economic vigor, may not be exactly booming now, but it is improving. The various feedback loops that drive a cycle, up or down, now appear to be working virtuously, and it appears as if we’re still very early in the cycle.”

This unfolding dynamic of growth is why I’m positive for the short-run outlook. But worrisome clouds are gathering for the long haul. The Bush Administration’s lack of global economic stewardship threatens global economic vitality. Specifically, the Administration is embracing protectionism to curry political favor at home in an election year at the expense of pursuing a policy of open borders for a more competitive economy.

Industry after industry is knocking on lawmakers’ doors in Washington, blaming overseas competitors for lost jobs and incomes. Competition from China is unfair. The same goes for India and other developing nations. No matter that American consumers are major beneficiaries of China’s growing manufacturing sophistication. And that the fast-growing Chinese economy is absorbing imports from around the world, including the U.S.


The Administration, with an eye on the 2004 election, is listening to the siren song of protectionism even though an impressive body of economic research strongly supports the view that protectionism exacts a high price measured in living standards, wealth, innovation, and competitiveness. Maybe that had something to do with the Council of Economic Advisors, which is publicly adhering to free-trade principles, moving out of the Executive Office Building.

Well maybe not. But the Administration has slapped quotas on some Chinese goods, including bras, bathrobes, and other apparel, to appease Southeastern voters. Last year, the President decided to court voters in Pennsylvania, West Virginia, and Ohio by protecting the domestic steel industry with steep tariffs on imported steel. The 2002 farm bill increased agricultural subsidies by 70 percent to 80 percent over the next decade.

And the White House doesn’t seem too bothered that the latest round of World Trade Organization talks collapsed, largely over American and European farm-subsidy policies that hamper economic growth in emerging markets. The it seems loath to open up America’s agricultural borders during the current negotiations over Free Trade of the Americas.


Tariffs aren’t a catastrophe, like a sudden spike in the price of oil. But over time, the impact of tariffs and other trade barriers gradually drags down the economy. Take the steel tariffs. The WTO has ruled that they’re illegal under global free-trade rules. Europe is ready to retaliate with its own levies.

Here at home, the steel industry did get some relief, but the metal’s price went up for domestic manufacturers that use it. Their workers lost jobs. The International Trade Commission estimates that the tariffs could cost American workers and employees some $680 million.

Economists Gary Hufbauer and Ben Goodrich of the Institute for International Economics dismiss the ITC report as overly conservative. They calculate that somewhere between 26,000 and 43,000 workers lost jobs thanks to steel tariffs. Yet the Administration has given no indication that it will retreat from this ill-advised move.


Historians will judge the Clinton Administration’s economic record as mixed. But President Clinton will be universally lauded for bucking his party at a critical juncture in world economic history by embracing NAFTA and the last General Agreement on Tariffs & Trade agreement. He also supported maintaining trade ties with China, despite enormous opposition from the anti-free-trade crowd.

A passionate free-trade policy does carry a political cost. But it’s a positive-sum policy when it comes to the economy. Yes, the Bush Administration might suffer a political hit by taking its free-trade rhetoric seriously. But the economy would be much better off overall.

Copyright 2003 The McGraw-Hill Companies Inc. All rights reserved.