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ROUNDTABLE: Future of U.S. Trade Policy

By Susan Aaronson, Kevin Gallagher, Daniel W. Drezner | October 23, 2007

Democratic candidate Hillary Clinton has
called for a timeout on trade agreements.
Photo by Llima Orosa (CC).

Many of George Bush's policies will be reviewed during the next U.S. administration. Trade policy is no exception. With Democratic candidate Senator Hillary Clinton suggesting that the United States take a "timeout" on future free trade agreements and support for free trade waning among Republicans, Policy Innovations asked three trade experts what they see for the future of U.S. trade policy.

Trade Policy Needs Empathy
Susan Aaronson

Associate Research Professor, George Washington University

A timeout might be helpful, as a new president may want to alter the paradigm set up by George Bush. His competitive trade liberalization has undermined the WTO, made achievement of a trade round focused on development unlikely, and undermined public support for trade. But a timeout might be misread by market actors and policymakers as signaling greater protectionist sentiment in the United States. The truth is polling data from the 1930s—when the United States first began to negotiate bilateral trade agreements—to the present reveal a public that has long been deeply ambivalent about what trade agreements do and their effects on American producers, consumers, taxpayers, citizens, and friends of the earth.

Part of the problem is we have an incomplete and dishonest discussion about trade and what trade agreements do. Policymakers continue to discuss trade as if it is about mercantilism: exports good and imports bad. The truth is trade agreements open markets by regulating how and when nations can apply protectionist measures. The Constitution gave Congress authority to regulate foreign commerce. Today that commerce is bedeviled by differences in regulation among countries (U.S. and EU competition policy) or differences between U.S. and other countries' unwillingness or ability to regulate (inadequate regulation of product safety in China or products made with slave labor from Brazil).

People and policy must catch up with these new circumstances. We need a new approach to trade policymaking in the domestic context. Alas, a timeout could be misread by our trading partners as a further retreat from the WTO and from American leadership of the global economy.

The United States must recognize its changed role in the world. While the United States remains the world's most important trading nation, its ability to leverage its market for influence is declining. First, other nations such as India and China have growing markets as U.S. consumers age. Second, with the dollar weakening, American consumers are growing relatively less wealthy. Third, the United States has less moral and economic authority given its recent problems of economic mismanagement (housing bubble, Hurricane Katrina). This should signal to us that we need a new global strategy for trade policymaking.

Instead of using FTAs to demand changes (for example, the U.S. approach to intellectual property) for market access, the United States must find incentives to change overseas policymaker behavior to build demand in developing economies for the policies we desire. Moreover, this country must relearn how to build consensus at home and abroad for trade policymaking. That requires listening to citizens, Congress, and trade partners. To put it differently, it requires a trade policy built on empathy rather than arrogance.

Policymakers should use the timeout to rethink how they talk about and make trade policy:

First, proponents of trade must encourage a more honest discussion about what trade agreements do. The U.S. Trade Representative in concert with Congress should hold town halls throughout the country on trade policy and its relationship to other U.S. policy goals. They should be honest that trade agreements regulate how and when the United States and other nations can be protectionist. They should sponsor honest discussion of the costs of protection and alternatives to protection, as well as why developing countries need to trade, and be honest about the U.S. role in the world and the need to find ways to build demand for our policy objectives, instead of demanding that others meet our priorities. These town halls should be webcast and used to encourage an online town hall, as the World Bank and the WTO does.

Second, policymakers must recommit U.S. trade resources to multilateral trade liberalization. Focusing on bilateral pacts is not an efficient use of policymaking resources and has undermined the WTO. Although WTO negotiations are time consuming and frustrating, the results justify the strategy.

Third, Congress should take the lead in trade policymaking by developing yearly priorities for: trade negotiations, objectives for such negotiations, and the administration's achievements of Congress's goals.

Finally, the United States should revamp its advisory structure. The executive branch should press for legislation to allow it to seek advice and feedback from non-economic interests and to include views typically under-discussed in Washington. Individuals should not be appointed to advisory committees because they gave campaign contributions. Instead, members should be appointed by the Congressional trade office and the new Department of Trade reflecting knowledge of trade, representation of economic, social, political interests, and understanding of new trade issues, such as human rights.



U.S. Should Help Poor Countries Grow
Kevin Gallagher

Assistant Professor of International Relations, Boston University

Negotiations for the Doha round are not likely to resume with much vibrancy until after the U.S. presidential elections. Such a break in negotiations is not necessarily damaging to the talks as long as nations use the time to rethink the structure of the negotiations and how to put them back on track. Developing countries received the short end of the stick in these talks because they constitute a small part of global markets and thus have less negotiating clout—even though the negotiations were specifically aimed at addressing this fact. By reintroducing development to the Doha round, the possible subsequent reforms could be a way forward in making trade work for the poor.

For this scenario to occur, developed countries must make several changes in their policies. First, the United States and Europe should agree to honor WTO rulings that have deemed their subsidies for cotton and sugar to be in violation of existing trade rules that forbid exporting products at prices lower than what it cost to make them. This would give a boost to farmers in West Africa and Latin America and send a strong signal to developing countries that developed nations are willing to honor the rules of the WTO.

Second, Western nations should take seriously the proposal by many African nations to tame global businesses that demand unfair prices for resources used in farm production and reap billions in profits on the sale of final products. African nations made numerous proposals during the round to this end, specifically to make room for international supply management schemes to raise prices and to curb the oligopolistic behavior of large foreign commodity firms, but were ignored by the developed nations. (1)

Third, negotiators should recognize the long-standing WTO principle of "special and differential treatment" for poorer nations. Developed nations should roll back patent laws that impede poorer nations from manufacturing cheaper generic drugs, and they should allow poorer countries to exempt staples of their local economy such as corn, rice, and wheat from deregulation.

Fourth, for the measures that are agreed upon, international financial institutions such as the International Monetary Fund (IMF) and World Bank should help developing nations cover the costs of adjustment such as tariff losses and job retraining until the proper policies can be put in place on the ground. The IMF's Trade Integration Mechanism is already in place for such a task but is not ambitious enough and should not come with additional conditionality. The IMF plan also leaves little room for incorporating costs of adjustment, and the Fund is often criticized for tying further reforms to their policies. (2)

Fifth, there should be a moratorium on regional and bilateral trade deals. These deals exploit the asymmetric nature of bargaining power between developed and developing nations, divert trade away from nations with true comparative advantage, and curtail the ability of developing countries to deploy effective policies for development.

Helping the world's poor is not just about charity, but also mutual benefit. In 2005, more than half of U.S. exports went to nations outside Canada, Japan, and Europe. (3) The more developing countries grow, the more markets the United States will have for its products. The less they grow, the less the United States grows.

Notes
1 Peter Gibbon, "Africa, Tropical Commodity Policy and the WTO Doha Round," Development Policy Review, vol. 25.1 (2007), pp. 43–70.
2 See for example Joseph Stiglitz, Globalization and Its Discontents (New York: Norton, 2002).
3 United Nations Commodity Statistics Database (New York: United Nations, 2007).



Expect More Barriers, But Also More Trade
Daniel W. Drezner

Associate Professor, the Fletcher School of Law and Diplomacy, Tufts University

It is not hard to find data showing that the American public—regardless of party affiliation—is skeptical of the current approach to U.S. trade policy. Hillary Clinton's proposal for the creation of a trade enforcement officer and a unilateral five-year review of U.S. trade agreements are merely the latest manifestations of anti-globalization sentiment. For more evidence, consider that the six leading candidates for president recently articulated their foreign policy vision in Foreign Affairs. The only candidate to embrace trade expansionism was John McCain—the candidate least likely to win.

Susan and Kevin have articulated what ought to be done in light of these facts. The problem is their suggestions are not politically possible in the current climate. Asking politicians, as Susan does, to talk honestly about trade is asking them to act like something other than politicians. To borrow from this year's winners of the Nobel Prize in Economics, it's not incentive compatible. Similarly, Kevin's suggestions of how to treat developing countries might be good ideas on their merits (though I have strong doubts about the utility of special and differential treatment), but they will not be politically salable at home. In a jittery economy, neither Americans nor members of Congress care about how globalization affects the rest of the world. Their primary concern is how imports are destabilizing their jobs and depressing their wages.

Rather than go down the "ought road," let me predict what is likely to happen given the realities of the American political system and the nature of the global political economy. Starting in January 2009 we will have the following political conditions:

  • A business community more or less content with the status quo on trade policy;
  • A president less willing to commit political capital to advance trade agreements;
  • A Congress that is more protectionist—and more eager to act on that protectionism—than at any time since the end of World War II.

The following are likely effects from this set of suboptimal political conditions:

We will not return to the bad old days of Smoot-Hawley Tariff of 1930. The status quo on trade is pretty firmly anchored in our WTO and bilateral obligations. The Dispute Settlement Understanding will continue to function. We will not be withdrawing from those bodies anytime soon.

At the same time, there will not be any movement whatsoever on the current trade agenda. The Doha round, despite recent stirrings, will likely stay in the deep freeze. Trade promotion authority will either not be granted or will be granted with provisions so onerous that no trading partner will want to strike a deal. Bilateral deals with developing countries in particular will be non-starters.

There will be a ratcheting up of regulatory barriers, non-tariff controls, and escape clause measures that will slowly raise barriers to trading across borders. Part of this is for justifiable reasons, but there's another explanation. As political scientist Daniel Kono has observed, calling for more stringent regulatory standards is a far more effective tactic than calling for an increase in tariff rates, which the Schumer-Graham bill proposed last year for a "level playing field on China trade." The latter move looks like undisguised protectionism. The former move can be either a sincere attempt to improve consumer health and safety, or disguised protectionism.

Technological change will encourage more trade in spite of the ratcheting up of barriers. In that sense, the trade climate today perfectly mirrors the climate that existed a century ago.


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