George Bush's Biggest Failure Is Trade Policy

The issue on which the Bush administration has most disappointed its natural supporters is trade. Looking ahead a few years, exploding public borrowing may relegate the trade-policy failure to a close second, but the budget deficit has been a great help to the economy lately, and there is time to address the longer-term dangers with spending restraint and enlarged tax revenues. President Bush's anti-trade policies, in contrast, are harming the United States right now—and the medium-term implications of a big reversal on trade are at least as worrying as those distant mountains of public debt.

Democrats feel able to attack Bush on fiscal policy: Bill Clinton balanced the budget, after all, even though many in his party grumbled about it at the time. But they either keep quiet about the administration's backsliding on trade or, worse, attack the president for being too timid a protectionist. So the administration is meeting little or no political opposition on the very issue where effective opposition is most needed.

Bush has often said that he is dedicated to the twin causes of free enterprise and free trade—an admirably clear position, in marked contrast to most Democrats' instinctive suspicion of both. Unfortunately, it isn't true. The White House has failed to advance either agenda much, and on trade, lately, things have been moving backward. Last week's decision to rescind the tariffs on steel first imposed in 2002—a reversal predictably deplored by many Democrats as a humiliating capitulation to Europe and the World Trade Organization—was welcome, as far as it went. But the real disappointment is that the administration ever applied such deeply misguided tariffs in the first place. And undoing the tariffs will not reverse all of the harm they did. The administration's whole approach to trade policy needs to be rethought.

Adopting a doctrine of "competitive liberalization," the White House has said from the beginning that it seeks to open markets wherever it can, drawing pragmatically on a range of different methods. Rather than relying on the World Trade Organization, and aiming to lower trade barriers worldwide, the United States would liberalize on several fronts at once, applying effort where it seemed most likely to get results. As well as taking the lead in the WTO's Doha Round of negotiations, America would also pursue regional and bilateral trade initiatives, such as the Free Trade Area of the Americas (FTAA), the North American Free Trade Area (NAFTA, which the administration would like to deepen and extend), and a raft of smaller free-trade agreements (FTAs), such as the ones concluded recently with Chile and Singapore.

The logic seems plausible. Global trade deals are fearsomely complicated and increasingly difficult to negotiate. Also, agreements at the WTO require consensus: Any one country can veto a deal that every other country has said it is ready to sign. The WTO's predecessor, the General Agreement on Tariffs and Trade (which, despite the name, was likewise a trade-talks forum as well as a treaty), got around this problem by focusing on relatively uncontentious issues concerning trade in goods. The WTO's agenda for the Doha Round was far more ambitious, extending deeper than before into such areas as agriculture, services, competition policy, and investment rules. These issues raise difficult questions of domestic economic policy—and hence of national sovereignty.

The WTO process was therefore all too likely to get bogged down. The United States, or so the thinking went, would need other avenues to explore, should that happen. Also, if America pursued alternatives to the WTO, that might make compromise at the WTO easier to achieve. Countries would prefer to do deals with America in that larger forum, where the rules improve their bargaining power, rather than fight it out bilaterally or regionally, with fewer allies, against the world's only economic superpower. In this way, the multiple-front strategy would be self-reinforcing.

That was the idea. But far from succeeding on many fronts, competitive liberalization is failing on all fronts. The Doha talks collapsed at the recent midround conference in Cancun. It is unclear how or whether they will be revived. And the other avenues are proving far less promising than the idea of competitive liberalization suggested. The recent FTAA meeting in Miami came up short, partly because some of the key Latin American governments were still enjoying their supposed triumph at Cancun, where they believed they had taught the overbearing United States a lesson. The ambitious new deal that the parties had been working on was set aside in favor of a much more limited blueprint. Petty trade squabbles are nibbling away at the prospects for building on NAFTA. And Congress is signaling to the administration that it has little or no appetite for new bilateral FTAs, unless the trade partners are so small that they pose no competitive threat to U.S. industries.

On top of all this, the administration has shown that it is willing to do business with any passing protection-seeking interests that may have votes at their command. Hence, the so-called safeguard actions against imports of steel and, more recently, selected imports of clothing from China. Having acquiesced in these cases, which have no merit whatsoever in economic terms, the White House is going to find it harder to say no to others.

True, the rescinding of the steel tariffs is encouraging, though not for the reasons many would suppose. This is not a case of recognizing the drawbacks of unilateralism, still less of submitting to the supposedly superior authority of the WTO (which had earlier said that the tariffs broke its rules). It is not a case of acknowledging Europe's new strength in trade punch-ups. The administration cares little about such factors—and, up to a point, it is right not to care. Rescinding the steel tariffs, after all, was good policy not because the tariffs were bad for America's trading partners, or because they upset the WTO, but because they were harming American consumers. No, the reversal on steel is encouraging because it reflects a revised calculation of where the administration's domestic political interests truly lie.

An effective anti-tariff movement of American producers formed to lobby against the new policy on steel. The Consuming Industries Trade Action Coalition, representing vehicle and vehicle-parts makers and other importers of steel, argued that their own competitiveness at home and abroad was being jeopardized by the administration's new tax on a vital raw material. As Claude Barfield of the American Enterprise Institute put it this week in the Financial Times: The tariffs "produced a more complex political calculus, and ultimately the administration decided loss of support in steel-producing states such as West Virginia, Pennsylvania, and Ohio would be offset by gains in other industrial states such as Michigan, Illinois, Indiana, and Wisconsin."

An effective and broadly based pro-trade constituency in the United States would do wonders to improve the prospects for global trade liberalization. Unfortunately, the steel case does not really indicate the emergence of any such movement. The coalition of steel producers was, after all, just that: a coalition of producers. Producers cannot in general be relied upon to mobilize for liberal trade: As a group, they have too much to gain from protection. Carmakers might want the cheapest steel they can find, but they wouldn't mind some protection against imported cars. The pro-trade voice that counts is that of consumers, and for the time being it remains subdued, if not downright hostile, not just in the United States but almost everywhere.

The most-telling criticism of George Bush's approach to trade policy is that he has failed—and in fact has barely even tried—to put the case for liberal trade, which he says he believes, to American voters or to the world at large. Bill Clinton, at his best, was a far braver and more effective champion of global free trade. This administration's protectionist actions tell American voters, and foreigners too, that trade is harmful, and that the main thing to be gained from international trade reform is concessions from the other side—whereas in truth the main thing to be gained is consent at home to the lowering of one's own trade barriers.

The lifting of the steel tariffs, while better than leaving them in place, does not undo the harm. The White House has invited the attacks that the Democrats are now making, and has left itself in no position to deflect them. By its own logic, the administration has indeed lost the fight it chose to pick over steel, in making concessions to Europe and the WTO under threat of retaliation. The misconception that trade reform is a zero-sum game, in which the United States has just lost an important round, has been further entrenched. Before things get any worse, Bush needs to remind himself why trade is good, and to start selling that idea to the American public.