Trader woes

It got less media coverage than Iraq or the Mideast crisis, but one of the topics discussed by Illinois Sen. Barack Obama in his recent meetings with foreign leaders was the vital issue of international trade.

Since we live in the most trade-dependent region of the U.S., we have a special stake in trade policy as it will unfold in a new presidency. The following tells how we got to here and what to expect in the future.

The political context has changed

In the years leading up to President John Kennedy's 1961 inaugural, Democrats were seen as internationalists and multilateralists on trade as well as on other issues. Opposition to open global trade mainly came from old industries, at the heart of the Republican party, which wanted protection. Kennedy in his 1960 campaign promised "to get America moving again" economically.

A centerpiece of his program was the 1962 Trade Expansion Act (TEA), which committed the U.S. to multilateral liberalization of trade in goods and services. It received one-sided congressional approval, supported by a broad business-labor-agricultural coalition. Among the TEA's most avid supporters were the auto and steel industries and unions (which, now, are among the most avidly protectionist). As a practical matter, it was not difficult to mobilize broad support for the legislation. In 1962, the U.S. enjoyed a favorable 2-to-1 trading advantage with the rest of the world.

The multilateral Kennedy Round of trade negotiations, which followed, was concluded during the Johnson administration. It broadly reduced tariff and other barriers to global trade. Subsequent multilateral liberalizations followed, under the auspices of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO). They, too, brought broad reductions in trade barriers — though least successfully in agriculture, protected in almost all countries because of potent political pressure brought by farm lobbies.

Meantime, the global economy was changing. Former hewers of wood and drawers of water in the undeveloped world were rising on the economic ladder. Countries with low-cost labor were drawing jobs from other countries one step up the ladder — Mexico pulling jobs from the U.S., China drawing jobs from Mexico, lower-cost Asian countries drawing jobs from China. The U.S., for its part, continued to prosper because of international trade, giving up low-value, low-tech jobs but gaining high-value, high-tech jobs. (The pattern was foreseen many years before. In 1966, for instance, during the Johnson administration, I ran a White House textile-policy task force which examined how to keep that industry thriving. We found, at the end, that there really was no way to do so. It was one of those industries where manufacturing increasingly would move offshore, no matter what domestic steps were taken. The best we could do was institute education and training programs which would help textile workers move to industries of the future.)

Things really began to turn in the late 1970s-early 1980s as "old" industries, such as autos and steel, and their unions began to grasp for government support. U.S. international trade commission rulings transparently favored domestic steel. A federal bailout kept Chrysler alive — and thus contributed to global overcapacity in the industry. Labor unions in less competitive industries, frustrated at their shrinking member bases, adopted a fresh tactic. They began demanding that global trade negotiations no longer restrict themselves to trade issues per se but should be expanded to include labor and environmental standards as subjects of negotiation.

At face value this seemed a good idea to progressive and environmental groups in the U.S. Why shouldn't Mexico, for instance, and other lower-wage countries be forced to treat their workers and their environments as well as we did? Problem was: These issues had never before been a part of trade negotiations. Less advanced countries knew, in advance, that they would be stuck in the third world if forced to adopt first-world standards they could not afford. The environmental/labor standard demands became a rallying point for old-industry domestic unions, and their allies, and a sticking point for trading partners who saw them as disguised protectionist devices. (This debate came to full flower during the failed 1999 World Trade Organization meeting in Seattle, where developing countries walked out over such issues.)

NAFTA as turning point

The notion of a North American Free Trade Area had been kicked around for decades by a small group of economists led by Sperry Lee of the National Planning Association. It was taken up briefly by California Gov. Jerry Brown. But it was mainly seen as a faddist notion, the problems of which would outweigh benefits. For one thing, the U.S. and other developed countries saw regional trade arrangements — such as a U.S., Mexico, Canada arrangement — as being quasi-protectionist. If the three North American countries melded their economies, for instance, neighboring Caribbean, Central American, and South American countries would be left on the outside and discriminated against. The European Union (formerly the Common Market) was seen as a one-off exception because it had security/political considerations behind it, although organized originally as an economic union. Better, it was thought, to focus on multilateral, global liberalization in which all countries simultaneously would lower their barriers.