Globalization's malcontents brought about the collapse of trade negotiations at the last World Trade Organization trade summit in Cancun, but this time it wasn't the usual suspects (radical environmental, labor and anarchist agitators) to blame. The talks collapsed because the developed nations - the ostensible vanguards of free trade - refused to yield on their own protectionist policies that harm developing nations. While the developed world does a good job talking about free trade, they have been an unmitigated disaster in pushing that agenda forward.
Sure, the developed nations have been "strong" in their support of intellectual property rights enforcement, reducing restrictions on exports and expanding foreign direct investment. But they have also been the primary sponsors of extending U.S.-style environmental and labor standards - standards that would directly impair poor countries' ability to compete in the global market - on extending agricultural subsidies and erecting import restrictions on products from the developing world.
According to the Institute of International Econmics, since the United States imposed steel tariffs in March of 2002, the cost to steel users so far has been about $600 million in lost profits as well as an additional loss of 26,000 jobs. Contrast that with the benefit of just 5,000 jobs saved. My hope is that Bush will pragmatically find a way to remove the tariffs.
Adding insult to injury, the WTO ruled that the steel tariffs and the extraterritorial income/foreign sales corporation provisions of our tax code are illegal. That body has granted permission to the European Union to slap on retaliatory tariffs to the tune of $2.2 billion. As if that weren't enough, the European Commission also authorized a plan earlier this month to institute sanctions on up to $4 billion of U.S. goods gradually from March 2004 unless the United States repeals disputed tax breaks for U.S. exporters by the end of this year.
So whether the issue is global trade talks, Chinese trade relations or sector-specific textiles, steel and even international tax policy, our trade policy needs some work.
Fortunately for Bush's re-election efforts, the Democratic presidential hopefuls are even more determined to go farther down the protectionist/mercantilist track.
We need to change course on trade policy by supporting free trade with actions as well as rhetoric. It is not sufficient to talk about promoting peace and prosperity in Africa while closing our borders to their products. Retaliating against Chinese trade practices may serve short-term election-year politics, but it will not save or create American jobs. And ignoring our global commitments at the WTO will only lower American household income.
American voters already know protectionism is not sound policy. It won't be long before politicians learn it is even worse politics.