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Foreign Affairs
A Renaissance for U.S. Trade Policy?
By C. Fred Bergsten
C. Fred Bergsten is Director of the Institute for International Economics. He is former Assistant Secretary for International Affairs at the Treasury Department (1977-81) and former Assistant for International Economic Affairs at the National Security Council (1969-71). Copyright (c) 2002 by the Institute for International Economics.
Liberalization in Retreat
U.S. trade policy has been facing widespread criticism around the world. Under threat of congressional action, the Bush administration initiated an investigation of steel imports, imposed tariffs of up to 30 percent on a sizable portion of foreign steel shipments to the United States, and launched an effort to organize global steel production – all within the past year. The administration and Congress have agreed to roll back some apparel imports from the Caribbean and Central America. Sharp new tariffs have been slapped on lumber imports from Canada, a nation with which the United States supposedly has free trade. Both Congress and the president have backed a new farm bill that perpetuates substantial subsidies for U.S. agriculture, even though the United States has railed for years against such practices abroad. All these steps have reinforced the concern that America is pursuing a unilateralist rather than a globally cooperative foreign policy.
Moreover, these protectionist initiatives have surfaced at a time when the global trading system is already under severe strain. U.S. trade retaliation against Europe is still in place from a previous dispute over beef. Europe is considering up to $4 billion of counteraction against U.S. tax subsidies for exports – a practice found illegal under the rules of the World Trade Organization (WTO) – and is fighting Washington’s new steel measures. Last year, Japan and China engaged in a cycle of retaliation and counterretaliation. There has been continuing concern about trade wars among the largest economies, and the recent U.S. actions are widely viewed as throwing fuel on the fire. U.S. backtracking on liberalization gives other countries an excuse to do likewise and reduces the prospects for future reduction of barriers.
At a more subtle level, some of the most crucial components of the global system are coming under considerable stress. The WTO’s new dispute-settlement mechanism, a crowning achievement of the 50-year drive to forge an effective rules-based trade regime, could crack under the intense pressure of a rapidly growing case load; politically sensitive cases that should be negotiated rather than litigated are proliferating. The advent of scores of additional members has turned the WTO into an extremely unwieldy organization, pushing more and more countries to turn to regional and bilateral deals instead. Repeated financial crises and disappointing growth, as seen currently in Latin America, reinforce hostility toward globalization. The United States, which championed the global system from its outset after World War II through the completion of the latest negotiations in the Uruguay Round a decade ago, has been viewed as taking steps that add to these pressures rather than resolve them.
The administration should see this drumbeat of criticism as a highly desirable reminder of the costs of protectionist trade measures and the breadth of . . .