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Democrats, Off Course On Trade

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics
March 2, 2008
Washington Post

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One short month ago, Democrats seemed better than Republicans on globalization. Sure, the Republicans were keener on liberalizing trade, which promises big economic gains, not least for developing countries. But Democrats were better on immigration reform, and they were more interested in building the safety nets that make globalization politically sustainable.

The presidential primaries have upset this balance. The Republicans have all but nominated the one candidate from their party who is excellent on immigration, neutralizing a Democratic advantage. Meanwhile, Barack Obama and Hillary Clinton have pushed trade populism beyond the point at which it can be easily forgiven.

Quite a lot of trade populism can be forgiven, even if it is intellectually dishonest. Like it or not, trade liberalization has stalled, so mild populism makes no practical difference. During President Bush’s first term, we ran the experiment of having a popular president who really wanted freer trade, who had a hard-charging trade representative and who seized the opportunity created by the 2001 terrorist attacks to get the Doha Round of trade talks started. But the Doha Round has since bogged down. There is no reason to suppose that any president—honest or populist, Republican or Democrat—is likely to revive it.

If that sounds defeatist, consider the reasons for Doha’s failure. The global trading system has come to include ever more countries, rendering negotiations ever more difficult. As Daniel Tarullo of Georgetown University points out, the lag between the completion of one global trade round and the next was five or six years even back when fewer than 100 countries were involved. But the Tokyo Round, which had 102 members, was completed 12 years after the previous round concluded; and the Uruguay Round (123 members) was completed 15 years after the Tokyo Round. The Doha Round (151 members) stands at 13 years and counting.

It’s not just that the number of negotiators has swollen. The low-hanging fruit in trade liberalization has been picked; what remains are the hard issues, such as agricultural protectionism. Sharper partisanship in Washington, coupled with worse gridlock between the executive and legislative branches, has made it harder for the president to muster congressional support for concessions to our trade partners. In the European Union, likewise, ambivalence among nationalist politicians about a federal Europe undermines the E.U. trade czar’s negotiating flexibility. Meanwhile, the growth of inequality in the rich world has dampened the appetite for trade deals.

So there’s not much prospect of a grand multilateral deal, and most bilateral deals are of dubious economic value. As a result, the price of mild protectionism is modest. So what if Hillary Clinton calls for a “strategic pause” on trade? A strategic pause is what we are going to get anyway. In any case, gridlock among trade negotiators will not actually prevent trade from expanding. At least half of trade’s expansion is driven by technology and global supply chains rather than advances in trade policy.

But it’s one thing for Democrats to call for a timeout on negotiating new trade treaties and another to threaten violence to existing ones. During last Tuesday’s debate, Obama and Clinton both promised to reopen the North American Free Trade Agreement, infuriating Canada and Mexico and puncturing the Democratic claim to be less unilateralist than Bush. Moreover, the Democrats’ anti-trade rhetoric has become so vitriolic that it is setting the stage for an attack on the World Trade Organization, the most significant addition to the international system since the end of the Cold War.

The WTO, particularly its dispute-settlement tribunal, represents a rare triumph in the management of globalization. While money, goods and people flow in ever-greater quantities across national borders, governments remain stubbornly local, and efforts to bolster multinational governance are generally unsuccessful. The launch of the WTO in 1995 was the exception, but it remains politically fragile. The coming argument over “green tariffs”—to offset other countries’ failure to cap or price carbon—may end up in front of the dispute-settlement tribunal, and those who don’t like the tribunal’s decision will question its legitimacy. Primed by the Clinton-Obama attacks on trade, it may not be long before we hear echoes of former senator Bob Dole, who once proposed a panel to second-guess WTO rulings that went against the United States.

The pity is that the Democrats didn’t have to go this way. It’s not that difficult to explain that U.S. manufacturing output has gone up, not down: It simply isn’t true that production has been shifted en masse to Mexico or even China. Manufacturing employment has fallen not because of trade but because of technological progress, and there’s no mystery about the policies needed to assist losers: wage insurance, a more progressive tax structure and better access to health care. But presidential primaries always seem to drive Democrats to the left—and this year’s primaries have been painfully prolonged, damaging the party’s credibility.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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