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Trading on America’s Future

Prepared by: Lee Hudson Teslik
July 12, 2007

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Free trade initiatives hit a series of speed bumps this summer as the Doha round of trade talks collapsed, President Bush’s trade promotion authority expired, and partisan bickering (NYT) threatened to doom deals already negotiated. The developments imperil a potentially sweeping trade deal with South Korea, a pact with U.S. ally Colombia, and two smaller agreements with Peru and Panama that just months ago seemed all but certain to gain congressional approval. With seventeen months left for the Bush administration, many experts say the president’s once-ambitious trade agenda is now derailed. All relevant parties remain entrenched, including Doha round negotiating partners India and Brazil, who seek substantial cuts in U.S. agricultural subsidies. The same is true for Bush’s domestic Democratic Party adversaries, who by and large seek to protect these subsidies, and to inject environmental and labor protections into bilateral agreements.

Notwithstanding the tough month for trade advocates, CFR's Jagdish N. Bhagwati argues in the Wall Street Journal that the outlook, at least with respect to Doha, might not be quite so gloomy. Bhagwati notes the “good news”—that the Doha negotiations, even if they ultimately fail to produce a deal, pushed through several contentious issues and narrowed discussions to a core group of participants.

The Doha round aside, however, American attitudes toward trade are turning grim. For a slew of reasons, including declining relative earnings for U.S. workers and high income inequality, U.S. protectionist sentiments (Foreign Affairs) seem to be on the rise. Fears of globalization remain particularly pointed within the agriculture and automobile industries, which potentially stand to suffer heavy job losses. The influence of Detroit’s big automakers, for instance, might bury the South Korea deal. Meanwhile, U.S. farm subsidies threaten to undermine broader multilateral agreements. Bhagwati, in a recent interview, says Americans are “minimalists” on concessions but “maximalists in making demands on others in terms of agriculture.”

Subsidies propping up U.S. farmers remain popular and deep cuts may not be politically viable. The U.S. Farm Bill expires in September, and while some signs indicate rising momentum in Congress to overhaul its subsidies, change will not come easily (AP). Reform is particularly challenging in an election year—trade liberalization, for all its benefits, fails to electrify the electorate like job-loss fears.

Analysts say U.S. trade policy is at a critical juncture. An IHT editorial argues congressional meddling in bipartisan agreements “may actually hinder the cause of global free trade, entangling the world in a web of incompatible rules.” Nor is it at all clear, in the long run, that protectionism is the best way to “protect” U.S. jobs. A report by New York’s Federal Reserve Bank concludes the threat of job loss due to trade liberalization is relatively small (PDF).

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