Trade deal misses mark

If House Democratic leaders and the Bush administration really think their new compromise will fix the main problems plaguing U.S. trade policy, they should think again. In fact, the plan announced May 10 is almost completely irrelevant to the nation’s — and the world’s — biggest trade policy challenges. With this major reform opportunity squandered, several trade bills introduced recently in Congress that actually can achieve meaningful change have become more important than ever.

Trying to raise global standards through trade policy is a worthy goal. Unfortunately, many of America’s major trading partners in the third world are so big, and their combined populations so enormous, that the measures proposed in compromise are totally unenforceable. After all, how many million American bureaucrats would need to be inspecting how many million factories in China alone to document abuses? And why would Washington do a better job enforcing labor and environmental protections than it currently does safeguarding intellectual property rights?

More importantly, the compromise package says nothing about features of U.S. trade policy and the global trade flows they have shaped that are directly endangering America’s economic future and the stability of the entire global trading system.

The biggest such problems are (1) the pervasive subsidies and non-tariff barriers used by most foreign governments to distort world production patterns and trade flows — usually at the expense of U.S. domestic companies and workers — and (2) Washington’s decision to focus trade expansion on low-income countries and regions addicted to export-led growth strategies. The latter approach inevitably has helped boost the U.S. trade deficit to already dangerous levels, and keeps pushing the world economy as a whole ever closer to a dollar crash and deep depression.

Ardent outsourcers know that this deal will permit multinational companies to continue unabated their business model of increasing profits by hollowing out America’s productive base.

Fortunately, many members of Congress do understand the hard choices needed to turn trade policy from an economic disaster to a pillar of sound growth for America and the world. That’s why so many are working to:

•Identify currency manipulation, along with a host of other similar practices, as substantial and actionable trade subsidies and apply countervailing duties against imports from offending countries. This goal could be accomplished through prompt passage of the currency manipulation bill introduced by Reps. Tim Ryan (D-Ohio) and Duncan Hunter (R-Calif.) and its Senate counterpart — or similar, broader measures that attack subsidies across the board.

•Promptly pass the bipartisan border equalization tax measure about to be introduced by Reps. Bill Pascrell (D-N.J.), Michael Michaud (D-Maine), Hunter and Walter Jones (R-N.C.). This bill would redress the inequities faced by U.S.-based producers by the World Trade Organization’s failure to address the trade distortions created by substantial export rebates under foreign Value Added Tax systems.

•Limit the U.S. trade deficit to one percent of GDP. Separate measures introduced in the last Congress by Michaud and Sen. Byron Dorgan (D-N.D.) would prevent the U.S. trade deficit from spiraling out of control and could restore the balance necessary to preserve the world trading system.

•And, consistent with the need to “first, do no harm,” reject renewal of fast track trade negotiating authority for President Bush, and impose a moratorium on all new U.S. trade agreements.

Kearns is president of the U.S. Business and Industry Council and editor of its americaneconomicalert.org globalization website. Tonelson, research fellow at the council’s Educational Foundation, is the author of The Race to the Bottom.