Policy Update 018 Pre-event Interview No.1

# Developments in U.S. Trade Politics

I.M. (Mac) DESTLER
Professor, School of Public Policy and Director of the Program on International Security and Economic Policy, University of Maryland

The upcoming RIETI Symposium, entitled "Prospects for the Doha Round: Major Challenges in the Multilateral Trading System and their Implications for Japan" will examine key issues facing the WTO from the following four perspectives: 1) the relationship of the multilateral trading system to the regional trade liberalization agenda; 2) functioning of the WTO system; 3) domestic processes of trade policymaking; and 4) global governance. Ahead of the Symposium, we will run a series of interviews with some of the key participants. For the first of the series, we had the opportunity to talk with Professor I.M. "Mac" Destler about recent developments in American trade politics that may have a profound impact on both the outcome of the Doha Round and the future of multilateral trade liberalization.

Dr. Destler is a leading expert on U.S. trade policy and politics, Congress and foreign policy, and U.S.-Japan relations. His book, American Trade Politics (Institute for International Economics, 3rd ed. 1995) won the Gladys M. Kammerer Award of the American Political Science Association for best book on U.S. national policy. Dr. Destler was also awarded the University of Maryland's Distinguished International Service Award in 1998. In addition to trade politics, Dr. Destler has done extensive research on homeland security issues. His major works include Protecting the American Homeland: One Year On (co-authored with Michael E. O'Hanlon et. al.), Brookings Institution Press, 2003; The New Politics of American Trade, IIE, 1999; Misreading the Public: The Myth of a New Isolationism (co-authored with Steven Kull), Brookings Institution Press, 1999. He received his Ph.D. from the Woodrow Wilson School, Princeton University.

RIETI: You have recently published the fourth edition of your book, American Trade Politics. What new issues in U.S. trade policy or the international trade environment prompted you to write the new edition?

Destler: One reason for publishing the fourth edition, of course, is that much has happened in the 10 years since the third edition! On the international side, the WTO has emerged as a prominent institution, the longstanding global textile quota regime has been phased out, and a major new global trade negotiation, the Doha Round, has been launched. In U.S. policy, free-trade agreements have become a higher priority (and they seem to have done so in East Asia as well).

My primary focus, however, is U.S. trade politics, as stated in the book title. And I have centered my revision on three major developments that have, I believe, made those politics very different than they were when I wrote the first edition back in the mid-1980s.

First, as spelled out in chapter nine, traditional business-based protectionism in the United States is weaker than it has been since the founding of the American republic. Second, social issues have risen to prominence on the trade-political agenda: specifically, the relationship of trade to labor and environmental standards, and the broad distributional impact of globalization. Third, partisan rancor has come to dominate U.S. politics, particularly in Congress, and above all in the House of Representatives.

The core argument of American Trade Politics, editions one through three, is that the root problem is the political imbalance between concentrated interests seeking protection, and dispersed interests benefiting from trade expansion. Central to this imbalance has been domestic producers whose outputs compete with imports. In recent decades, however, the number of protection-seeking industries has shrunk - even though the U.S. trade deficit has grown to record levels. The reason, I argue, is that most U.S. business has gone global: Producers are dependent on inputs from abroad. And their trade-political strategies assume that international commerce will continue to expand. Even the textile industry, long the predominant protectionist force in the United States, has moved from an emphasis on limiting imports to one of maximizing the degree to which imported apparel products are made with U.S.-made fiber and cloth.

For decades, advocates of liberal trade have raised the specter of a return to "Smoot-Hawley"-level tariffs and protectionism gone wild. This no longer seems a real danger. But there remain serious political barriers to further trade liberalization.

Prominent among these new political challenges is the rise of social issues. Since the negotiation of NAFTA in the early 1990s, much of U.S. trade politics has centered on the relationship of trade to other prominent policy concerns. Driven by the same globalization that has made producers less protectionist, the "trade and…" issues (trade and labor standards, trade and the environment, et cetera) have involved not the balance to be struck among economic interests and goals, but rather the proper balance between economic concerns and other societal values. U.S. trade policy institutions are ill-equipped to meet this challenge, or even to understand it. And social issues have undercut the bipartisan consensus upon which prior trade-liberalizing legislation has been based. The impact of these social issues was highlighted in President Bill Clinton's failure to win fast-track negotiating authority from Congress, and in the demonstrations that contributed to the failure of the Seattle WTO ministerial in 1999.

Last but not least, the last few years have seen the culmination of decades of growing partisan polarization in the United States among political elites, and above all in the United States Congress. This has been driven by broad forces outside of trade policy. But this polarization has undercut one of the enduring sources of support for trade liberalization: bipartisan cooperation among leaders at the committee and chamber level.

Partisan contention on trade increased during the Clinton administration, but after 2000 it reached a level not seen for close to 70 years. House Ways and Means Committee Republicans and Democrats developed separate Trade Promotion Authority bills in 2001, and although the substantive differences were less than overwhelming, their leaders never held serious meetings to reconcile them. As a result, President George W. Bush had to rely on unprecedented Republican support to eke out a one-vote victory margin. This forced the administration to negotiate with a very narrow political margin, reducing its power to prevail over special interests. This became evident when U.S. sugar producers launched a serious campaign to defeat the free-trade agreement negotiated with Central America and the Dominican Republic (CAFTA-DR), even though CAFTA-DR granted these countries' sugar industries only marginal new access to the American market.

Thus, at present, it is very hard for the United States to pursue major new trade liberalization, even though the decline of protectionism means that globalization is here to stay. This threatens the success of the Doha Round, since important U.S. concessions in remaining protected industries, including sugar, will be necessary to achieve a worthwhile result.

This raises the question of what the U.S. should do. The new edition of American Trade Politics concludes by citing new analysis of the enormous national gains from open trade: roughly one trillion dollars in added national income per year. The same analysis concludes that removal of remaining the barriers would enhance U.S. income by an additional $500 billion annually. But these gains are not evenly distributed and a minority suffers severe job and income losses from trade competition. This undercuts political support for new trade negotiations. Together with the social concerns and partisan polarization highlighted above, this makes it hard, politically, to realize these potential gains from trade. The best way to address these substantive and political problems is to combine further trade liberalization with much more generous and effective domestic policies to compensate Americans hurt by economic change and enable them to participate effectively in the global economy. This would require a combination of retraining, stipends, wage insurance, and other measures costing on the order of$20 billion annually. The current political environment is not favorable for such a program, but before long, American leaders interested in securing the gains from trade may find its logic irresistible.

RIETI: In the 1980s and early '90s the trade deficit with Japan was seen as the main problem for U.S. policymakers; now China looms much larger. How do the two relationships differ?

Destler: America's trade relationship with China has replaced the U.S.-Japan relationship as our most important and most contentious. And the U.S. trade deficit with China has grown larger, in absolute and proportional terms, than that with Japan ever was. The two deficits are similar in that they reflect global trade imbalances - huge current account deficits for the United States, large surpluses for its trading partners. And both reflect a peculiar variant of interdependence - the United States depends on China (and still, substantially, on Japan) to finance its deficits; China (and still, substantially, Japan) needs to United States to provide demand for its products and jobs for its workers.

Yet the differences outweigh the similarities. In immediate economic terms, Chinese trade success in this decade is less directly threatening to American producers than was Japan's success of the 1980s and early 1990s. The reason is that China is a less advanced economy, and the products it ships across the Pacific are less likely to threaten important American industries. To a substantial degree, China's rising share of the U.S. market has come at the expense of other foreign competitors. Hence the reaction of U.S. industries has been much less fierce, at least so far. We have not had with China the equivalent of the U.S.-Japan semiconductor and auto conflicts.

In other respects, however, U.S.-China trade conflict is more threatening. Japan was and is a security ally, responsive to U.S. leadership on military matters. China is not (and with the demise of the Soviet Union, the United States and China no longer have a common superpower rival). Japan is a democracy, whose broad political processes Americans can approve - if not necessarily understand. China is currently an authoritarian state, and its political future remains a matter of conjecture. A related fact is that Japan has combined effective economic growth policies with a readiness to appease the United States on trade issues that were generating excessive political heat. Tokyo's propensity has been to accommodate American political pressures. China sees its history differently, and its reaction to pressure is typically to stiffen its posture. This makes it harder to ameliorate serious sources of tension - like the undervaluation of the renminbi and the post- Multi-Fiber Agreement surge in China's textile exports.

Last but not least, China's population and economic growth and potential power make it the country most likely to challenge the United States for global preeminence across the board at some point in the future. This makes it a natural focus for worst-case defense and economic scenarios, and complicates efforts to manage what ought to remain a positive-sum relationship.

Destler: Partisanship has increased only moderately among Americans as a whole, but it has become much more pronounced among activists in both political parties. These activists have, in some respects, "hijacked" the political process, to quote a fine book by Morris Fiorina, Culture War? The Myth of a Polarized America. There are many causes for this growing partisanship, of which the most pernicious is the process of drawing congressional districts to make the great majority of them "safe" for one party or the other. This means that members of the House face political pressure not from the other side of the political spectrum, but from extremists in their own camp who may challenge an incumbent who is seen as too moderate.

This is a deep, embedded problem. It won't be easy to restore a modicum of bipartisan consensus. It would help if all states drew congressional districts as Iowa does, through an independent, non-partisan body. This tends to produce legislators who are closer to the political center. Governor Arnold Schwarzenegger has proposed such a process for California. But within the sphere of trade policy, the best way to try to restore consensus is to combine trade expansion with the type of remediation program I talked about earlier - and explain in greater length in American Trade Politics.

The above interview originally appeared in RIETI Report on July 15, 2005.Interview conducted by Robert Robison, online editor, on July 8, 2005.

July 8, 2005

## Article(s) by this author

• ### Developments in U.S. Trade Politics <Special Interview> I.M. (Mac) DESTLER

July 15, 2005［RIETI Report］

• ### Developments in U.S. Trade Politics

July 8, 2005［Policy Update］