With the U.S. economy slowing, President-elect Bush understandably has signaled a determination to seek new trade agreements to help stave off recession.
Luckily for him and the nation, Bill Clinton’s looming failure to conclude last-minute free trade deal with Singapore has provided a great object lesson in how not to conduct economic diplomacy. In some respects, the Singapore proposal improved on Mr. Clinton’s trade strategy. Unlike the Caribbean Basin, sub-Saharan Africa, and Vietnam the outgoing administration’s latest trade policy priorities Singapore is a successful, high-income economy that can actually afford to buy American products without running up absurd levels of debt.
Although Singapore limits worker rights, it no longer relies for its prosperity on brutally repressing unions and holding down wages. Therefore, its government had expressed some willingness to include labor protections in a new trade agreement.
Finally, Japan has recently been exploring bilateral trade deals with its East Asian neighbors, reviving longstanding U.S. fears that the region would become a “yen bloc” that would be largely closed to American producers. The Singapore initiative usefully reminded Tokyo that two can play at this game. Yet in pursuing the agreement, the Clinton administration committed many of the major “don’ts” of trade policy-making.
For example, it ignored key characteristics of Singapore’s economy. Singapore has a justified reputation for respecting business law and providing honest government. But because it is a city-state and major port that depends heavily on the quick, efficient shipment of goods to and fro, customs enforcement is a low priority. Without effective enforcement, its neighbors could have shipped through Singapore to the United States oceans of products, like apparel, that U.S. quotas currently limit if sold directly to America. Thus, countries not party to the U.S.-Singapore deal would have reaped major gains but U.S.-based producers would have received nothing in return. In addition, Singapore would be a great smuggling center for numerous tropical products sale of which is tightly regulated for environmental reasons.
Mr. Clinton also literally leaped before he looked on Singapore trade. The decision to begin talks was announced at an Asian summit meeting in November. But Washington had done little preparatory work. The U.S. trade policy-making machinery features numerous advisory committees that provide American negotiators with input from businesses, unions, consumer groups and others directly affected by trade agreements. But these committees were not consulted on the Singapore deal until Singapore’s negotiators had practically landed in Washington to start the talks.
Indeed, the administration had not even agreed on its own priorities; interagency government meetings to sort out the U.S. position were still being held as the negotiations proceeded. Just as bad, the Clinton team had conducted no systematic assessment of the deal’s economic impact before deciding to proceed.
Despite its small (4 million) population, Singapore is America’s 10th-largest trade partner, and a supplier of many critical information-technology products in particular. The U.S. International Trade Commission was eventually asked to conduct a study, but the results were not due until mid-January weeks after the negotiators initially were hoping to finish.
Finally, given America’s huge, ballooning trade deficits, the importance of boosting foreign consumption of U.S.-made products, and the tiny U.S. government staff available for trade negotiations, Singapore is a strange trade policy priority for any administration nowadays. Its formal trade barriers are minimal. U.S. companies, which have invested billions of dollars in the city-state, have found it an easy, profitable place to do business. And although its imports from the United States are already large and growing vigorously, Singapore’s size and its longstanding economic policy of growing through saving and exporting not consuming and importing sharply limits its market potential.
In fact, most Singaporean purchases of U.S. products are capital goods the building blocks of factories and components of electronics products. They largely represent the outsourcing of production for computers, communications systems and other high-tech goods formerly made in the United States and often exported right back to America.
Trade policy done right can definitely boost U.S. growth and living standards. But U.S. negotiators’ time would be much better spent opening markets in the world’s two other major consumption centers Japan and Western Europe. That is, the key to trade policy success has always been going “where the money is” as well as knowing what you want ahead of time.
Alan Tonelson is a research fellow at the U.S. Business and Industry Council Educational Foundation. His new book, “The Race to the Bottom,” has just been published by Westview Press.