- The Washington Times - Saturday, April 12, 2008

ANALYSIS/OPINION:

Both Sens. Hillary Clinton and Barack Obama have raised international trade as a presidential campaign issue, notably in Ohio, and again as the Pennsylvania primary approaches.

With the trade deficit doubling since 2001, at $712 billion last year, it is certainly a valid topic. The North American Free Trade Agreement (NAFTA) has become the symbol of bad policy. But this is looking backward rather than forward. NAFTA was enacted in 1993.

Though the public was told it would open Mexico to more U.S. exports, business groups had a different agenda. They wanted to combine cheap Mexican labor with American capital and technology to improve competition with overseas rivals. At the time, Japanese firms with access to cheap Asian labor was the focus.

Testifying before the House Ways and Means Subcommittee on Trade in 1997, C. Fred Bergsten and Jeffrey Schott, of the Institute for International Economics, said: “The United States sought to increase its imports from Mexico as a result of NAFTA. In particular, we wanted to shift imports from other countries to Mexico — since our imports from Mexico include more U.S. content and because Mexico spends much more of its export earnings on imports from the United States than do, say, the East Asian countries.” This is the strategy that has failed: The U.S.-Mexican partnership has been unable to withstand the onslaught from Asia, led by new trade rival China.

Many maquiladoras assembly plants along border have been displaced by Chinese competitors. Ports on Mexico’s West Coast are being expanded to bring more imports from China into the North American market. The traffic is as one-way as in U.S. ports, with little exported back across the Pacific. Talking about renegotiating NAFTA to add “labor and environmental” standards is irrelevant to meeting the real economic threat China poses to both Mexico and the United States.

Attention has centered on Beijing’s use of an undervalued currency to gain a competitive advantage. Mrs. Clinton co-sponsored a bill in the last Congress, introduced by fellow New York Democrat Sen. Charles Schumer, that would have imposed a 27½ percent tariff on all Chinese imports if their currency the yuan was not revalued after a round of negotiations. The legislation was withdrawn, however, after intense lobbying by the Bush administration and the transnational business community, even though it had the votes to pass easily.

In the House, a more modest bill introduced by Ohio Democrat Tim Ryan and California Republican Duncan Hunter would make exchange-rate misalignment by any foreign nation an export subsidy against which U.S. trade law could apply a countervailing duty.

The bill in its original version had 118 bipartisan co-sponsors. There was hope that it would be incorporated into omnibus trade legislation being crafted by Michigan Democrat Rep. Sander Levin, chairman of the Ways and Means Subcommittee on Trade. But it now seems the Democratic leadership is backing off.

On March 27, Ways and Means Committee Chairman Charles Rangel, Mr. Levin and 13 other Democratic committee members sent a letter to President Bush calling on him to take stronger action against China, and putting off the threat of legislation until he has had yet another chance to do something. The letter outlined several steps the administration should take, including:

• Promoting intervention by the International Monetary Fund.

• Filing a case at the World Trade Organization.

• Negotiating with other countries impacted by China’s devalued currency.

• And enforcing existing trade and exchange rate laws.

But with less than a year left of the Bush administration, and even less time for Congress to enact legislation, Mr. Rangel’s letter has to be seen as cover for doing nothing in the 110th Congress.

Yet, the impact of Beijing’s currency manipulation is evident. Where the dollar has been freely exchanged in Europe, the trade deficit has come down. But in China, where the currency value is set by fiat, the U.S. trade deficit has continued to rise, hitting $256.3 billion last year.

Currency is only one aspect of China’s mercantile strategy. The 2008 report on Foreign Trade Barriers, released March 28 by the U.S. Trade Representative, states: “At the root of many of these problems is China’s continued pursuit of problematic industrial policies that rely on excessive Chinese government intervention in the market through an array of trade distorting measures … despite extensive dialogue, Chinese policies and practices in several areas continued to cause particular concern for the United States and U.S. industry in 2007.”

Democrats have a golden opportunity to advocate a change in America’s failed trade policy but must move beyond mere criticism and sterile slogans. The party’s leaders must craft a results-oriented policy, to be judged by how effectively it would reduce the trade deficit and counter the predatory tactics of rivals, especially China.

William R. Hawkins is senior fellow at the U.S. Business and Industry Council.

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