2005's Global Trade
Hot Spots
Key issues in U.S. international trade policy will
come to the fore this year. But supporters of liberalization face
many obstacles
U.S. multinationals are declaring 2005 a "crossroads year
for U.S. international trade policy," and in many ways, they're
right. While trade issues took a back seat to national security
concerns in the wake of September 11, many will return to the fore
this year, driven by legislation on Capitol Hill and looming negotiating
deadlines.
The end of 2005 could find the U.S. entering some of the most significant
new trade agreements in decades, or bowing out of the biggest one
of all -- the 148-nation World Trade Organization. While raising
fears of inflation, the U.S. dollar's continuing plummet -- it has
already plunged about 15% against a broad range of currencies --
could eventually put a brake on America's runaway trade deficit.
Then again, the dollar could stabilize as the trade gap climbs relentlessly
higher.
OUTSOURCING PROBLEMS. One thing is for certain: The U.S. is about
to set a dubious record -- the largest yearly trade deficit in the
history of nations. November's 2004 monthly figure of $60.3 billion
surpasses previous records and puts the U.S. on the path to top
$600 billion for the year, nearly 6% of U.S. GDP and above the 5%
mark where economists say warning bells start ringing.
Explaining the reasons for the massive shortfall to a skeptical
Congress is likely to fall to America's new top trade negotiator,
the as-yet-unnamed successor to U.S. Trade Representative Robert
B. Zoellick, who'll soon leave his post to become the Deputy Secretary
of State. Pursuing a free-trade agenda in the face of rising deficits
and jobs lost to outsourcing won't be an easy sell for the next
trade rep.
As Congress is scheduled to take up a series of trade bills in
the spring and summer, opponents of the Administration's policies
are insisting that free-trade deals have encouraged the movement
of more than 2 million manufacturing jobs offshore during the Bush
years. They argue that this has decimated the ranks of American
info-tech service providers and threatens to cut U.S. wages and
living standards. Incomes of technology professionals declined an
inflation-adjusted 3.68% in 2002, according to the Institute of
Electrical & Electronics Engineers. Outsourcing of tech jobs
to India and China have become a hot political issue.
EXPANDING ZONE. Supporters of the reelected President's approach
-- principally U.S.-based multinationals -- argue that it's time
for action, not talk. The U.S. should push ahead with a 148-nation
global trade deal, called the Doha Round, while expanding the 1995
North American Free Trade Agreement (NAFTA) among the U.S., Mexico,
and Canada to include Central America and the Dominican Republic.
The ultimate goal: A hemispheric free-trade zone integrating 34
market economies in North and South America.
However, further liberalization of global trade faces many obstacles.
Among them:
China
Try as they might, Commerce Secretary Donald Evans, Treasury Secretary
John Snow, and Zoellick have been unable to persuade Beijing to
allow its currency to float against the dollar. China's hard peg
of the Yuan against the greenback has provided the country's exports
with a 33% price subsidy, according to Peter Morici, a trade economist
at University of Maryland's business school. The bilateral deficit
with China is a quarter of the U.S. total with all nations and has
cost America 1.5 million jobs since 1989, according to a study by
the labor-backed Economic Policy Institute.
As Evans wrapped up his last trip to China as a Cabinet officer
on Jan. 12, his Chinese counterpart came close to publicly dismissing
the Commerce Secretary's efforts as short of the mark. Said Chinese
Commerce Minister Bo Xilai: "I should say that 70% of what
you have done is pretty good," causing Evans to protest, ""Oh,
hey, that's almost flunking, that's almost failure."
The Chinese minister was talking about the Bush Administration's
refusal to grant the country formal "market status" as
a trading partner rather than Beijing's intransigent dollar policy.
But the standoffs are mounting. The U.S. has also failed to persuade
China to crack down on intellectual-property theft. U.S. software
makers estimate that 95% of all computer programs in the Middle
Kingdom are pirated. The loss in legitimate sales worldwide is estimated
to be $52 billion yearly, with China the biggest offender.
Regardless, U.S. industry is still focused on investing in the
country, even if it means some piracy, says John J. Castellani,
president of the Business Roundtable, a group of CEOs of major corporations.
"Some companies may not be bringing their latest technology
there because they know it's at risk, and that makes China a less
robust trade environment," he says. The Roundtable's legislative
strategy is to push for free-trade deals.
Europe
The U.S. and the EU averted a nasty confrontation over subsidies
for commercial aircraft on Jan. 11. But that truce may be only temporary.
Each side has brought a complaint against the other before the World
Trade Organization, insisting that Boeing and Airbus are each receiving
illegal subsidies from their respective governments.
Rather than take the case to the WTO court, the two antagonists
have agreed to keep talking for three more months to try to negotiate
a settlement that will at least reduce the level of taxpayer subsidies
to the two aircraft makers. Meanwhile, other disputes are festering,
which could make it more difficult for the two economic giants to
reach agreement on a plan for further global trade talks.
The EU, for example, has refused to allow imports of many foods
with characteristics -- such as size or taste or resistance to disease
-- that have been enhanced by gene-splicing. European farmers have
helped lead the opposition to genetically modified foods as a way
of protecting small, inefficient farms on the Continent, according
to Washington. The Europeans respond that it's the consumers who
reject the products of modern food engineering. The U.S. has already
brought a complaint to the WTO.
The Doha Development Round
The WTO's 148-nation talks are a year behind schedule -- and may
slip further. No new ministerial meeting is scheduled until December.
But the U.S. services industry is depending heavily on completion
of the round, which would expand the WTO's jurisdiction over this
rapidly growing sector of the U.S. economy, in which America still
maintains a trade surplus.
However, developing countries have refused to bargain on issues
dear to the rich nations, such as intellectual-property rights,
unless the wealthy countries also give up most of their massive
farm subsidies. Most of the world's nations depend on agriculture
for their employment and export earnings. But they have been unable
to compete with the U.S., Europe, and Japan, which shower their
farm sectors with $300 billion or more in government support each
year, developing nations charge. So far, the two groups are at an
intense stalemate.
Meanwhile, riled by WTO rulings that have gone against the U.S.,
Congress will vote this summer on a resolution to end U.S. membership
in the 10-year-old, Geneva-based trade group. "The WTO is an
experiment that flopped," contends Lori Wallach, director of
Global Trade Watch, a group affiliated with Ralph Nader's Public
Citizen. Few expect such a drastic move by a business-friendly Republican
Congress, but heated rhetoric and a closer-than-expected vote could
damage prospects for a Doha agreement.
Central America
The Bush Administration has negotiated the Central American Free
Trade Agreement with five nations and the Dominican Republic in
the Caribbean -- but hasn't been able to secure enough votes to
pass it in Congress. Critics of NAFTA -- the AFL-CIO, environmentalists,
and some farm groups -- vow to kill the deal. If the vote is taken,
it will likely be in the summer or early fall, when lawmakers may
also consider whether to deny President Bush renewed authority to
negotiate trade deals on a "fast track," without congressional
consultation. Business groups are gearing up a big lobbying effort
to retain trade-negotiating authority for the President and get
CAFTA passed.
All in all, these are some of the biggest trade issues to surface
in a decade, making 2005 a year to watch.
NEWS ANALYSIS
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