The Chairman of the House of Representatives Ways and Means Committee Charles Rangel (D-NY) is committed to finding common ground on trade policy with the Bush Administration. The Ways and Means Committee released a one page summary of a 15 page document Rangel is discussing with U.S. Trade Representative Susan Schwab and other Administration officials. The summary has five major points that have varying degrees of opportunities to fit within a broader free trade agenda.
The summary calls for creation of a “Strategic Workers Assistance and Training Initiative (SWAT) to promote education, training and portable health and pension benefits.” It would be a public-private partnership in addition to the existing Trade Adjustment Assistance Program. This type of expanded assistance has already been accepted as part of an agreement on trade policy; it is just a case of deciding which programs would be most acceptable and limiting outlays for what could be a $20 billion per year program.
“An expanded trade and aid program to foster development in the poorest countries in the world” is also part of the proposal. Existing U.S. programs could be expanded, or the U.S. could use an idea from the Doha Round of WTO trade talks and provide tariff free access to U.S. markets for the 50 poorest countries. Free trade is good for countries at all levels of economic development and the poorest countries have the most to gain.
Another proposal is to “open major markets to create new opportunities for U.S. workers, farmers and businesses – raise standards of living at home and abroad.” That is what the current Doha Round of WTO negotiations is all about, and one of the stumbling blocks has been market access for U.S. products. When trade becomes freer, a higher standard of living is the natural result as productivity improves through specialization of labor.
The bullet points under “Ensure that U.S. free trade agreements raise standards of living, create new markets for U.S. goods” will be more difficult. Requiring trade agreement partners to enforce international labor standards has been a contentious issue for years. Some see this as a backdoor way of forcing U.S. labor laws to conform to standards set by international groups. Another point would require trading partners to implement Multilateral Environmental Agreements. Government procurement programs are to promote workers rights. These are micro management efforts that countries may reject as infringements on their sovereignty.
The most difficult policy challenges may be under “Stand up for American workers, farmers and businesses, especially in the hard hit U.S. manufacturing sector.” This includes immediate actions on Chinese and Japanese exchange rates and new WTO trade cases against trading partners. These actions are seen as a way to make trade a two-way street. Escalating trade disputes is not a policy substitute for negotiating more open markets.
These trade policy positions partly reflect a deep uneasiness in the pro-trade wing of the Democrats in the House and Senate. The March 28 issue of the Wall Street Journal profiled the thinking of Dr. Alan Blinder of Princeton University who has been an economic policy advisor to Democrats for 20 years and a strong defender of free trade. He served 18 months on President Clinton’s Council of Economic Advisors before serving two years on the Federal Reserve Board. While he still rejects trade protectionism, he believes the movement of jobs around the world is part of another industrial revolution. He sees a need for more help for workers caught in the transition and a retooling of schools to prepare for jobs of the future.
Proposals like those by Chairman Rangel can be viewed as either ways to promote more open trade while easing the dislocations that occur for U.S. workers or as a backdoor attempt at protectionist trade policies that are impossible for the Bush Administration to embrace. While Mr. Rangel believes in more open trade, many other Democrats take a much more protectionist view as they try to understand the policy needs of the country.
While some Democrats and Republicans in the House and Senate would applaud a failure of the talks between Chairman Rangel and the Bush Administration, the status quo in trade policy is not a viable economic option. The U.S. economy, just like other economies of the developed world and increasing numbers in the developing world, is dependent on exports and imports. It is an economic policy work-in-progress that cannot be turned off without income losses for workers and fewer product choices for consumers.
The real issue in trade policy is a question of faith in the U.S. economy to remain competitive with the rest of the world. Those who have lived through the last 50 years of economic life or have read about it will recognize that this is not the first crisis of confidence. In the 1960s it was a resurgent Europe; in the 1970s it was communism of the old Soviet Union; in the late 1980s it was Japan; now it is China, India, Brazil, etc.
Fear of being overtaken economically by other countries is not a totally bad condition. Dr. Blinder is right in his concern that adjustments to changing trade flows will be harder to handle than in past years and that education is essential to training “knowledge workers” (a phrase borrowed from management guru Peter Drucker). Many of these public policy issues cannot be solved by trade policy. And protectionism, either overt or covert, will make conditions worse. Trade policy must do what it can to increase opportunities for producers and consumers, and the other issues need to be handled somewhere else in the political system.