Irwin Stelzer
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SO it does indeed end with a whimper rather than a bang. Free trade, I mean. Thanks to a president too weak politically to withstand the protectionist surge of a Democratic Congress, the era of ever-freer trade has come to an end. It expired quietly, with few mourners, and with some of those who have done it in claiming that the corpse is alive and well.
Susan Schwab, US trade representative, found it politically necessary to claim that the deal cut with Congress by a weakened President George Bush and a reluctant Treasury secretary Hank Paulson “shows the US is not turning protectionist”.
The deal, still subject to congressional approval, is this. The Democrats will agree to approve two minor trade agreements, one with Peru and the other with Panama, in return for a Republican agreement to include in trade pacts a series of environmental and labour-market “reforms”.
Those reforms include the recognition of the right of trade unions to organise workers, the outlawing of most child labour and of workplace discrimination, and a requirement to allow patent protections of pharmaceuticals to lapse overseas when they expire in America. We can sue our trading partners if they violate the agreement, and they can sue us. For example, if some country such as Panama decides we are violating trade-union rights here at home, they can bring a suit to press Congress to change the law.
More important is what this deal signals about the shift in the balance of political forces that determine future trade policy. Until now, the administration’s supporters of free trade have been able to fight off Democrats’ attempts to incorporate these restrictions in trade agreements. No longer. For two reasons.
First, there is Iraq, which has sharply reduced the president’s ability to keep his congressional party in line. The presidential coat-tails are frayed beyond any ability to be useful to aspiring politicians. Indeed, the name of the game in Republican circles is to create as much distance as possible from the Oval Office.
Second, there has been a shift in attitudes towards trade. There are increasing charges by Wal-Mart’s political critics that its prices, so attractive to consumers, come at the expense of exploited children in Asia and an underpaid workforce in America. Asian child labourers might be working themselves out of poverty, and Wal-Mart might be providing jobs for thousands unable to find work elsewhere, but that doesn’t matter to critics of free trade and the company.
In one sense, the free-trade advocates in the administration have nobody to blame but themselves. They have been unable to craft and to explain programmes to transfer some of the gains of free trade to those who suffer from it – displaced workers. Yes, there is a host of programmes aimed at doing just that, but most workers can’t cope with the bureaucratic shoals that must be navigated to be eligible for benefits. And yes, unemployment is virtually nonexistent, but until very recently workers’ wages have not kept pace with the growth of profits and executive compensation. That created an opportunity for critics to claim that globalisation and free trade raise corporate profits and executive pay, while exposing ordinary workers to competition from dollar-a-day labourers in Asia and Latin America.
Then there is China, increasing its wealth and, equally important, its political power on the back of an export boom sustained in part by an undervalued currency. This provides it with a huge and growing surplus in its trade with America: $63.3 billion (£32 billion) in the first four months of this year, up 88% on the same period in 2006. That won’t be changed much by this week’s semi-annual economic dialogue between an American delegation headed by Paulson and a Chinese delegation led by vice-premier Wu Yi. Its ineffectiveness might stir congressional critics to consider legislation on those issues.
So the state of play now is roughly as follows: the administration has agreed to accept Democratic restrictions in return for support of two minor trade agreements. The more important agreement with Colombia has been put on hold. This is a blow to the Bush administration, which had been counting on President Alvaro Uribe to be an ally to counter the influence of Venezuela’s rabidly antiAmerican Hugo Chavez.
Also, the important agreement with South Korea has been sent back to the drawing board by a Congress seeking more concessions.
Two important questions remain. The first is whether the Bush administration can persuade important elements in the business community to support the deal, and whether Democratic leaders can overcome opposition from those of their colleagues who believe that the best trade deal is no trade deal. Neither is certain.
The second question is whether the deal can become a template for others, and also presages congressional renewal of the president’s fast-track authority, which empowers him to put any trade agreement to Congress for an up or down vote, no amendments allowed.
The dealmakers, most notably Schwab and Paulson on the Republican side, and Congressman Charlie Rangel, the suave chairman of the powerful House Ways and Means committee, for the Democrats, say it will. Trade-union leaders disagree: no trade deals so long as Bush is president or, better still, never. John Sweeney, president of the AFL-CIO, America’s largest trade-union confederation, has promised to oppose any trade agreement with South Korea or Colombia, as well as any extension of Bush’s fast-track authority. With elections pending, that matters.
All of this is a pity. Just when the falling dollar is boosting American exports, a tit-for-tat trade war, closing markets to US goods, is the last thing a slowing American economy needs.
Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute
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It's the end of free trade as we know it...
and I feel fine.
Mike, Middlesbrough,
Protectionist surge of the Democratic congress?
Protectionism is, for example, passing a law that prevents foreign companies operating online gambling in the USA whilst doing nothing to stop American companies running gambling operations, or preventing a foreign company operating ports in the USA on the extremely spurious grounds of national security.
No - you're right - the biggest threat to free trade is those nasty Democrats trying to make child slavery illegal.
Joe, London,
where is this free trade ,we cant buy goods from the us
in the fragrance trade only EEC supplies ,what happens
when all the factories in UK USA and Europe are exported to
china will I be able to buy from them ,when is the west
going to stop this practice of exporting jobs
george william taylor, hull, uk
As a long term fan to Paul I am dismayed to hear about his collaboration with the super giant company Starbucks which is sending lots of farmers empty handed to their children.
Surly a person like him is suppose to be a role model and show his solidarity with the poor and justice isnt that all about ideas him and John Lennon endorsed in the 60s?
Surely he needs the £ less than those with 0£ to meet todays need. I am torn with my long time admiration to Paul and the awareness of social justice. I know where my heart lies when it comes to decisions thou. As long as he continues his association with Strarbucks me and my fellow justice seekers will shy away from his works and long for the day he opens his eyes beyond the shortsighted benefit and denounce them.
Saddened fan
Helen J Smith, London.
Helen, London, UK
No matter what is said and done by Republican : Democrat : Tory : Labour or even New Labour : Free Trader
or Protectionist it is and will always remain.
" The Rich what gets the pleasure and the Poor what gets the blame"
Only the EU is, of course, exempt, from such truisms !
Peter Bolt, Redditch, UK
I hate the phrase "Free Trade", since it never results in truly free and unfettered trade.
In the modern day it is undoubtedly true to say that is negotiated trade.
I live and work in Asia, and have seen the reality of the trade benefits that China is reaping. The US and Europe are undoubtedly benefitting on a macroeconomic level from the cheap imports that it can obtain from China/Asia. Let us not forget that a large percentage of these products are made by US and European firms exporting from China.
How to handle the displaced workforce is another issue. Training, education, more training and more education is the best that the West can do. I see Chinese companies filled to the rafters every day with underemployed workforces. Do not imagine that they are working at anywhere near the efficiency of the West.
What we must do at all costs is avoid a trade war. China/SE Asia is too embedded in the economic activity of the West to exclude it.
Nick, Nanjing,
Regarding Monday 21st edition of the times, The article by Dr Thomas Stuttaford contained a factual error. He states that the bearded dragon and the gila monster have to only eat three or four times a year and that both species are endangered and likely to dissapear from the planet. While this may indeed be true for the Gila monster, I don't think it is true for the bearded dragon. I have a pet bearded dragon who would be very upset and most likely dead if I fed him only 3/4 times a year. These reptiles are also numerous in both Australia and in the pet trade over here. Just thought I'd point that out!
Lydia Franklin, Reading, Berkshire
Yes, trade is over the long run beneficial for those who engage in it. Still, is free trade the same as fair trade, even over the long run? I don't think so.
James, Jacksonville, Illinois U. S.
Free trade, like fresh air, may be a bit frightening, so it is tempting to stay indoors by the TV, where Mommy Schwab can protect you from the big bad world outside. But then you know what happens in the end.
Frank Upton, Solihull,
Yeah the democrats and changing political format will end free trade, but we all know that never worked. We stoped trading with Cuba a long time ago, but the most popular drink their is still coke and yes they do drink American Beers. Free trade always prevails, and it's easier than ever with the modern technology.
David, Owings Mills, MD
Stelzer makes it sounds as if the world is ending because labour and evironmental standards have been included in a trade agreement:
"For example, if some country such as Panama decides we are violating trade-union rights here at home, they can bring a suit to press Congress to change the law"
Sound like an abrogation of sovereignty? He doesn't mention that the intellectual property and investment sections of the agreements already reach further in this respect. Peru, for example, is required to implement and enforce US-standard patent, copyright, and trademark protections within 3 years (including some whose utility is questioned in the US). One country can already sue another for not providing sufficient protection to its IP or investments
The Democrats' insistence on also incuding labor and environmental standards merely attempts to provide balance, with the goal that people and communities - as well as property owners - also benefit from increased trade.
Simon Bidwell, Wellington, New Zealand
do you really think that exports from the US to other countries are going to help anything? There is no way that American made products can compete with China, India or any of the many SE Asian countries that can or will produce equivalent products...American workers cannot compete with Slave labor. lower or no cooperate taxes, unemployment requirements or social security payments that companies are required to pay for each employee they have in the US. Companies in the 3rd world also have no Environmental Protection requirements to fulfill. To add on to existing factories in the US costs Vastly more than in China, where the government often promises to build the factory free for the company IF the company chooses to do a majority of their manufacturing in China.
What you classify, or has been classified as "free trade" was not so. Free(or fair) trade exists between Canada, UK, EU and the US, where standards are similar. Outside that its Free Slave Trade, nothing more.
Damion, Indianapolis, US/Indiana
I don't understand anything he just said. Am I just thick or is the article badly written? I'm a 4th-year medical student, so I'd have thought I'd be up to the Times' normal intelligence standards?
Ian, Nottingham, Nottinghamshire
"Europe seems to be doing OK". Really? They have growth at half the US level, unemployment for a full generation at twice the US level (with youth unemployment even higher), an economically unsustainable welfare system and a decadent and self centered culture resulting in a fertility rate far below replacement. "OK" only if suicide is your thing. But as one person responded to the notion of relatively soon no Germans, "Some people are distressed by that, some aren't."
Bill Manuel, Spokane, WA
The most serious consequences of wild free trade is how to deal with the inevitable unemployment of unskilled workers driven out of their jobs by cheap imports. At a loose end, watching crap daytime TV they are notenthsed to do extra work to shift them up the skills level, it become an ever out of reach chase, unfortunately rather than go to the local library and fill their minds with more, maths, history, english, geography ,many turn to crime be it even gardening for cash at weekends, still drawing benefits, do you blame them?
DAVID VINTER, LOUTH, LINCS., uk.
What an absurd overreaction! The provisions on labour/environment make these FTAs conditional on meeting minimum international standards (which are much lower than in the EU). Similar conditions have been in US FTAs since NAFTA in 1994: the main difference now is upgraded enforcement. None of this will have any real impact on trade, so long as the parties do not entirely abuse their workers or environment, and even then it is hard to see the other side taking action. This article is hard to take seriously, and doesn't even begin to enter into the debate on the real merits of this change in policy. The title caught my attention; shame about the contents.
Lorand Bartels, Heidelberg, Germany
Excuse me. Free Trade for whom? It is another smoke screen for excessive US consumption, pollution and the misuse of other Nations savings. The rest of the world largely gets by without US, so called, standards of so called quality of life. Time to redress the balance Mr Seltzer. Free Trade yes, but we ain't got it.
John Albert, Lisbon, Portugal
Europe has had these sorts of trade rules for ages, and seems to be doing OK. Despite cynical manipulation of environmental and ethical rules - a good example being the EU rule requiring all imported flowers to be packed in recycled boxes, which simultaneously protected European flower growers and boosted exports of European recycled products - these rules have changed practices in EU trading partner countries for the better. More than the hoped-for "trickle-down" from unfettered US-South American trade, anyway.
Delilah, Maryland, USA
People tend to vote more on concrete issues like inflation than on abstract ones like child labour. Because of the "China effect", a surge in protectionism will likely kick off a surge in inflation in protectionist countries. Those seeking re-election will have to come up with very good stories to explain that, especially if capital remains globalised and there are strong investment flows out of protectionist countries.
Ian Kemmish, Biggleswade, UK
The implicit assumption in the argument for unfetted free trade seems to be that all governments play by the same set of rules. They don't. Look at the manipulation of exchange rates for example.
MarkS, Leeds,
Why oh why cant the left wing green/commies understand the best way to inprove the lives of millions of the worlds poorest folk is through free trade. Just look at China and all the other asian countrys
Garry Webster, Norwich, England
The biggest cause of global warming - WTO. How can you save the planet if free trade increases the amount of goods being moved from poor countries to rich? Make it at home, grow it at home, ship it round the corner and save the planet................. the future of consumerism?
jon, London,
You miss out another danger, that this spaghetti of bilateral deals will sap momentum fronm the Doha round, which promises far bigger benefits.
Indeed they may only make trade more complex and lead to trade diversion rather than creation.
k, a, p
A contained fire is good. A wildfire is not. Those who would stoke the fires of free trade without paying attention to the consequences should not be allowed to play with matches.
Duane, Denver, USA/CO