UNITED STATES: Protectionism is gaining ground

Analysis

According to a December 2003 Zogby poll, a plurality of the US electorate -- 44% to 28% -- now believes that Free Trade Agreements (FTAs) undermine the economy. This finding reflects growing anxiety about the impact of international trade on the US labour market. Protectionist pressures are gaining new force as longstanding concerns about the loss of manufacturing employment to low wage economies are interacting with new ones about the threat to the jobs of highly skilled workers.

Most policymakers acknowledge that job losses are the short-term price for assuring a more dynamic and productive US economy. However, a faltering administration trade agenda, combined with partisan posturing to workers disadvantaged by foreign competition, will make 2004 a difficult year for pro-free trade advocates.

'Blue collar' jobs. Since President George Bush took office in 2001, some 2.7 million US manufacturing jobs have been lost. This has contributed to a growing fear that the US manufacturing base will slowly disappear, as well as to charges by several Democratic presidential candidates, including Senator John Edwards and former Vermont governor Howard Dean, that free trade agreements such as NAFTA and lax enforcement of US trade laws are contributing to the decline. This message resonates particularly well in a number of states such as South Carolina, West Virginia, Ohio and Michigan, where the job losses have been heaviest and which could prove pivotal in this year's presidential election.

In light of this sentiment, Senator John Kerry, the clear favourite to win the Democratic presidential nomination (see UNITED STATES: Kerry gains but is not 'home and dry' - February 4, 2004), has also pulled back (at least temporarily) from his longstanding support for free trade. Kerry has recently said he is for "fair trade" and "smart trade that works for people". He announced on January 29 that, if he becomes the nominee and beats Bush in November, he would:

• Appoint a commission to explore measures to halt the loss of jobs to foreign competitors.
• Seek to devise tax credits for manufacturers to encourage job creation.
• Bring more complaints at the WTO than the present administration has against overseas firms.

China focus. China, which according to US figures, now accounts for over 100 billion of the 500 billion dollars US trade deficit, has been the lightning rod for the brunt of the complaints. The administration, responding to grass roots calls to get 'tough on China', in November imposed a cap on imports of Chinese knitwear and bathrobes. Some members of Congress are also supporting tougher trade curbs if Beijing does not revalue its foreign currency in order to insure that its exports are priced more reasonably (from a US perspective).

While China has thus been portrayed by some corporations and labour unions as the main villain in an 'unfair' raid on US manufacturing jobs, FTAs are also being blamed. For example, the FTA that the administration concluded with four Central American countries (El Salvador, Guatemala, Honduras and Nicaragua) has aroused considerable opposition in Congress. Based, in particular, on concerns that the agreement would accelerate the decline of jobs in the US apparel industry, the Bush team may not be able to secure the votes to get the agreement approved by Congress this year.

'White collar' jobs. US trade anxieties have been heightened by the growing tendency of large multinationals to out-source white collar jobs overseas. These new jobs, which include computer programmers, design engineers and radiologists, were once perceived to be largely protected from foreign competition because they required advanced degrees, English language skills, and often proximity to customers. However, due to rapid advances in communications and technology, hundreds of thousands of these high-paying and high skilled jobs could be lost, according to some forecasters, to countries such as India in the medium term (see INDIA: Outsourcing proves a mixed blessing - July 25, 2003).

As firms such as Intel assert that they have "no choice" but to transfer growing numbers of information technology jobs overseas in an effort to reduce costs, many displaced white collar workers are embracing anti-free trade positions. The possibility, in turn, exists that these workers could join organised labour in a much more potent combined coalition opposing trade liberalisation.

'New' protectionism. In light of this prospect, Federal Reserve Board Chairman Alan Greenspan last month cautioned against a return to "significant and widespread protectionism". His concerns are driven, at least in part, by the fact that new white collar activists appear to have turned some leading politicians into trade sceptics. For example, Democrat Charles Schumer, who represents the state of New York in the US Senate, argued last month that the standard case for free trade is being undermined by the changes now evident in the global economy where, at a push of the button, the factors of production -- capital, technology, and ideas -- can be relocated to lower wage countries.

The anti-free trade lobby has to date successfully lobbied Congress to let lapse a measure that had temporarily boosted the number of visas for foreign professional workers. They have also backed an amendment introduced by Republican Senators George Voinovich and Craig Thomas that would prevent contractors hired by the Treasury and Transportation Departments from using overseas labour to complete federal contracts. Related measures that prohibit companies from using foreigners to fulfill state contracts have been proposed by state-level lawmakers across the country including in New Jersey, North Carolina and Washington. Other measures to retard the flow of US services jobs overseas that are likely to be considered by Congress include the use of tax credits for research and development.

Bush agenda adrift.An important factor contributing to the protectionist pressures has been the administration's failure to advance its key trade priorities -- the Doha round of multilateral trade negotiations and the 34 country Free Trade Area of the Americas (see UNITED STATES: Trade strategy meets numerous setbacks - November 19, 2003). Traditionally, these kinds of broad, liberalising initiatives serve as a strong counterweight to pleas for protection by mobilising a coalition of big producers, retailers, and consumers in favor of greater openness. However, the Bush team's hesitancy to negotiate reductions in US protection, particularly in agriculture, has not only contributed to the breakdown of these negotiations, but also invited protection-seeking industries to advance pleas for government assistance.

Critically, the administration's willingness to provide the steel industry with import protection largely for domestic political reasons, combined with its focus on negotiating free trade agreements primarily with countries that pose no economic threat to the United States, has sent a message that trade is potentially harmful to US interests. Perhaps in light of this, the powerful and traditionally free trade-oriented American Farm Bureau Federation voted last month to promote the need to protect import-sensitive commodities in future trade negotiations more than it has in the past. Given the present sensitivity of the free trade issue, the Bush team is unlikely to show this year more political will to deflect or respond to protectionist rhetoric (at least some of which has been encouraged by its preference for winning trade votes along partisan lines). It will be even less likely to do so should the president ultimately face a tough re-election battle.