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Jewish World Review May 22, 2002/ 11 Iyar, 5762

Lawrence Kudlow

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They're trading places | In the 1970s, we had 535 secretaries of state, as Congress insisted on usurping presidential power in foreign affairs. It didn't work. Now it looks like we're gonna have 535 trade negotiators. This won't work, either.

This week, the Senate added the Dayton-Craig amendment to a bill that would have given the White House greater negotiating authority on international trade. But what this amendment does is allow individual members of Congress to veto specific provisions of any presidentially negotiated trade pact. Say goodbye to fast-track trade-promotion authority for the White House.

This is a big backslide on trade for the United States. And the finger can be pointed directly at the flawed strategy created by White House Senior Adviser Karl Rove and U.S. Trade Representative Robert Zoellick. Their original idea was to bring protection to the steel industry in order to capture the rustbelt states of West Virginia, Pennsylvania and Ohio in the 2004 election. Also, steel protection (and now lumber protection against Canada) was designed to win votes from House members and Senators who might waver on a new fast-track negotiating package.

But apparently, a lean and mean trade-negotiating bill is not coming. The White House trade strategy has completely unraveled.

Zoellick, in particular, has been twice hoisted on his petard following botched trade policy. First, his decision to include U.S. anti-dumping laws at the Qatar round of world-trade talks has prompted a number of U.S. allies to make America a target of foreign-dumping violations. Then, reacting to our newly imposed steel tariffs, the European Union, Japan, Brazil and India have signaled they intend to retaliate against the United States. Also, isolated U.S. trade policy is now under attack from the International Monetary Fund, the World Trade Organization and the Organization of Economic Cooperation and Development.

So, instead of trade peace, we got trade war internationally.

More amazing than the Zoellick gaffes, both Democrat and Republican senators voted for the Dayton-Craig amendment. This would allow elected officials to edit out whatever they consider to be an "unfair trade practice," but what this really does is keep quick, decisive trade authority away from the president. Remember, too, it was the administration's protection of steel and lumber that emboldened lawmakers in the first place, giving cover to their desire to legislate protectionism.

While the White House insists that its trade strategy will move us one step backward and three steps forward, we've now had four steps back and no gains. This includes, by the way, the $83 billion budget-busting farm bill that is chock full of protectionist agri-business subsidies.

The whole notion of anti-dumping laws -- which are set in place with the belief that they'll protect U.S. industries from unfair trade practices -- is irrational economic nonsense. During the past worldwide deflationary recession, all goods-producing firms from countries around the world sold their inventory positions at collapsed prices to avoid even worse future losses. In the latter 1990s, sinking world steel prices dropped 17 percent. Singling out one industry (e.g., steel or timber) or one country is absurd.

As a result of such White House trade-strategy blunders, the Andean trade pact with our southern neighbors in all likelihood will not occur. Trade deals with pro-American countries in the Middle East and the Arab world will not occur. Sub-Saharan trade expansion won't make it. Trade with democratic India, our natural ally, may not occur. And ditto for enhanced trade with free-market reformer Vladimir Putin of Russia.

The simple fact is that free-trade expansion always encourages growth in the economy and better foreign relations in politics. North American free trade with Mexico and Canada was a huge economic success and brought all three countries closer.

Since NAFTA, total trade with Canada has increased nearly five-fold, with an almost three-fold increase with Mexico. And while export-import activity with our neighbors soared, over 40 million new jobs were created at home.

Free trade promotes competition, which keeps companies on their toes to produce efficiently. Free trade also provides choice to consumers and businesses who can now go online to purchase the best quality goods at the lowest available prices anywhere in the world. In short, free trade throws off enormous benefits, and Congress shouldn't dare stand in its way.

The White House must veto any trade bill that contains the Dayton-Craig amendment. It must insist on full presidential trade-negotiating power. And it must thoroughly overhaul its failed trade strategy that mistakenly believed protectionism in the short run will lead to freer trade in the long run.

If Robert Zoellick and others cannot see their way to a new trade strategy, they should be replaced with people who can. Free trade is too important to fail.

JWR contributor Lawrence Kudlow is chief economist for CNBC. He is the author of American Abundance: The New Economic & Moral Prosperity. Send your comments about his column by clicking here.


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