The Bush team has agreed a free-trade deal with South Korea but also slapped tariffs on Chinese paper. Is America's trade policy going backwards or forwards?
TRADE deals are often concluded at the eleventh hour. This week's bilateral agreement with South Korea came even closer to the wire. The negotiators inked an accord 25 minutes before George Bush lost the right to send Congress new trade deals under the fast-track rules that limit lawmakers' ability to amend them.
A close call, but for the White House a useful boost. After six years, Mr Bush's trade achievements are modest. The Doha round of global trade talks is floundering. Many of the dozen bilateral deals passed since 2000 are more about foreign policy than free trade. The biggest prize has been a regional pact with six small countries in Central America.
The South Korea agreement is a bigger deal. It would be the largest bilateral accord America has struck since NAFTA was passed in 1993, as well as the first with a large Asian economy. Though far inferior to a breakthrough in the Doha talks, the South Korea deal could shore up Mr Bush's free-trade record.
Yet only two days earlier, the same free-trading Bush administration slapped tariffs of up to 20% on imports of glossy paper from China, after an American firm complained that its Chinese competitors got unfair subsidies through cheap loans. The sums involved were tiny: America imports some $224m of glossy paper from China a year, less than 0.1% of all goods it buys from China.
But the symbolism was important. For more than two decades America has refused to impose anti-subsidy tariffs on countries, such as China, that it deems to be "non-market" economies. Instead, aggrieved American firms can file for anti-dumping duties if they prove that Chinese products are being sold below their supposed cost of production in "similar" countries. Now American firms will be able to file both anti-dumping cases and anti-subsidy cases against their Chinese competitors. From steel to plastic, no one doubts that American firms will soon be queuing up to use the new tools.
Welcome to the George Bush trade two-step. The theory presumably is that a few carefully targeted barriers will fend off more acute protectionist pressure from Congress and shore up political support for free-trade deals. That was the strategy behind the 2002 steel tariffs. Temporary help for America's steel industry was deemed a necessary price for extracting fast-track negotiating authority from Congress. It was a dubious punt back then. Mr Bush squeezed fast-track through the Republican Congress, but America infuriated its trading partners, making the Doha round much harder to negotiate.
Today's gamble has even longer odds. Mr Bush has little political capital even within his own party. And Congress is controlled by the Democrats, many of whom are deeply opposed to new trade agreements, most of whom want to get tougher on China and few of whom want to give the White House a political victory.
The about-face on anti-subsidy tariffs is unlikely to forestall the passage of more comprehensive China-bashing laws, which seems all but certain this year. Instead of posturing about extreme tariffs (such as a 27.5% across-the-board levy) that are obviously against WTO rules, congressmen are determined to enact more sober (but still dangerous) legislation. One such bill enshrines the right to levy anti-subsidy duties against non-market economies. Others would declare China's currency to be just such a subsidy. Almost a dozen anti-China bills have already been introduced in Congress this year.
Nor will the Bush team's sudden China-bashing win many votes for its free-trade agreements. A few wavering Republicans may be convinced by the tough talk. But Democrats are the real barrier, both to the passage of existing FTAs and to the extension of Mr Bush's fast-track negotiating authority, which expires on June 30th.
Despite much shuttling between the Bush trade team and Charles Rangel, the top trade Democrat in the House of Representatives, the chances of a package that could buy Democratic support either for existing proposed FTAs (with Peru, Panama, Colombia and now South Korea) or for renewing fast-track, seem slim.
The Bush team has promised more money to help those hurt by trade; it has offered to get tougher on foreign labour-standards. But judging from a wish-list published by congressional Democrats on March 27th, none of that will be enough. As well as tough labour-standards, the Democrats want "immediate action" against currency manipulation in China and Japan and specific changes to individual trade-deals. The latest deal, for instance, must link the reduction of America's car tariffs to the number of American cars sold in South Korea.
The extent of these conditions suggests that congressional Democrats (perhaps with the exception of Mr Rangel) do not really want any trade deals to go through. The exact excuse differs. Labour standards are the biggest hurdle for the Latin American deals. That is less of a problem with South Korea, a richer country with strong unions. Nonetheless, America's unions have already declared their opposition.
The political calculus for extending fast-track is different. If the Doha talks make sudden progress, it is possible that Mr Bush could get a limited extension to conclude a global deal, since the Democrats will not want to be blamed for sinking global trade talks. But without such a breakthrough, fast-track extension, too, seems a non-starter. For all the nifty footwork of recent days, America's trade agenda seems headed backwards.The Economist
