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George Bush and the End of Globalization?

Will economic protection be the hot topic in the 2004 presidential election?

December 9, 2003

Will economic protection be the hot topic in the 2004 presidential election?

For decades, the United States has distinguished itself among its peers of industrialized nations as the economy most open to international trade.

However, former U.S. President George H. W. Bush was not satisfied with this distinction and he had a vision.

To create a free trade area between Canada, Mexico and the United States.

His vision was realized by his successor, Bill Clinton, who, early on, spent much of his political capital aggressively lobbying for the ratification of NAFTA.

President Clinton did this despite a deeply divided Congress, union pressures and the disapproval of many of his fellow Democrats.

This was President Clinton's first act of political emancipation as a New Democrat. But it had been George Herbert Walker Bush, who ushered in a decade of global commercial integration.

His support for NAFTA was rooted in Ricardo's trade theory — that is, the belief that free trade is not a zero-sum game, but rather a win-win proposition.

NAFTA's most prominent populist detractor on the right — Ross Perot and his "giant sucking sound" — spoiled the reelection of President Bush, Sr., in 1992.

Mr. Perot’s views were later echoed on the right by another populist isolationist, Pat Buchanan, in the 1996 and 2000 primaries.

On the left, one of NAFTA's most determined critics was former Speaker of the House and current Democratic presidential candidate Dick Gephardt.

However, both the populist right and left were put on the defensive on the issue during the 1990s. Their doomsday predictions failed to come to pass.

That was largely due to the fact that America created more than 20 million jobs against the backdrop of growing trade liberalization.

Enter President George W. Bush, the son. Under his leadership, economic efficiency quickly fell victim to political expediency.

First, the president imposed steel tariffs in March 2002 in order to better position himself and his party in key states for the November 2002 Congressional elections.

In a cynical twist, the Administration was fully aware these tariffs violated the rules of the World Trade Organization.

Second, they invited the injured parties to sue the U.S. government, knowing full-well the wheels of the WTO bureaucracy grind very slowly.

Well on its populist way, the Bush Administration then followed with a $190 billion farm subsidy bill in 2002, effectively undermining the livelihood of the world's poorest nations.

According to Ricardo's rules, their comparative advantage lies in agricultural commodities. Over the last three years, the Bush Administration has also taken rather inflexible positions in global trade negotiations — applying its "you're either with us or against us" doctrine to international commerce.

Finally, in a desperate effort to divert attention away from a soft economy at home, the Bush team looked for — and found — a new scapegoat for the 2004 election: China and its undervalued currency.

Barely a day passes without an official or leading business lobbyist blaming China for America's trade deficit — and for the nation's job losses.

In truth, of course, the United States also has large trade deficits with Europe and Japan because of insatiable U.S. consumption habits, even during the worst of times.

On the job front, the United States has probably lost jobs every day and every year of its history. The difference today is that for the first time since the Great Depression, the U.S. economy has created fewer jobs than were lost during a presidential term.

But in preparation for a presidential campaign, such reasoning does not matter. And so the Bush Administration took action against China and imposed new quotas on China's exports of bras and other textiles.

Hence, we have come full circle from Bush, the courageous global decision maker of more than 10 years ago to Bush, the insular protectionist of today.

And in some ways, the electoral campaign of 2004 begins to look like a re-run of the 2000 campaign.

Then, Governor Bush smartly chose huge tax cuts as his single-issue platform. Al Gore initially showed little interest in the subject.

After all, the Clinton/Gore administration had worked too hard to transform protracted budget deficits into unprecedented surpluses.

Yet, as the Bush campaign theme caught on, Gore too felt compelled to introduce a tax-cut proposal.

It was slightly smaller than the Bush proposal, it was also intentionally convoluted and it certainly lacked political conviction. For 2004, President Bush has chosen protectionism — cloaked as "fair trade" — as his economic campaign theme (besides the obvious "war on terror").

He has planted the poison pill and Democrats are too eager to swallow it. By tradition, they are ideologically more disposed to the trappings of protectionism.

Their electoral base is highly unionized and this often leads them to positions, which — if unchecked — are populist and guard the economic status quo.

Unfortunately, protectionism and statism are not in the interest of national — or global — prosperity.

Thus, the 2004 primaries — and subsequently U.S. presidential elections — could easily develop into a bidding war on tariffs, quotas and other trade barriers. It would be a replay of Bush and Gore competing in 2000 over who would cut taxes by more and for whom.

Such outcome could leave America with a President in 2005 — newly elected or reelected — with a broader protectionist agenda than what marked the first term of George W. Bush.

The inevitable result will be the inverse of Ricardo's model. It will lead to a global reduction of living standards, because protectionism is always a lose-lose proposition.

Yet in the end, any president will ultimately fail in rolling back the clock.

Comparisons to previous periods of open trading systems, which were succeeded by times of national protectionism, are missing the point.

The world is already far too integrated. Globalization has far too many stakeholders — and technology has abolished the importance of national borders far more effectively than any trade agreement is capable of doing.

Therefore, the deepening of free trade and global integration can only be briefly delayed, but it will not be stopped.

Our time would best be spent to develop processes that will contain the negative side-effects of globalization — rather than wasting time and effort in building a worthless time capsule full of protectionism.