Is John Kerry a Protectionist?
Do Senator Kerry’s criticisms of outsourcing mean a Democratic administration would be protectionist?
November 1, 2004
There are many who believe that Senator John Kerry is a protectionist and as such a Kerry administration will spell troubles for poor countries such as China and India.
Certainly, Kerry's campaign rhetoric has contributed to this fear. In the third presidential debate, he chided President Bush for failing to be tough with China in trade negotiations.
He has also lashed out against outsourcing and has promised to tighten tax rules in order to reduce the financial advantages associated with outsourcing.
Kerry's rhetorical broadside against outsourcing has raised eyebrows among policy-makers and media commentators in India — and, to a lesser extent, in China.
In India, political and corporate leaders have expressed private concerns about a Kerry presidency. In China, some observers have speculated that Chinese leaders may prefer a continuation of the Bush presidency — if only because Bush is a known quantity to them.
It is understandable for Indians and Chinese — who have benefited enormously from globalization, free trade and access to the vast U.S. market — to be concerned about protectionism in the United States. But the critique that Mr. Kerry is a protectionist is empirically inaccurate and analytically unbalanced.
The Bush campaign — which has attacked Senator Kerry on virtually every other issue — has been conspicuously unwilling to pounce upon his positions on trade. The reason for this relative reticence on the issue is simple: President Bush is not a free trader — either in rhetoric or in deed.
Throughout the 1990s, the Republican Party assembled a shoddier record on international engagement and globalization than Kerry's Democratic Party.
And Mr. Bush's own record on trade policy on China is quite blemished. In March 2002, the Bush Administration imposed steep tariffs on steel, an area where Chinese firms had gained competitiveness on the export market.
Then in November 2003, just before the steel tariffs were lifted, the administration imposed 28%-46% tariffs on TV sets made in China — and announced new quotas on textile and apparel imports from China.
And throughout 2004, in a move clearly designed with an eye for electoral politics, the Bush Administration has loudly criticized China over exchange rate policies. In pressing China on the currency issue, the Bush team showed scant concern that such a move could exacerbate China's fragile financial situation.
Another point of criticism — prominently by Columbia University Professor Jagdish Bhagwati — is Mr. Kerry's "fair trade" doctrine, as opposed to one of "free trade."
Of course, the fair trade doctrine did not originate with Mr. Kerry. Much of the doctrine was laid out in the 1980s under the Reagan Administration — when the United States imposed the infamous "voluntary" export restraints on Japan. And the first President Bush himself went on a fair-trade mission to Japan in January 1992.
Also, it is a Democratic president, under Bill Clinton, who pushed successfully for NAFTA and China's WTO membership. Senator Kerry supported both actions.
The factual critique of Mr. Kerry's trade stance typically zeroes in on his unfortunate comment that outsourcing CEOs are Benedict Arnolds — named after an American patriot who ultimately ended up betraying his country during the Revolutionary War.
But this again is a caricature of what is likely to happen to trade under a Kerry Administration. The fact is that free trade requires supporting political conditions abroad and at home. Trade occurs among politically amicable countries, not among enemies.
Free trade policies are only viable in the long run if a society has tried its hardest to compensate those who lose from free trade with gains from free trade. In terms of political environment for trade, Senator Kerry will be an unambiguous improvement over President Bush.
How so? Unfortunately, President Bush's operating style has not only been confrontational with foreign governments — it has often been gratuitously confrontational.
For example, in the first few months of his presidency, Mr. Bush actively sought to undo the impressive accomplishments of integrating China into the global community that had been a shared goal both of his own father and President Clinton.
A few months into power, the United States was well on a collision course with China, literally. On March 31, 2001, a U.S. reconnaissance plane collided with a Chinese fighter jet over the South China Sea. The handling of his first foreign policy crisis foretold so much his later approach toward Iraq.
President Bush ignored all the indications that China wanted to settle the matter quietly and diplomatically — and proceeded to denounce the Chinese government publicly. By doing so, he forced a standoff with the Chinese government that could have been avoided entirely.
Apart from diplomacy, in the long run, a vibrant trade and investment relationship between the United States on the one hand and countries such as China and India on the other depends on an implicit or an explicit social compact within the United States.
It is well known that while there are overall gains from free trade there are also substantial "distributional consequences" — meaning that some members of society will gain from free trade and others will lose.
The best way to promote free trade and to curb protectionism is to have strong social protection for the workers who are adversely affected by trade.
Free trade and social protection are not an anathema. They complement each other in making our society productive as well as just. Free trade flourishes when everybody is made better off without making anybody massively worse off.
President Bush has done precisely the opposite. He has weakened the social protection for the most vulnerable members of the society. For example, he let unemployment benefits expire and did not help those without health insurance. At the same time, he methodically and aggressively bestowed huge tax cut benefits on those wealthy Americans, who either have the most to gain from free trade or have the vast means to withstand the adverse effects of free trade.
President Bush has allocated a meager $250 million to trade adjustment assistance programs to help those dislocated by free trade. But this amount pales in comparison with the enormous size of his tax cut on the rich.
The cumulative effect of the harsh social policies of the Bush Administration is the rising stridency against free trade in the U.S. political discourse. Some have resorted to virulent verbal attacks on — and abuses of — groups such as software programmers and engineers based in India.
Others have chosen to believe in some of the wildest claims about the magnitude of the job losses related to outsourcing activities in India — running in the millions, when the actual number is just some 200,000.
This fallout is not surprising. In the absence of effective social protection, those who lose from free trade lose massively and totally. They have no choice but to turn to protectionism as a way to safeguard their welfare.
Protectionism has become a form of social protection when the government has willingly abdicated its obligations toward the most vulnerable members of the American society.
Thus, the political foundation for free trade in the United States is shaken not by Mr. Kerry's campaign rhetoric — but by the weighty assault of President Bush's political and social policies.
Mr. Kerry is intellectually cognizant of the enormous benefits and potentials of free trade. But at the same time, he is mindful of the political and social prerequisites for free trade to flourish.
That is why he represents the better candidate for a less protectionist United States — which will benefit not just Indians, Chinese and other nations, but most importantly the United States itself.
Associate Professor, MIT Sloan School of Management Yasheng Huang is an associate professor in the area of international management at the MIT Sloan School of Management. He joined MIT in 2003. His previous appointments include assistant professor at the University of Michigan, associate professor at Harvard University and consultant to the World Bank. Mr. Huang’s […]
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