Bush Trade Rep: China Policy Was 'Right on Target'

Exiting USTR Schwab urges Obama to resist pressure and pursue more free-trade deals

By Pete Engardio

US President George W. Bush (L) greets Chinese President Hu Jintao (R) on the North Portico of the White House in Washington, DC, prior to a dinner with leaders attending the Summit on Financial Markets November 14, 2008. JIM WATSON/AFP/Getty Images

Throughout her two-and-a-half-year tenure as U.S. Trade Representative, Susan C. Schwab absorbed shots from Democrats who believed she spent too much time futilely trying to negotiate new free-trade agreements while not aggressively enforcing existing rules. Under Schwab's watch, efforts to revive a new round of global trade talks failed, free-trade pacts struck with Colombia and South Korea stalled in Congress, and America's trade deficit—especially with China—soared to record heights.

Now Schwab, who is returning to academic life at the University of Maryland, has some advice for the new Obama Administration. In a nutshell: Keep up the momentum on free-trade deals. Pick your fights with Beijing carefully. And spend a lot of time on Capitol Hill to make sure Congress doesn't do anything crazy. Given the growing frustration in Congress as the U.S. slides deeper into recession, she warned that the risk of unwise U.S. moves on trade will grow. "Depending on what policies the Administration takes," Schwab says, "it could get pretty rocky."

New Deals Urged

As a candidate, Obama criticized the North America Free Trade Agreement and proposed a deal that would have lowered barriers with Colombia. And with public sentiment now strongly against free-trade deals, Obama's transition team has suggested that new treaties won't be a high priority. That would be a big mistake, Schwab warns. "The key question is whether this Administration will have a proactive trade policy that goes beyond an enforcement agenda," she says. "If you don't move ahead with trade liberalization, you are moving backwards."

The reason, she argues, is that dozens of other nations are striking trade agreements among themselves. For example, China, Japan, South Korea, Singapore, and other countries are exploring an Asian free-trade agreement. If the U.S. sits on the sidelines, American exporters of goods and services could be left at a competitive disadvantage in crucial markets. Schwab also contends new trade deals are a good way to boost U.S. industry. Because America's markets already are far more open to imports than those of nations such as Colombia, the U.S. would be the biggest winner. "If you are looking for means to stimulate the economy, it is hard to imagine a more effective way than by winning more market access," she says.

China Strategy

American unions and many U.S. manufacturers disagree. They want Obama to put a much higher priority on cracking down on unfair trade practices, especially by China. Trade hawks accuse Beijing of massively subsidizing exporters by keeping China's currency artificially low against the dollar, furnishing them with cheap credit and energy, tolerating labor abuses, and ignoring environmental problems. They also note that piracy of U.S. software, movies, and music remains rampant. While the Bush Administration has tried to resolve most trade disputes with China through diplomacy, critics say this strategy has achieved little and are supporting bills in Congress to penalize Chinese imports with high duties to compensate for alleged tariffs.

However, Schwab defends her record. "I think our strategy with China was right on target," she says, noting that the Bush Administration filed seven cases against China in the World Trade Organization. They included complaints that China had violated its WTO commitments by giving tax breaks to semiconductor makers, not protecting intellectual property, favoring the use of domestically produced auto parts in cars assembled in China, and inhibiting access of U.S. companies to its financial-services market. Most recently, Schwab on Dec. 19 filed a WTO complaint accusing China of illegal subsidies to domestic companies that export their branded products.