HOW TO CONQUER FEAR OF GATT
Support for free trade is eroding in America. It is no longer just traditional protectionists who are battling competition, trying to save union jobs or the textile industry. The problem also goes beyond political isolationists, who worry about the loss of national sovereignty to multilateral institutions such as the U.N. or the proposed World Trade Organization. At a time when the trade gap is widening and legislation for the General Agreement on Tariffs & Trade is under siege in Congress, something deeper and much more dangerous is at work.
The middle class is beginning to turn protectionist. The new opponents to free trade are to be found among the 62% of white men uho voted Republican this year. For the first time in recent memory, blue-collar workers are being joined by hordes of white-collar employees being downsized out of their jobs, often in the name of global competition. Together, they form a growing portion of the vast middle class of America that is questioning the value of free trade to themselves and their families. Ross Perot first expressed their doubt in his opposition to the North American Free Trade Agreement in 1992, and he and many younger "America First" Republican politicians just elected to Congress are doing it again on GATT.
Asian mercantilism is part of the problem. The free-trade principles of multilateral pacts such as GATT have not been able to protect working Americans from the trading practices of Japan. Unlike U.S. trade with Europe, Canada, and Latin America, which ebbs and flows relatively freely, the trade deficit with Japan is impervious to fluctuations in currency, productivity, innovation, or business cycles. Japan's ability to flout the meaning, if not the letter, of GATT through nontariff barriers has done serious damage to the support for free trade in America. The spread of the mercantilist model to other parts of Asia and the growth of a second huge, chronic deficit with China, almost half the size of the deficit with Japan, are making matters worse.
Proponents of free trade, for their part, have been too facile in dismissing the worries of trade's victims. While the fruits of free trade--bigger markets, faster growth, higher earnings-- are evident to some, they are murkier to millions of others who have lost jobs to the new globalism. World trade will grow at an astonishing 8% this year, yet to a growing number of Americans, the rewards appear to be distributed unfairly.
The alleviation of this new middle-class economic angst lies not in a replay of Smoot-Hawley Act protectionism. There can be no hiding from the global marketplace. But there should be no retreat from reality, either. There are three broad policies that can help.
First, individuals and families need to retain more income to cope with global dislocation. That means lower taxes. Right now, Washington spends billions on poorly designed retraining programs, money that should be returned to the people.
Second, a level playing field in the global economy must be established that promotes U.S. exports. Passing GATT and expanding NAFTA can help with countries that adhere to free-market principles. But for the mercantilists, a more direct quid pro quo approach on market openness is necessary.
Third, corporations should spend more on training their workforces to increase their skills and value in the global labor market. The earnings corporations are generating from the expanding international economy are directly threatened by growing middle-class disenchantment with free trade. The gain as well as the pain from global growth has to be shared, or the people and the politicians will take it away.