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Clinton's Trade Route


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CLINTON'S TRADE ROUTE

During the campaign, he pledged to be the "Domestic President," flogging George Bush for his fascination with foreign affairs. But as Bill Clinton settles back into the Oval Office after a well-scripted Asian tour, his economic policy is taking on an increasingly global cast. With growth sluggish at home and job creation lagging, Administration officials now concede that the key to the President's pledge to create millions of new, better-paying jobs depends on finding new markets overseas.

Meet Bill Clinton, International President. During the next few weeks, Washington will be dominated by congressional wrangling over final details of Clinton's economic plan. But Clinton is already looking beyond Capitol Hill to a trio of key trade pacts (table) that promise far more stimulus than the modest investment initiatives in his budget. "We have entered an era where the line between our domestic policy and our foreign policy has completely evaporated," the President says. "We cannot grow unless all the world grows."

That message echoed through the halls of Japan's Akasaka Palace, site of the July 7-9 economic summit. It propelled the timid, politically battered heads of the Group of Seven nations to strike a deal to eliminate tariffs on a wide range of manufactured goods. "They bit a bullet instead of a marshmallow," says a U.S. summiteer.

While only a modest step, the trade accord was an act of political courage for a group of leaders who face high unemployment at home and growing clamor for protection from foreign competition. The G-7 heads stood up for expanding trade and open markets. An aberration? Hardly. Clinton has embarked on a high-risk strategy to make trade a centerpiece of his economic policy. And despite a history of mushy trade compromises and failure, he's willing to gamble that prospects for success are brighter than perennial cynics think.

The summit agreements breathe new life into efforts to complete by December a new General Agreement on Tariffs & Trade, which could boost export growth by eliminating barriers to a wide array of goods and services. And U.S. executives' guarded hopes of expanding exports to Japan were bolstered after the summit, when Clinton and Japan's Kiichi Miyazawa announced a new "framework" for U.S.-Japan talks aimed at opening Japanese markets.

Closer to home, Clinton is no longer waffling on the North American Free Trade Agreement. Spurred on by a court ruling that could fatally delay consideration of the pact, the President will make a major push late this year to win congressional approval of NAFTA.

Clinton's three-front trade blitz will be a tough sell. Exposure to a ferociously competitive global economy is a chilling prospect for many American workers. They fear that they'll lose jobs to cheap labor in the Third World and that foreign concerns will continue to take over such American icons as Rockefeller Center and 7-Eleven convenience stores.

But on balance, expanded trade offers the best hope for growth in mature economies such as those in the U.S., Europe, and Japan. The Clintonites, armed with sheaves of statistics, are determined to make the case: Since 1987, exports have accounted for more than one-third of U.S. economic growth and two-thirds of all new domestic jobs. Since 1991, the biggest percentage gains have come not from rich markets such as Germany and Japan but from developing economies such as China and Mexico. And experts predict that the future holds even more promise for U.S. exports as capitalism blooms in Eastern Europe and economies from Southeast Asia to Latin America take off.

For Clinton, the most appealing part is that jobs created by exports pay higher wages than jobs rooted solely in the domestic economy--13% higher in the U.S. on average, according to the Commerce Dept. "Trade not only creates jobs--it creates good jobs," says Robert D. Hormats, vice-chairman of Goldman Sachs International Ltd.

REALITY CHECK. But it will take more than salesmanship and statistics to win breakthroughs on trade. Although opening markets to foreign competitors is appealing in the abstract, the political reality is that powerful protected interests at home--from French farmers to American textile makers to Japanese financial-service firms--will take a beating. "Nobody should overstate what happened in Tokyo," warns U.S. Trade Representative Mickey Kantor. "We still have a lot of tough negotiating to do."

NAFTA holds the key to having all the trade pieces fall into place. But Clinton faces a daunting task in winning congressional approval: With opponents ranging from trade-baiter Ross Perot and consumer advocate Ralph Nader to labor and environmental groups, he must make a populist case that U.S. jobs created by the accord will more than offset jobs lost to Mexico. Clinton plans to follow Jimmy Carter's example with the Panama Canal treaties, running the equivalent of a full-fledged political campaign to win over Congress. And he can probably pull it off. "The votes will be there, but only with a lot of work," says Bush Administration trade negotiator Robert C. Fisher.

A NAFTA victory would give Clinton critical momentum to force a yearend GATT deal. GATT has been stalled for years by France's insistence on protecting its farmers. But senior U.S. officials tell BUSINESS WEEK that Paris is privately angling for a last-minute concession that will enable it to agree to deep cuts in agricultural subsidies. Indeed, French President Fran cois Mitterrand mused aloud in Tokyo that he was "willing to try anything" to stem rising Eurosclerosis. With its economy in recession, France can't afford to scuttle GATT. "The pressure is on France," says Stephen Woolcock of the Royal Institute of International Affairs in London.

The toughest nut to crack remains Japan. Tokyo wouldn't publicly agree to specific numerical targets for opening its markets to foreign goods. And Clinton's framework "seems rather vague," says General Motors Corp. CEO Jack Smith. In fact, one Japanese official scoffed that the framework was "a start" that might have no end.

But U.S. officials contend that far more progress was made behind the scenes. Senior negotiators say Tokyo struck a secret understanding: It admitted the need for change, conceded there would be some specific goals, and even discussed numerical goals for some sectors. Now, says a top U.S. bargainer, "we have to be relentless in following through."

This is not the first Administration to make such a vow. But rarely has a President been under such pressure to use trade policy to solve a major domestic dilemma. Clinton has come a long way from the candidate who cringed at the mention of foreign affairs. He now realizes that trade comes down to a single four-letter word: jobs.Douglas Harbrecht in Washington and Owen Ullmann in Tokyo, with Bill Javetski in Paris and Zachary Schiller in Cleveland


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