Magazine

The Threat of Protectionism


With few exceptions, this magazine has long favored free trade as a win-win proposition for both the U.S. and the world. Part of what triggered the boom of the 1990s was U.S. approval of the NAFTA and GATT free-trade pacts early in the decade. While some individuals and companies have suffered from a more open economy, there is no doubt that free trade has been good for the U.S. overall. Growth soared in the '90s, unemployment plunged, and inflation was mild, held down in part by low-priced imports. Meanwhile, the U.S. served as the world's growth engine.

By contrast, the Bush Administration and the current Congress seem intent on turning trade into a lose-lose game. The Administration's approval of new tariffs on imported steel and Canadian lumber may attract votes in the Midwestern industrial states and in the Northwest, but these decisions have angered America's largest trading partners. Moreover, the steel tariffs have forced prices higher for domestic users. Since the levies were approved in early March, steel prices have taken their biggest jump since 1995.

Even more troubling is the farm bill, which recently received congressional approval--with bipartisan support--and a quick signature from the President. The bill would boost agricultural subsidies by $83 billion over the next 10 years, mainly aiding the largest farmers and big agricultural companies. More important, the subsidies make it much harder for farmers in developing countries to compete with the U.S.

Taken together, the new tariffs and the farm bill send a strong signal to other countries that the U.S. is committed to free trade only when it's expedient. That will make it much harder to get international agreement on tough trade issues in the future.

In part, President George W. Bush has been making these concessions to individual industries in an effort to build support for the "fast-track" trade bill now before Congress. But rather than engaging in protectionist acts, Bush needs to send a pure and clear signal that the U.S. supports free trade on its merits--not sometime in the future, but now. That means resisting any further protectionist demands by lawmakers. It could even mean unilaterally reducing tariffs or taking down trade barriers rather than erecting new ones. Such moves would benefit U.S. consumers while giving a needed boost to struggling economies overseas.

Unqualified support of free trade makes for sound politics as well as sound economics at a time when the U.S. is trying to establish a consensus in favor of fighting global terrorism. The U.S. is in a strong enough position economically that it can afford to make these gestures. If the richest country in the world feels that it has to protect its industries and subsidize its farmers, it should be no surprise if the rest of the globe follows.


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