November 08, 2003

Disappointing News on Free Trade

The Economist reviews the disturbing state-of-play on trade policy. As I've said before, one of the--few--good things a Republican administration does is push for free trade. But not this one: | Trade: After the disastrous meeting of the World Trade Organisation (WTO) in Cancún in September, trade relations between the European Union and the United States, who had worked closely if tetchily together before the meeting, have deteriorated fast. Several long-simmering transatlantic disputes, over steel and export subsidies in particular, now threaten to boil over. Yet just when compromise is needed, a still largely jobless economic recovery in America has boosted protectionist leanings in Washington, threatening to make things worse.

Mr Lamy's most pressing reason for visiting Washington was to see how far Congress had managed to get in eliminating the America's Extraterritorial Income (ETI) tax break.... The European Union (EU) says it will start slapping up to $4 billion in new tariffs on American products next March if legislation to repeal ETI is not in the president's hands by New Year's Eve....

Indeed, neither proposal eliminates ETI subsidies immediately: they would be phased out over several years. With election year looming, and job growth anaemic, congressmen are loth to pass laws that make it look as though they are encouraging the migration of jobs to cheaper climes.

Even if Congress eventually solves this problem, it could be faced with a war over steel. The WTO has already deemed the steel tariffs imposed last year by President George Bush illegal. On November 10th, it will rule on America's appeal. If it loses, as it probably will, the Europeans have vowed to retaliate with tariffs on a range of products by mid-December, unless America backs down. Whether it does so depends on whether there are more votes to be had from states that use steel or from those that produce it.

As if these two clashes were not enough, Congressman Duncan Hunter, a Republican from California, has proposed a “Buy America” act for the Pentagon, requiring it to favour home-grown weapons manufacturers over European rivals...

Posted by DeLong at November 8, 2003 06:16 PM | TrackBack


There I was just wondering whether I should be regretting not having a chance with Prince Charles and you go on to trade. Humph.

Posted by: anne on November 8, 2003 03:32 PM


What specific Republican administrations have been strong advocates of free trade?

Posted by: Julian Elson on November 8, 2003 08:03 PM


I was convinced that recent dollar falls against other currencies was vengeance for Cancun.
As far as Julian Elson asks... President Reagan passed more protectionist measures than all other post-WWII Presidents combined.
Their Libertarian wing is too busy smoking doobs to recognize this fact.

Posted by: Josh Narins on November 9, 2003 07:38 AM


It's interesting to see them cut to the chase and determine that the calculus depends on which state may grant the most votes.

There was once a pie, and it was to be made bigger - not sure who stole it though.

Posted by: Saam Barrager on November 10, 2003 09:40 AM


the US just lost its appeal to the WTO on the legality of its steel tariffs, EU and japan threaten to retaliate of the US doesn't comply...

if the US doesn't abide by the WTO ruling, then i would think the WTO as a body would be seriously weakened, which i think is sort of indicative of foreign policy bleeding into economic policy and the conspicuous absence of strong voices from the administration's economic advisors (note the ineffectualness of zoellick and the push for bilateral and politically conditioned trade pacts as opposed to multilateral agreements); in this case it would seem that remaining unconstrained to pursue "a balance of power that favors freedom" risks protectionism.

Posted by: doho darat on November 10, 2003 10:29 AM


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