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Policy Brief 08-5

World Trade at Risk

by C. Fred Bergsten, Peterson Institute for International Economics

May 2008


C. Fred Bergsten The decision by the House of Representatives on April 10 to change the rules for Congressional action on trade agreements drives a gaping hole in US trade policy and poses the gravest threat to the global trading system in decades. By rejecting long-settled procedures that prevented Congressional sidetracking of trade deals agreed by fully authorized Presidents, it instantaneously destroyed the credibility of the United States as a negotiating partner in the eyes of the rest of the world. Unless reversed soon, the House action will severely damage both the US economy and US foreign policy. It will particularly undermine the presumed goal of any new Administration in 2009 to restore our country’s standing as a reliable partner in a cooperative multilateral world.

It would help if Congress and the present Administration could pick up the pieces and pass the Colombia agreement, and the pending South Korea and Panama agreements as well. But the fundamental problem of US international credibility on trade will remain until a foolproof Trade Promotion Authority, or some equivalent successor, is renewed and indeed ensconced permanently. This can only be done, probably by the next Administration, as part of a "grand bargain" that recognizes the costs of liberalization and thus includes a major expansion of governmental assistance to workers dislocated by trade and perhaps other sources of dynamic change in our economy. In the absence of such a renewed foundation for an open and active US trade policy, both our economy and our foreign policy will suffer severely.

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