Speeches and Papers

Americans and Free Trade: Discussion with Trade Expert Gary Hufbauer

by Gary Clyde Hufbauer, Peterson Institute for International Economics

Interview conducted by the Policy Council
September 2006

 


The following discussion was conducted by the National Journal's Policy Council. For more information about the Policy Council, visit http://policycouncil.nationaljournal.com.


POLICY COUNCIL:
What is the pulse of Americans on free trade issues?

GARY HUFBAUER: I think Americans are very divided about free trade, but the issue is not a high concern. Immigration issues and Iraq are well above trade issues right now, in terms of public concern. Nevertheless, feelings are quite divided between those who welcome globalization—and that means more trade and more investment in both directions—and those who are skeptical about the benefits personally, and the benefits to the country at large from deeper engagement with India, China, Brazil, Mexico, and other developing countries. Engagement with the developing countries is the big question mark for skeptics. There’s not much concern about more intense trade relations with Canada or Europe but worries escalate over the bigger developing countries, starting with China.

POLICY COUNCIL: How would you rate the Bush Administration and the current Congress on trade issues?

MR. HUFBAUER: The Bush Administration has made a good effort though I think it should have place a higher priority on trade early on. By that I mean a much more aggressive push on the Doha Round earlier in the second Bush Administration than they in fact have done. I think if the Bush team had placed Doha higher on its agenda, we would be much closer to completion now, instead of what looks like a frustrating end game.

As for the Congress, of course the recorded votes have been closely divided, both on [the] Trade Promotion Authority (TPA) and on ratifying [the Central American Free Trade Agreement] CAFTA, and I expect the votes to be closely divided on ratifying the Peru and Columbia free trade agreements. But so far, I wouldn’t have particular complaints about the Congress. If the votes had gone the other way, I would have a big complaint, but fortunately there’s a small margin of sympathetic support for trade agreements in the Congress.

POLICY COUNCIL: Do you think that the average congressional staffer has a firm understanding of the various issues involved in trade policy, or is trade policy an area in which staff have a superficial understanding, but don’t fully understand the real implications of the measures that they’re voting on?

MR. HUFBAUER: Oh, I think the latter is clearly true. Most congressmen and their staff are dealing with many, many important national issues at any one time, so their knowledge of any one issue tends to be quite superficial. In the case of trade debates, two things seem to drive congressional views. First, congressmen are very alert to their constituent interests. For example, a congressman who comes from a dairy district is almost automatically going to say that freer trade in butter, cheese, or powdered milk, is bad for America. Well—it may be bad for his dairy constituents—but freer trade is certainly not bad for America.

Second, when a congressman does not have important constituent interests on one side or the other of the battle, then he will have a loosely informed feeling about globalization. If the congressman is sympathetic to AFL-CIO arguments, that congressman will resonate with the “pauper-labor argument.” This argument says that if America trades intensively with poor countries, such as India and China, […wage levels will be driven down] in the United States, […setting] off a race to the bottom in labor standards.

I think that the basis for that analysis is very poorly established. But the argument is an article of faith, and if a congressman is sympathetic with the AFL-CIO, he will go in that direction—away from new trade agreements.

On the other hand, if the congressman is sympathetic with a multinational corporation, he will embrace a Tom Friedman view of globalization: it’s inevitable, it’s good for you, and it uplifts the average quality of jobs and makes America a more prosperous place. That congressman will quickly resonate with the ideology of free trade and free investment, without going much deeper.

So to summarize, it’s constituent interests first and foremost. For a congressman in an export district, let’s say one located where Caterpillar is based or Boeing is based, you know where that congressman stands on the trade and investment issue. And if the congressman hails from a sugar district or a textile district or a dairy district, you also know where that congressman stands. And for the broader implications, shallow ideological identifications drive points of view—very few congressman or senators have the time to gain a deep understanding by reading World Bank publications, our Institute publications, or material put out by other think tanks.

POLICY COUNCIL: Subsequently, would you say that trade policy plays a major role in our elections here in the United States or is it so clear where each member of Congress is going to stand based on their constituents that it really doesn’t play a role in the debate in each individual district or state?

MR. HUFBAUER: Certainly, at the national level, the evidence is overwhelming that trade policy is not a decisive issue. I thought the clearest, recent evidence of that was the fact that, in the Ohio election, which was decisive in the Bush–Kerry campaign of 2004. Senator Kerry did not beat the drums in a protectionist direction even though his running mate, Senator Edwards, was very partial to protectionist arguments. I assume the reason that Senator Kerry did not beat protectionist drums is that they don’t resonate even in Ohio, […] historically an industrial state, but not a state where votes are shifted by the trade debate.

Now let’s […look at] individual congressional districts. As far as I can see, trade questions make a bigger difference in primary campaigns than in the general election. In primary campaigns, in districts where the AFL-CIO feels that blue-dog Democrat is vulnerable, trade unions may very well put up money for an opposing Democrat candidate who would be in tune with the AFL-CIO views. That has happened a few times—not very many times, but a few times.

When it comes to the general election in congressional districts, I don’t think trade has been an important issue, because the districts are so well gerrymandered that incumbents are highly favored. In turn, that likely means that the district is already aligned on one side or the other of the free trade debate, so it’s probably not going to be an important issue. My guess is that trade issues probably don’t affect more than 15 or 20 congressional seats and hardly any Senate seats.

POLICY COUNCIL: What role do you think that events like the debacle in Seattle or conversely, books like Tom Friedman’s The World is Flat play on the national debate of free trade? Is it just something that is a sort of a high-brow-coffee-shop chat or does it really resonate with everyday Americans?

MR. HUFBAUER: Well, I think these events and books do make a difference in the general disposition towards trade issues. The debacle in Seattle probably set some people very much against further trade liberalization. Cancun may have strengthened that feeling. Other episodes may have a similar effect. For example, look at a tangential issue that didn’t have a lot to do with free trade—the tuna/dolphin debate about ten years ago. That became a rallying cry for some people opposed to free trade and globalization.

On the pro-trade side, probably it isn’t large-scale episodes like those you mentioned that have an effect, as much as a series of smaller events. Through books like Tom Friedman’s, people are becoming aware that, with freer trade, some truly impoverished countries in Africa and parts of Latin America and Asia are making economic progress—far more progress than through bilateral or multilateral aid. Because many Americans are very concerned about poverty in the world, this realization orients them towards free trade policies.

A handful of Americans might truly appreciate that free trade is good for America. My research says it’s been very good for America—a payout of about $10,000 per household per year for all the liberalization we’ve had since the Second World War. This is quite a big number, and we would miss that if we didn’t have it.

But my guess is that the benefits to America are a background feature. Most people form their opinions based on a loose perception of how they see globalization affecting their own pocketbooks yesterday and tomorrow – not on an historical analysis of 50 years of trade and investment liberalization..

POLICY COUNCIL: How would you rate [U.S. Trade Representative] USTR [Susan] Schwab in her new position?

MR. HUFBAUER: I think Schwab came into a very difficult setting. First of all, she didn’t know Congress the way [former USTR Robert] Portman did. It takes quite a bit of time to build a level of trust and familiarity with congressmen and senators, and so Schwab has a lot of homework to do there. Also, she didn’t know the cast of trade ministers on a personal basis. By now I think she does, but it has taken several months to get on a personal basis with them. Also complicating her mission is the fact that the Bush administration’s clout, domestically and internationally, is waning. This happens to any president in the last few years of office, and it’s happened more rapidly to this president for obvious reasons. So that doesn’t help Schwab. And she’s not an inner confidante of President Bush the way some past USTRs have been confidantes of their presidents.

All these facts, piled on top of the inherent difficulty of bringing the Doha Round to a successful conclusion, mean that Schwab’s got a tough assignment with not a lot of political capital to draw on. Against that background, I think she’s done very well. But the true trial is still ahead. I don’t count the Doha Round out, and I think Schwab may pull it off. If she does, against what seems like very difficult odds, she will be everyone’s hero.

She has done one thing that has gotten some attention, but not as much as it deserves. She and Minister Emerson of Canada negotiated a lumber deal, which looks like it may end a very big fight that’s gone on for more than 25 years. That was a major accomplishment. She did that while she was deputy USTR, and that goes quite to her credit.

POLICY COUNCIL: What’s the outlook for free trade over the next few years?

MR. HUFBAUER: The outlook critically depends on whether President Bush is able to secure an extension of [the] Trade Promotion Authority. It expires, as you know, on June 30, 2007, and the practical date for bringing an agreement to Congress is about April 1, 2007. That’s not very long from now and not a great deal can be done between now and April 1. I question whether the Doha Round can be brought to a successful conclusion with a big reduction in trade barriers by April 1. So extension of TPA will be the decisive battle.

If [the] Trade Promotion Authority is not extended for a year or two, then trade policy will be very, very quiet until the next president takes office and decides what he or she wants to do with this important dimension of U.S. international policy.

The bilateral agreements that have now been negotiated—which are Peru and Columbia, with Panama almost complete—probably represent everything that can be done between now and April. It is possible, just possible, that an agreement can be concluded with Malaysia in this time frame. I can’t see others that are on the horizon between now and April 2007, so that would be the end of the current FTA pipeline.

If [the] TPA is not renewed then things look pretty becalmed on the trade policy front. I wouldn’t say totally becalmed, because some countries may want to negotiate a bilateral agreement with the United States. A few partners may think that Congress will ratify an agreement without the benefit of the fast track procedures contained in [the] TPA. The only example of that happening in the recent past was Jordan, which was, of course, sold on a political basis, not an economic basis. I don’t think Jordan was representative of what might be done, for example, with South Korea or other large countries such as Thailand, Indonesia, Pakistan or South Africa. An FTA with any of those countries would raise important commercial issues, and political questions as well, and ratification would be very difficult without fast track. However, an agreement with a smaller country, such as New Zealand, might possibly be ratified (provided that some way could be found to skirt the dairy issue!).

I’m expecting that the Trade Promotion Authority will be renewed, but I’m in the minority there. Most trade gurus I’ve talked to here in town are quite skeptical, but I think the president will put on a strong push and get [the] TPA renewed at least for six months.

In the best of possible outcomes, he might get [the] TPA renewed for a couple of years. In that event, the policy outlook would be a lot brighter. We might, in fact, revive the Free Trade Agreement of the Americas (FTAA), which is totally off everybody’s radar screen right now. It might be possible to do bigger regional agreements in the Asia Pacific area, with ASEAN perhaps, or even a wider group of countries. Fred Bergsten, Director of the Institute, is pushing hard for a Free Trade Area of the Pacific (FTAAP). Lots of exciting prospects are on the table—but only if [the] TPA is renewed!



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