Business Day

For Bush, A Janus-Like View of Trade

    In the next few weeks, President Bush will decide what kind of a trade president he wants to be.

    After coming into office vowing to surpass the record of President Bill Clinton and aggressively press for new free trade agreements, Mr. Bush’s administration finds itself facing growing complaints that some of its policies look like those of a protectionist rather than a free trader.

    The administration faces the prospect of a trade war with Europe if the president fails to lift his temporary steel tariffs, which were ruled illegal on Monday by a World Trade Organization panel. A week from now, talks are to resume to extend the North American Free Trade Agreement throughout the Western Hemisphere, a proposal that has been protested by labor unions, small farmers and environmental advocates.

    Even the staunchest allies, like Australia, have complained that the farm bill President Bush signed into law last year is an impediment to new global trade agreements.

    All countries will be watching to see if Mr. Bush, the leader of a nation that has profited substantially from global trade, defies the W.T.O. and accepts $2 billion of European sanctions rather than lift the 30 percent tariffs that are meant to protect the American steel industry as it consolidates.

    Politics will naturally play an important role in that decision, just as it did when the administration decided to impose the steel tariffs and accept new American farm subsidies as the necessary price to pay for the authority to negotiate free trade agreements with little interference from Congress.

    The steel tariffs went a long way to winning votes from lawmakers representing manufacturing states. The farm states, led by Representative Larry Combest, Republican of Texas, made it clear that their votes depended on support for the 2002 farm bill. At one stage, Mr. Combest removed his name from the legislation for trade authority until the president assured him of his support for the increased farm subsidies.

    Now the bargain struck for trade promotion authority is threatening to backfire.

    Sebastian Mallaby, a senior fellow at the Council on Foreign Relations, said Mr. Bush and his trade representative, Robert B. Zoellick, had committed the classic mistake of free traders who thought they could ”buy the allegiance of protectionists, whether they are big farmers or the steel industry, to make some advance in their long-term trade policy and not become captives of the protectionists.”

    ”It was naïve of them to think there wouldn’t be a price for all of this,” Mr. Mallaby said. ”Now, they’ve disillusioned people in their own free trade camp.”

    The immediate issue is the steel tariffs, and the White House remains divided over them.

    President Bush’s economic team at the White House — led by Stephen Friedman, director of the National Economic Council, and N. Gregory Mankiw, chairman of the Council of Economic Advisers — is in favor of ending the special steel tariffs. The tariffs have never been popular among economists, who generally oppose trade barriers of most types.

    President Bush’s political advisers, however, are looking at next year’s election and the role steel producers in Pennsylvania and Ohio will play in helping win these important battlegrounds. But those and other big industrial states are also home to big steel consumers, like car manufacturers and their suppliers, which have been paying higher prices.

    White House officials say they do not need to make a decision on the steel tariffs right away. The European Union must wait for the W.T.O. to officially approve the panel’s ruling sometime from Nov. 21 to Dec. 10. And they say there are potential compromises that might placate the Europeans without abandoning all the tariffs.

    But to some lawmakers who are worried that the mood in the country is moving against free trade, this seems like unnecessary delaying tactics.

    Senator Lamar Alexander, Republican of Tennessee, said on Tuesday that the time had come to end the steel tariffs. Taking the side of industries that use steel and complain that the tariffs raise their cost of doing business, Mr. Alexander said the tariffs had already destroyed jobs in the American automobile industry. Now, he said, foreign sanctions would do more damage.

    ”Because of the W.T.O. ruling,” he said, ”continuing the tariff will destroy thousands more of our textile and agricultural jobs. President Bush’s honest effort to save steel jobs is now backfiring and hurting American workers.”

    The obvious question is whether the trade promotion authority was worth the bargain on steel and subsidies.

    So far, Mr. Zoellick has completed free trade agreements with Chile and Singapore that were begun during the Clinton administration. He succeeded in starting a new global trade round at Doha, Qatar, not long after the attacks of September 2001. But nearly two months ago, the talks broke up spectacularly at Cancún, Mexico, in large part over American and European farm subsidies.

    Other direct, nation-to-nation trade talks are under way, and Mr. Zoellick hopes to wrap up a free trade agreement with five Central American countries by the end of the year.

    Next week, Mr. Zoellick will have a chance to improve that record at a Free Trade Area of the Americas meeting in Miami — hoping to push ahead with another Clinton initiative to expand the North American Free Trade Agreement to the entire hemisphere.

    That got back on track last weekend when Mr. Zoellick agreed to focus on lowering tariffs for the moment rather than to continue battling for new rules he wants covering intellectual property rights, government procurement and foreign investment. In return, Brazil agreed to put aside, for the moment, its demand for a reduction in United States farm subsidies.

    Those subsidies are also on the political radar screen. The ”red states” territory in the Midwest and South that voted for Mr. Bush in the 2000 election are some of the biggest recipients of those subsidies, and it is unlikely that he will upset those voters with a new free trade agreement soon before the presidential election.

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