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President Bush to Focus on Trade in Asia

November 16, 2006 at 6:10 PM EDT

KWAME HOLMAN: From Washington, to Moscow, to Singapore and beyond, President Bush promoted his message of free trade en route to the annual Asia Pacific Economic Cooperation summit in Vietnam.

Mr. Bush had hoped to bring with him word of a new U.S. trade agreement with Vietnam, an issue that’s topped his trade agenda. A bill in Congress would have granted permanent normal trade relations status between the countries for the first time, something that so far has been allowed only on a provisional basis.

But on Monday, the bill failed to gain the two-thirds majority needed under special procedures to pass the House of Representatives.

HOUSE MEMBER: The bill is not passed.

KWAME HOLMAN: Ohio Democrat Dennis Kucinich voted against it.

REP. DENNIS KUCINICH (D), Ohio: If you care about jobs in the United States, then you should be concerned to learn that the U.S. balance of trade with Vietnam has gone from a surplus in 1993 to a deficit of over $5 billion. As Chinese manufacturers move south to Vietnam in search of even cheaper labor, more and more exports will come from Vietnam to the United States, and more and more jobs in the U.S. will disappear.

KWAME HOLMAN: Another blow to U.S. free trade policy may be the midterm election results. Several outspoken Democratic critics of free trade were voted into office, including in the Senate, Virginia’s Jim Webb and Ohio’s Sherrod Brown.

But today, on the other side of the world from Washington, President Bush assured an audience at the National University of Singapore that the U.S. won’t turn its back on free trade.

GEORGE W. BUSH, President of the United States: Building more hopeful societies starts with opening up to the opportunities of a global trading system. By opening up to trade, countries attract foreign investment they need to provide jobs and opportunities for their people.

By opening up to trade, countries help attract the know-how that will enable them to compete in a global marketplace. And by opening up to trade, countries build wealth and empower their citizens.

Shift in Congress

Dan Ikenson
Cato Institute
[The United States seems] to be perceived as hypocritical on trade. We preach the virtues of opening markets, but at the same time we don't necessarily practice what we preach.

KWAME HOLMAN: The president is due to arrive in Hanoi tomorrow morning. It's unclear whether Congress will return to the Vietnam trade bill before the end of the year.

RAY SUAREZ: So what's in store for U.S. trade policy? We get two views. Lori Wallach is the director of Public Citizen's Global Trade Watch. And Dan Ikenson is the associate director of the Center for Trade Policy Studies at the CATO Institute.

And, Dan, it was called a routine measure, but the president went to Asia without that Vietnam free trade measure in his pocket. Was that a significant setback?

DAN IKENSON, Center for Trade Policy Studies: I think it's a setback from a public relations perspective. The United States has been dealt several blows in the public arena. We seem to be perceived as hypocritical on trade. We preach the virtues of opening markets, but at the same time we don't necessarily practice what we preach. We've engaged in all sorts of protectionist measures in order to advance the trade agenda.

But ultimately, this agreement, PNTR, permanent normal trade relations for Vietnam, will be passed. A majority of House members supported it. They have the supermajority necessary. It would be not in the interest of the United States if we didn't pass PNTR because Vietnam has joined the WTO. And as a member of the WTO, Vietnam has to open its market to all members on an equal basis. The United States won't get that equal access to the Vietnamese market unless we pass PNTR and grant them the same access to ours.

RAY SUAREZ: Lori Wallach, what do you make of the failure of the Vietnam measure?

LORI WALLACH, Public Citizen's Global Trade Watch: Well, I think it's a symbol of the shift that's happening in Congress about trade and globalization policy, which is to say, this election, there were 27 House members who were in favor of NAFTA, WTO, a model, one way of doing trade rules that the public has resoundingly rejected.

The polling now shows that, even for people who make $100,000 a year, three-quarters of them think our current system of arranging our trade relations are failing them. And in these 27 House seats, people who had systematically voted for that model were replaced by those who are demanding a different set of rules that would be able to make trade more broadly beneficial.

So in the Senate, similarly seven of the senators who were for these NAFTA-WTO model agreements were replaced by candidates -- and it wasn't just in the Ohios and Pennsylvanias that it happened. It was in places like Iowa, in Missouri, Kentucky, places where one would expect that the theory of free trade would be the winner.

U.S. trade policies

Lori Wallach
Public Citizen Global Trade Watch
There is no such thing as free trade, per se; there are just different versions of trade rules.

RAY SUAREZ: OK. Let's take those places and the overall effect that you just described. Looking forward to the next Congress, does that mean trade proposals, trade deals are going to get a different kind of scrutiny?

LORI WALLACH: Yes, and here's the thing. There is no such thing as free trade, per se; there are just different versions of trade rules.

So what this election was about and what the Vietnam surprise was about was saying, "No more of the same." The NAFTA-WTO model has had particular outcomes. It didn't not only fail to deliver on the benefits, but for a majority of Americans it's been a net loss.

So in Iowa or Kentucky, we're now -- the U.S. is a net food importer. Even the agriculture exporters who are supposed to be the winners -- maybe the manufacturing workers would lose, but the farm guys they were supposed to win -- those are states, those are congressional districts where people said we've had it with this model, and we want something different.

So, either the Bush administration is going to have to respond to a broad public demand for a different set of rules and the Congress that was just elected to represent that, or the Bush administration, if they're stubborn and they say, "It's our way or the highway," more of the same, they're going to cause a logjam.

RAY SUAREZ: Dan, take what Lori Wallach just described, the changes in the coming Congress, and what do you see as the road ahead for expanded trade proposals?

DAN IKENSON: Well, I don't think the election had much to do with trade whatsoever. I mean, trade was important in a few districts; some candidates ran on an explicitly anti-trade message, Sherrod Brown, for example, in Ohio. But on the list of attributes that voters worry about, trade is not really high up there.

But I will say this: The Congress is going to be different. There's going to be a shift in emphasis from negotiation and accommodation to prosecution and enforcement, litigation and enforcement.

The Democrats in particular have been vocal about their concerns that what they believe to be the Bush administration's failure to enforce the agreements we had if place, particularly with respect to China. Our growing bilateral deficit with China is viewed by many policymakers in both parties, but particularly in the Democratic Party, as a failure.

"Exports are good, imports are bad. We have a trade deficit, so we're losing at trade. We're losing at trade because our trade partners are cheating; therefore, we need to enforce more." I'm all for holding China's and other country's feet to the fire, making sure that they live up to their obligations in the WTO. But we can't take unilateral action, which is what I'm concerned about.

When the Republicans controlled Congress, there were a lot of bad ideas that got bottled up in committee. Some of them might come to the fore. The Schumer-Graham bill, which the two senators have backed away from, it called for a 27.5 percent tariff across the board on Chinese imports. Other ideas like that are germinating within the Democratic Party and could make it out.

Skepticism of China

Dan Ikenson
Cato Institute
I think policymakers need to take a step back and recognize that the trade deficit is not a function of trade policy; it's not for failure to enforce. It's a function of fiscal policy. And in that regard, they're very responsible.

RAY SUAREZ: Well, let's talk a little bit more about China, because not only is there that massive trade deficit -- that is, we buy much more from China than they buy from us -- but China's also a very large holder of American debt instruments.


RAY SUAREZ: And today the new Democratic majority in the coming Congress elected one of the most staunchly Chinese-skeptical members of the House of Representatives, Nancy Pelosi, to be speaker of the House.

DAN IKENSON: That's right. That's true. I think policymakers need to take a step back and recognize that the trade deficit is not a function of trade policy; it's not for failure to enforce. It's a function of fiscal policy. And in that regard, they're very responsible.

We spend too much money at the federal government level. We spend too much money perhaps at the consumer level, whereas the Chinese and the Japanese and the Koreans and other of our trade partners save a lot more than we do that. That is what needs to change, and it is beginning to change.

The more we engage with China -- which is our fastest-growing export market, by the way -- the wealthier they're going to become, and the more they're going to spend, and that is what's going to diminish the trade deficit.

The flip side of the trade account is the capital account. The Chinese are buying our government debt. I wish the government didn't spend as much money as it did, but there's also foreign direct investment. Americans work for -- millions of Americans work for foreign-owned companies. That is the flip side of the trade deficit.

RAY SUAREZ: I saw you out of the corner of my eye shaking your head. What's wrong with that explanation of the trade relationship and its various ups and downs?

LORI WALLACH: Well, there's certainly no data that shows that the problem is the savings rate, and you can look at different countries that have serious trade deficits that are big savers. That's not going to fix the problem.

There were, actually, 100 congressional and Senate races where trade was a key issue. There are 25 separate paid advertisements attacking the status quo and demanding change. In this election cycle, instead of it just being trade playing out in a few issues, it really became a national issue.

And we all saw the exit polls -- New York Times, CNN -- that showed that interestingly economic insecurity, economic anxiety, about what will be the future of our kids, was a top issue over even the Iraq war. This is the first time in an election that a majority thought that the next generation would do less well than they themselves have done.

So, in fact, it is about getting the rules right. I mean, trade as a neutral idea can be fine. The question is: Under what terms? And who are the intended beneficiaries of it?

And so, for instance, going forward, the Democrats have stated pretty clearly we need, for instance, to make a bottom, to level the playing field, so that we're not competing on a race to the most cruel treatment of workers, the worst environmental standards, that we're not, for instance, creating protectionism for big pharma.

Our free trade agreements have patent rules that jack up medicine prices. A lot of people would say, "What's that doing in a trade agreement?" And that's a very good question.

RAY SUAREZ: Well, let's get reaction...

LORI WALLACH: The Democrats want new rules, but they want to have trade rules, because if we don't fix the rules, you're going to get more of this middle-class-squashing trade policy.

The Democrats on trade

Lori Wallach
Public Citizen Global Trade Watch
After 12 years of NAFTA, the workers' wages in Mexico and manufacturing are down...because in the real life race to the bottom, six dollars a day for manufacturing workers in Mexico was too expensive. The jobs went to China for two dollars a day.

RAY SUAREZ: Dan Ikenson, when people talk broadly of pro-trade and anti-trade, does that really get to it, or is it really more, as Lori Wallach expresses, the terms of trade, the rules of the game?

DAN IKENSON: Well, I disagree with Lori's characterization of it. Trade has been demonstrated to be an important generator of growth in countries throughout the world. This idea that there's a race to the bottom is really a myth.

The Democrats are interested in inserting more stringent labor and environmental provisions in these agreements because they're following this myth that, without them, investment will flow to countries where labor can be exploited, where the environment can be exploited.

But the fact is, is that Western investment, when it goes to the developing world, tends to raise the wage rate, tends to raise working standards.

RAY SUAREZ: To a level still far below that of the United States in many cases?

DAN IKENSON: Of course, but they are raising the average wage rates in those economies. They want to attract the best workers in those economies.

RAY SUAREZ: Let me get a quick response.

LORI WALLACH: But here's the thing. Look at the reality of what's happened, not theory. Take NAFTA. After 12 years of NAFTA, the workers' wages in Mexico and manufacturing are down. They're 80 percent of what they were before, and there are a net loss of manufacturing jobs, because in the real life race to the bottom, six dollars a day for manufacturing workers in Mexico was too expensive. The jobs went to China for two dollars a day.

If we don't have rules that put a floor of what the terms of competition are, we're going to have a ruinous future trade policy, and that's what the Democrats are going to change.

RAY SUAREZ: Lori Wallach, Dan Ikenson, thank you both.

LORI WALLACH: Thank you.