Storm Clouds Gather on Trade
Liberalizers in Washington, Successful in Pushing Free Trade for Decades, Are Now on the Defensive

After taking control of the US Congress in the November elections, Democrats promised to initiate a series of sweeping changes. Nowhere is this more evident than in trade policy. Backed by labour union allies, Democrats are flexing beefed-up protectionist muscles. Trade liberalizers in Washington, successful in pushing free trade measures for decades, suddenly find themselves on the defensive. With a presidential election coming up next year, storm clouds are gathering on trade.

"I'm relatively pessimistic about 2008," says Daniel Drezner, a political scientist at Tufts University and the author of All Politics Is Global. Drezner, who favours most trade liberalization measures, points to the recent elections as an indicator of what is to come. "Protectionist Democrats did well, and free trade Republicans did not do well", in November, Prof. Drezner says. "The American public is not keen on trade liberalization" and a plurality of Americans believes the costs of freer trade outweigh the benefits.

And pro-trade Democrats, who until recently dominated the party's leadership, are in retreat. "This is one of the worst climates for trade liberalization I can remember," says economist Robert Shapiro. Shapiro served under Bill Clinton, the last Democrat to sit in the White House. President Clinton led a bloc of moderate Democrats who embraced trade liberalization and successfully pushed several free trade measures. But since then, the Democratic Party has become increasingly protectionist. In the 2004 election, Democratic presidential candidate Sen. John Kerry railed against the outsourcing of jobs overseas, particularly high-skilled and high-paying jobs to countries such as India.

Today, prominent Democrats argue that American wages are stagnant or falling, that inequality is rising, and they are looking for scapegoats. The populist Sen. James Webb, a rising star among American liberals, claims there is a "war on the middle class" and points to globalization and free trade as drivers of a heightened sense of economic insecurity. None of the major presidential aspirants among the Democrats is an ardent defender of free trade. This includes Hillary Clinton, who has a record of mixed support for free trade and voted against the most significant piece of American trade legislation in recent years, the Central America Free Trade Agreement. All the major contenders will be jockeying for support from AFL-CIO and other large labour unions hostile to liberalized trade.

The feverish concerns about outsourcing, raised by Sen. Kerry three years ago, mostly fizzled out as job creation remained robust in America's high-technology sectors. But prominent Democratic economists are trying to elevate concerns over outsourcing again. Chief among these is Princeton University economist and former Federal Reserve Board vice-chairman Alan Blinder. Blinder, who also served under President Clinton, has been a vocal free-trader. But he frets about the future. The ability of American firms to harness modern technologies, in particular fibre optics cables and high speed Internet connections, permits them to locate highly-skilled jobs outside the US.

In a widely disseminated article in Foreign Affairs, 2006, "Offshoring: The Next Industrial Revolution?" Blinder predicted a wave of offshoring of jobs located in the US to countries such as India and China. He estimated that 56 million jobs were open to being offshored in areas such as computer programming, graphic design, accounting and data entry. Blinder has since then revised the numbers down slightly, and counselled that Americans should "avoid . . . protectionist barriers against offshoring." Nevertheless, his numbers are providing plenty of fodder for trade sceptics in both major political parties.

Democrats on Capitol Hill and the Bush administration are currently locked in negotiations over approving trade deals with several Latin American countries and South Korea. President Bush's broad authority to negotiate trade deals is also coming up for review by the Congress. Democrats are insisting that trade deals include tightened labour and environmental standards supported by labour and other interest groups.

The White House, bolstered by the arguments of pro-trade economists, has traditionally opposed such riders, arguing that they hamper the free flow of trade among dynamic economies.

But in recent weeks, top officials, including secretary of the treasury Henry Paulson, have indicated the White House might go along in order to ensure a deal goes through. The White House is facing stinging criticism over its handling of the war in Iraq and the recent firing of several US attorneys. From this position of weakness, it is looking to compromise. Free trade advocates here are worried it will agree to the riders and embolden Democrats and other trade foes in future battles. What the Bush administration agrees to in the coming weeks will have implications for the 2008 campaign and beyond.

Nick Schulz is a research fellow at AEI and a contributing editor of The American.

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