The President's Rotten Record on Trade

Why George W. Bush is the most protectionist president since Herbert Hoover

Bruce Bartlett from the June 2006 issue

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When pushing for the new trade round, the United States had enthusiastically endorsed farm subsidy reductions, believing they would increase U.S. exports. But the only hope of achieving meaningful cuts in agricultural subsidies lay in appealing to the basic principle that such payouts are wrong—that they are costly, inefficient, and a poorly targeted way to help farmers, with much of the money going to people who are already well-to-do. By working together with the few other countries that generally support free trade, such as Australia, it might have been possible to shame the Europeans into making some kind of deal. But when Bush signed a massive increase in U.S. subsidies right at the start of the trade talks, he lost all credibility.

It didn’t help that the Bush administration also alienated Canada, another of the small band of free traders, by slapping a 29 percent tariff on Canadian lumber in March 2002. Not only did this raise the cost of homebuilding in the U.S.; it also led Canada to retaliate with a 71 percent tariff on U.S. tomato exports.

Another sad consequence of failing to curb agricultural subsidies is the further impoverishment of farmers in the less developed countries. By forcing down prices for agricultural products, subsidies drive many poor farmers out of business, making them dependent on food aid from the West.

The Bush trade mavens were willing to pick fights with anyone in the name of protection, including the supposedly dangerous superpower-in-training China. On November 18, 2003, the Bush administration announced a decision to impose new trade restrictions on imports of Chinese textiles. A petition from four textile industry groups, led by South Carolina Republican textile magnate Roger Milliken, got that ball rolling. It claimed Chinese imports “threatened to impede the orderly development of trade and caused market disruption in the U.S.” No proof was offered to support this allegation.

To show just how absurd the situation was, one of the new restrictions applied to brassieres. Yet there is no domestic manufacturer of this product. Some components are produced in the United States, but all are exported to low-wage countries in Latin America for manufacture. This is done solely because of a law requiring a degree of domestic content to avoid trade barriers when the final product is imported. The reality is that 100 percent of brassieres are imported. There’s no domestic industry to protect.

The day after the U.S. textiles decision, China canceled a trade mission to the United States that probably would have led to billions of dollars in orders for American goods. In previous weeks China had signaled a desire to increase its imports of planes from Boeing, jet engines from General Electric, and a variety of agricultural products as well as chemical and telecommunications equipment. Such purchases likely would have been greater than the value of the goods that were now restricted, creating vastly more jobs—and better-paying ones—than those protected in the textiles industry.

The Problem With Bilateralism

After the de facto collapse of the Doha Round, the Bush administration turned toward free trade agreements (FTAs) with individual countries or small groups of countries. Economists are dubious about the value of such agreements, which were often less about free trade than about pursuing new avenues for U.S. protectionism.

Before 2001 the U.S. had free trade agreements only with Israel, and with Canada and Mexico through NAFTA. In 2001 Bush signed an agreement with Jordan. In 2002 he initiated talks with Australia, Chile, Singapore, and five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). In 2003 his administration successfully concluded negotiations with Singapore and Chile and began new talks with Morocco, Bahrain, four Andean nations (Colombia, Peru, Ecuador, and Bolivia), and five Southern African ones (Botswana, Lesotho, Namibia, South Africa, and Swaziland). In 2004 the talks with the Central American countries (to which the Dominican Republic was added) and Australia were completed.

Although the amount of activity involved in pursuing FTAs was certainly impressive, economists had serious doubts about their value. “Nearly all scholars of international economics today are fiercely skeptical, even hostile, to such agreements,” the Columbia University economists Jagdish Bhagwati and Arvind Panagariya argue in the Financial Times.

Key reasons for this hostility are that bilateral agreements—and smaller multilateral agreements, such as the Central American pact—divert attention and resources from multilateral agreements, which are vastly preferable. FTAs may divert trade flows rather than increase them and may lead trade blocs to impose restrictions on trade with those outside the bloc, thus raising the overall level of protection. Supporters of FTAs mostly argue that they are better than nothing and may provide building blocks for broader trade agreements. No one believes that FTAs are optimal trade policy.

Nevertheless, FTAs have become almost the sole Bush administration effort to open trade. Even while doing so, it has often used such agreements to pursue protectionist objectives. An especially egregious example of this is when the administration nearly scuttled the free trade agreement with Australia in order to maintain protection for the sugar industry, despite universal condemnation of the sugar program, which adds some $2 billion per year to consumer costs, mainly to enrich a few Florida producers.

According to the Financial Times, George W. Bush personally made the decision to exclude Australian sugar from the FTA. This became the first such agreement ever negotiated to exclude an individual product from its provisions. The New York Times spoke for many. “The agreement sends a chilling message to the rest of the world,” it said. “Even when dealing with an allied nation with similar living standards, the administration…has opted to continue coddling the sugar lobby, rather than dropping the most indefensible form of protectionism. This will only embolden those around the world who argue that globalization is a rigged game.”

In early 2005, the Bush administration put enormous pressure on Congress to approve the Central American Free Trade Agreement (CAFTA). Although the economic benefits from this agreement were quite modest, the administration had little choice but to press hard for its passage in order to salvage some semblance of a trade agenda. But the price for passage was very high, with Republicans demanding restrictions on Chinese imports in exchange for their votes. Consequently there was very little likelihood that its passage would lead to a net reduction in trade barriers.

CAFTA also proved costly to taxpayers, because the administration was forced to agree to many new pork barrel projects in order to buy the last couple of votes to squeak it through; CAFTA passed the House by a razor-thin margin of 217 to 215 on July 28, 2005. Free traders worry this precedent will encourage members of Congress to demand even more payoffs for future votes.