Bush and Kerry: How Do They Stack Up on Trade?

August 16, 2004

Senator Kerry has a Pro-Trade Voting Record

Let's take a closer look at Senator Kerry's record on trade. In the last decade he has voted in favor of the North America Free Trade Agreement (NAFTA), as well as free trade agreements with Chile and Singapore. These free trade agreements benefit American importers and consumers by lowering domestic barriers to imports, thereby lowering their cost and increasing their availability. They also benefit American exporters by opening other countries' markets to American goods and services.

Mr. Kerry also voted in favor of The Trade Act of 2002. This omnibus bill contained a number of market-opening measures. First, it gave the president Trade Promotion Authority (TPA). As you may recall from past issues of our newsletter, TPA permits the president to negotiate trade agreements with the understanding they will not be amended by Congress as long as he negotiates these trade agreements according to certain parameters made clear by Congress at the outset. TPA is necessary to negotiate these market-opening agreements, because without a promise that these agreements will not be amended significantly or tossed out by Congress, no other country will agree to lengthy trade negotiations with the U.S.

Second, the Trade Act of 2002 provided for expansion of the Andean Trade Preference Program. This program waives U.S. tariffs on a number of products from countries such as Columbia, Peru, Ecuador, and Bolivia in order to provide an economic incentive for these nations to cultivate crops other than cocaine. It has worked beautifully, generating some 140,000 jobs in industries such as cut flowers, jewelry and asparagus, and benefiting American consumers by providing access to these products at lower prices.

Third, the Trade Act of 2002 provided for the extension of the General System of Preferences (GSP). GSP is a program designed to help developing countries industrialize by providing duty-free markets for their export products. The program has been in place for at least a quarter of a century, and must be extended periodically. The GSP program has become an integral part of the U.S. economy, saving consumers on a broad range of products, from VCRs to bathroom tiles, millions of dollars annually. Equally important, GSP also supports U.S. jobs in a wide variety of industries. Numerous small businesses that import raw materials or production inputs owe their continued competitiveness to the GSP program. The duty savings afforded by GSP for these companies may seem small, but in many cases they make the difference between profitability and survival in tough markets.

Mr. Kerry also supported granting Normal Trade Relations (NTR) to Vietnam. NTR is the trade status that the United States grants to most of its trading partners, especially those who are also members of the World Trade Organization (WTO). However, U.S. law requires the United States Congress to either waive the requirements, or to vote affirmatively to grant this "normalized" trading status. As of today, only the countries of Afghanistan, Cuba, Laos, North Korea, and Serbia/Montenegro are excluded from NTR status. Not only was Mr. Kerry's vote on Vietnam an important step toward "normalizing" our relationship with that country, consumers should remember that granting NTR status to Vietnam allows Vietnamese-made products to enter the U.S. at a lower duty-rate than they otherwise would.

The only black mark on Mr. Kerry's otherwise pro-trade record is a vote to kill the "Gregg Amendment" during the 107th Congress. This amendment to the Farm bill would have eliminated the U.S. sugar program, a combination of subsidies and import restraints that keeps the price of American sugar artificially high.

Senator Kerry's Campaign Rhetoric Paints a Different Picture
With such a pro-trade record, one would assume Senator Kerry is a free trader. Yet during his campaign he has condemned "Benedict Arnold" CEOs for sending American jobs overseas. Let's drill down into some of the specifics of his most recent comments on trade.

Although Senator Kerry supported the recent Singapore and Chilean Free Trade Agreements (FTAs) he is now calling for a fundamental rethinking of US trade policy to protect American jobs. In addition, he has indicated that he'd like to revisit completed trade agreements to add labor and environmental provisions. "Don`t tell us that some worker in Ohio has to not only lose their job, but they have to unbolt their own equipment, crate it up, ship it to China and train somebody else for their job. That`s wrong and we`re going to change that," he said recently.
Central to the Democratic candidate's platform is his desire to re-write the tax code to dismantle certain benefits businesses receive by relocating overseas - a process known as "offshoring". U.S. manufacturing has been in a process of devolving production to low wage countries for several decades. Typically, US consumers, the US economy and low wage countries benefit from offshoring. As manufacturing moves overseas to benefit from lower cost production, consumers benefit by paying lower prices on these imported goods. The US economy as a whole benefits as businesses have more cash to invest and consumers are able to save and consume more.

Offshoring does displace some US workers, but higher economic growth usually offsets these losses through the creation of higher paying jobs in new and more dynamic sectors of the economy. Since the 1950s, the share of manufacturing in overall US economic activity declined while the service sector has more than made up for this decrease. Many of these service sector jobs fall into professional services categories such as health care, high tech and financial services typically paying much more than outsourced manufacturing jobs.

Mr. Kerry has also called for a fundamental re-thinking of trade pacts to include more stringent labor and environmental protections. Essentially, Mr. Kerry is concerned that multi-national corporations are using free trade to take advantage of developing economies that have lax labor and environmental regulations that provide a very low cost of production. By including strict labor and environmental provisions in trade deals, and insisting that they be enforced, Mr. Kerry would put a stop to what many term a "race to the bottom."

However, economists and others in industry point out that corporations, by and large, do not choose to source in those economies with few labor protections. Countries with inadequate labor rights laws are typically politically unstable. Corporations choosing to source in these countries would end up paying high political risk insurance as a guarantee that their production facilities would not be destroyed or seized during politically unstable times. In addition, many corporations have put in place strict sourcing guidelines to ensure that products are not purchased from factories where labor is regularly abused.

One thing that consumers and voters should keep in mind as they parse through the political rhetoric on trade and labor, is that wage differentials between industrialized nations like the United States and developing countries are not merely a result of poor labor practices. They are a reflection of standards of living. A wage that may seem small in the United States could be a middle class wage in a country like Bangladesh. Providing a market for Bangladeshi goods creates greater political stability within that country and globally and benefits consumers with lower prices and greater choice, as well as greater world stability.

But there is an undeniable price for this in the form of some job losses in the United States in some industries. Nevertheless, the net effect on the U.S. economy is positive. This probably explains Mr. Kerry's long-time support in the United States Senate for free-trade policies, and his tough campaign rhetoric in "rust belt" states like Ohio and Pennsylvania.

President Bush Generally Advocates Open Trade
Let's now look at President Bush's trade record. Once elected, he lobbied hard for The Trade Act of 2002, touting its benefits to Americans and our trade partners in developing countries. The President stated in bold terms: "Fearful people build walls around America. Confident people make sure there are no walls." The president went on to say, "trade . . . gives. . . consumers the opportunity to demand product, which is part of a free society."
Since the Trade Act of 2002 became law the president has wasted no time putting it to good use. TPA has allowed him to complete bilateral negotiations with Chile, Singapore, Morocco, Australia, and the nations of Central America. Many more bilateral trade agreements are currently in the works.

President Bush has also resisted pressure from Congress and labor unions to impose trade restrictions on China in an effort to bully that country into revaluing its currency to benefit the United States. He recognized that such a policy would be counterproductive and would only serve to aggravate China at a time when it is making strides to reform its economy in a way that would benefit American producers and consumers. President Bush has wisely taken a long-term view of our economic relationship with China.

President Bush has twice called upon Congress to repeal the Continued Dumping and Subsidy Offset Act of 2000, more commonly known as "the Byrd Amendment." This amendment allows anti-dumping and countervailing duties to be funneled into the pockets of the very companies who called for these duties, rather than going into the General Treasury fund where the money can be used for the greater national good. This amendment is an affront to Americans because it hits us twice - once in our capacity as consumers when it drives up the price of imports, and again in our capacity as tax payers when the funds are given away to wealthy corporations.
In addition, President Bush extended the African Growth and Opportunity Act (AGOA) by signing into law the AGOA Acceleration ACT of 2004, known informally as AGOA III. AGOA has helped to spur economic growth and bolster economic reforms in the countries of sub-Saharan Africa and has fostered stronger economic ties between the countries of sub-Saharan Africa and the United States; as a result, exports from the United States to sub-Saharan Africa reached record levels after the enactment of the Act, while imports from sub-Saharan Africa to the United States have increased considerably.

The President's Record is Not Entirely "Free Trade"
During his first term, President Bush has also made a few decisions which have troubled his pro-trade supporters. In March 2002, the Bush Administration agreed to steel producers' and workers' demands for a protective tariff of 30 percent on a variety of imported steel categories. Like Senator Kerry, the President became concerned about American steelworker jobs.
His actions on steel certainly provided temporary relief for steelworkers and producers, but they also damaged the U.S. economy, costing steel-consuming businesses more than $680 million, and negatively affecting workers in those industries. Overall, the total effect of the tariffs was a loss of $987.2 million, which surely demonstrated that the harm to steel consumers and their workers outweighed the combined benefit to steel producers and their workers.
The Bush Administration has bowed to other protectionist forces as well: it has supported the U.S. lumber industry in its attempt to pressure Canadian softwood lumber producers into a trade agreement that would limit trade, after decisions by independent NAFTA and WTO dispute settlement panels ruled our countervailing and dumping duties on this product illegal.

President Bush has also caved in to the sugar lobby, an exceptionally strong interest group in the United States. He agreed to keep sugar off the negotiating table during the bilateral trade talks with Australia. This set a dangerous precedent by signaling to our trade partners that it was acceptable to exclude sensitive commodities from negotiations. In addition, it serves to keep the price of sugar artificially high in the U.S., driving many sugar consumers, such as candy companies, to lay off workers, close factories, and set up shop in countries where they have access to sugar at world market prices.

Like Kerry's recent rhetoric on trade, one can only conclude that the president's decisions to support trade closing efforts on steel, lumber and sugar, to name just a few, is "politically" motivated. Neither candidate is a pure "free trader," and neither could be realistically categorized as a "protectionist." Rather, these men fall on a practical continuum that takes both economics and politics into account.

Nevertheless, the question on the minds of voters has to be: are these candidates simply pandering to the public's fears about job losses and foreign competition, or could we actually expect serious market closing efforts should one or the other win the election this November?

To learn more about the proposed trade policies of Senator Kerry and President Bush, click here to register for

our September 8th luncheon at the Hotel Washington. The event will include a discussion by representatives from each camp that compares and contrasts the candidates' international trade policies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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