Washington Matters


A Trade Headache Awaits Next President



The collapse of global trade talks could have the odd effect of helping both Republican John McCain and Democrat Barack Obama. If an agreement had been reached in the Doha Round of talks, each presidential candidate would have had to take a detailed position for or against it and the debate could have inflamed pro- and anti-trade forces nationwide. But this way they can both claim a victory for their view of how trade should work.

The talks, teetering for years, fell apart because China, India and other large developing nations refused to give in to demands by the United States and others that they throw open their markets to imports. McCain will now be able to argue that while he is, like President Bush, a resolute free trader, he is not about to go to any lengths just to reach an agreement. Obama, too, can focus on the perceived intransigence of China and India without attacking specifics of a deal that might leave him open to attack.

But the failure will also scramble the trade debate a good bit, as well. Obama and McCain will have to explain what they'll do to get the talks back on track, which will take a year or two, and how they will deal with trade in the absence of progress.
 
The developments at Geneva won't doom the World Trade Organization. All advances in trade liberalization from the Uruguay Round and its predecessors remain locked in. And while countries may gripe when they lose disputes arbitrated by the world body, no one seriously questions its value in resolving such conflicts between members. But the momentum for reducing global trade barriers has been blunted. Unless and until WTO talks restart, many countries will focus on cutting deals bilaterally or regionally, putting those outside such deals at a disadvantage. That risks undermining the WTO, which has the goal of creating a level playing field for all.
 
That could put the U.S. at a competitive disadvantage that either McCain or Obama would have to deal with. The U.S.currently lacks Trade Promotion Authority, legislation that does not allow Congress to change agreements but only accept or reject them as written. It is likely the next Congress will eventually give the next president a fresh grant of such authority, albeit with guarantees demanded by majority Democrats that environmental and labor standards be included in any resulting trade pacts.

And TPA and the future of bilateral trade agreements are bound to be the dominant focus of the campaign debate. Obama agrees with congressional Democrats that future trading partners wll have an unfair advantage if they are not subjected to similar labor and environmental rules as producers of American goods. McCain will argue throughout the campaign that removing trade barriers is the quickest and surest way to achieve solid economic growth and that strict rules not directly related to trade could keep the United States out of lucrative markets.

And both will point to the perils of making missteps -- although they will disagree over what those missteps might consist of. This is the first time global talks aimed at reducing trade barriers have collapsed during an election year -- indeed, the first time such talks have failed in seventy-five years. As the July 17 issue of The Economist observed, that breakdown led to a rush to cut bilateral deals, which contributed to economic and political instability in the midst of the Great Depression. The situation today isn't as dire, but the potential consequences to the U.S. economy are bad enough. Strong export growth is the main element keeping the U.S. economy from slowing even more.



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