Trade Policy: A New Economic Order?

By March 10, 2004 February 14th, 2019 Opinion
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Published: Mar 10, 2004 in Knowledge@Emory

Under heavy pressure from steel exporting countries and the World Trade Organization, President Bush recently decided to end his three-year-old tariffs on foreign steel. At the same time, his administration has announced a new set of tariffs against Chinese textile and television set imports. While the conventional wisdom has seen these events as purely political decisions, some trade experts at Emory University’s Goizueta Business School and School of Law say the two incidents may actually be part of a deeper struggle to come to terms with an emerging new global economic order.

In 1991, the elder President Bush tried to promote what he called “a new world order” for global peace and security in the post-Cold War era. Now, some Emory University trade experts suggest, George W. Bush’s sometimes combative and seemingly contradictory trade policies may actually be struggles to cope with the emergence of a very different kind of new world order– a global marketplace where the U.S. will no longer be able to take its economic supremacy for granted.

The most important change: the rise of the European Union as a competitor, professors say. “The reality is that we are still the 800-pound gorilla – but they are a five or 600-pound gorilla. A 500- or 600-pound gorilla can make a lot of trouble for an 800-pound gorilla, even if the 800-pound one wins in the end,” says Robert Ahdieh, a professor of international trade law at Emory School of Law.

Ahdieh believes the growing strength of Europe may ultimately encourage the U.S. to be more favorable to rules-based decisions for trade disputes, as opposed to trying to resolve disagreements through unilateral actions. “As long as you know you’ll always win the fight, using fighting to resolve disputes looks attractive. But if you’re going to get severely beaten yourself, you begin to think, maybe there’s a better way,” he explains.

But, he says, he also sees a risk that the rise of regional trading blocs such as NAFTA and the European Union could derail the progress made in liberalizing world trade over the past 40 to 50 years. In this scenario, the NAFTA group ends up competing against the Eurozone and another trading bloc in Asia, encouraging more regional trade at the expense of global liberalization.

Jagdish Sheth, professor of marketing at Goizueta Business School, takes this scenario as a given, and is authoring a book on the strategic impact for business. “Europe, after European unification, is becoming an economic competitor to America. It is no longer an economic partner. So now what we have is a major economic war with Europe,” he says. Soon, he adds, America will be fighting on two fronts, the European economic front and the Chinese-Japan alliance in Asia.

Sheth believes that in addition to the steel tariffs, Bush’s 2001 law giving $190 billion in subsidies to farmers over the next ten years (including $83 billion new subsidies), were both strategic moves in that war. He also sees the real goal behind Bush’s soft-dollar policy being the desire to draw those boundary lines between the trading blocs even more sharply. “He’s keeping the dollar low primarily to get the foreign capital out of the country,” he says.

One consequence of the soft dollar policy and the drift toward trade regionalization, is that the age of the dollar will soon be over, according to Sheth. “The dollar will be a reserve currency, but only within the bloc. Just like the Euro will be the reserve currency within that trading bloc,” he explains.

For corporate strategists, Sheth says, a shift toward regional trading blocs will make growing within a bloc a more attractive proposition than growing globally. The advantages of doing business within a single trading bloc will be considerable, according to Sheth, and include insulation from global competition and easier access to growth markets within that trading zone.

Large global corporations will face a choice, he says, between trying to maintain their global presence in increasingly hostile foreign markets or choosing a single trading bloc on which to concentrate their efforts. Maintaining a global business is likely to prove increasingly challenging in the coming years, Sheth speculates, as these trading blocs are likely to favor their own players over foreign-based corporations.

For mid-size corporations that are not yet global players, the choice may be easier. Sheth advises smaller companies to focus primarily on their home trading region. If the company owns intellectual property, he recommends licensing it to parties already operating in the other trading blocs or operating a joint venture with local partners.

Sheth says this trend toward more emphasis on regional trading has already begun in Asia. Many Japanese companies, for instance, have already pulled back from the American market. He notes that Hitachi, NEC, and Fujitsu for instance, three major Japanese brands that were fairly common on American shelves in the 80s, have now mostly disappeared here and reappeared in high-growth Asian markets.

Others believe that the U.S. shouldn’t give up pushing for global trade liberalization. Harold Berman, another professor of international trade at Emory School of Law, believes that not thinking about the global community is a mistake. “Little by little, we’re developing a whole world society, of which we have to be a leading part and not stand opposite as a quote `superpower’,” says Berman.

Berman says he believes the unilateralist tendency Bush has shown is very dangerous. “I think it’s very bad,” says Berman. “It ultimately will hurt us badly. It’s part of a whole nationalist imperial concept of our role in the world, which is disastrous. I tell my students, we have 280 million people in the United States, there are six and a third billion people in the world -and we better get some friends.”

But Ahdieh is more forgiving. Although he acknowledges that the announcement of tariffs on Chinese textiles seemed “a little out of the blue” because the U.S. has had fairly good trade relations with China in recent years, he says that he’s not surprised by these actions. Given the growth in textile and steel imports, it should come as no surprise that Bush would act as he did.

In fact, he says, the law that he announced the steel tariffs under, Section 201 of the U.S. Trade Act of 1974, was designed specifically to defuse political pressures the way Bush tried to here, allowing the government to give in selectively to certain industries on protectionist questions – the theory being that without such an escape valve, politically powerful industries would shut down the whole global trade liberalization process.

Ahdieh says that Bush has little room to change trade policy. The truth is that much of U.S. trade policy is determined not by the president but by the country’s economic, fiscal, and political realities, he explains. Whether a libertarian, free-trade advocate from the Cato Institute or anti-globalization advocate Ralph Nader was sitting in the Oval Office, Ahdieh contends that the rhetoric might change but most of the actual policies would not.

“In my view, the range of movement in trade policy today is largely shaped by forces external to the particular administration and even the particular administration combined with the particular composition of the Congress,” Ahdieh says. Among the underlying elements that he sees limiting the movement of U.S. trade policy:

The amount of U.S. national debt held by the Japanese. “We’re dependent on that financing to fund the daily operations of the government,” he says. Ahdieh jokes that the day the Japanese government decides to stop buying Treasury bonds is the day that WorldCom loses its distinction as history’s biggest bankruptcy. (As of September 2003, Japan held a record $470 billion in U.S. Treasury bonds – a $105 billion climb since December 2002, according to Treasury Department Statistics. As of November, total publicly traded U.S. government debt exceeded $3.5 trillion. )

Consumer reliance on cheap Chinese goods. “We’re not talking about the difference between a $10 lamp and an $11 lamp. We’re probably talking about the difference between a $10 lamp and a $20 or a $30 lamp…in the short term, no sort of dramatic break with China on trade would be accepted by the American public. The costs of it would be so substantial as to dwarf any potential political gain that might come from taking on China.”

International trade is the fastest-growing portion of the U.S. economy. “If we were to really kick the legs out from under international trade, it would be a dramatic blow to the process of continued economic growth in the United States,” says Ahdieh.

The growth of the service economy. “The United States’ most marketable asset is no longer goods, it’s services. And in some ways, services, even more so than goods, really require a relatively stable, reliable, predictable international trading system. In order for someone to use U.S. banking services and U.S. legal services…they need to have confidence in the systems’ effective protection of their interests. The result of that shift towards a services based economy – an intelligence-based economy – makes the need for maintaining a stable international trade regime even greater.”

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