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Sebastian Mallaby, Columnist

Trade Flip-Flops

By Sebastian Mallaby
Monday, September 13, 2004; Page A21

American trade politics never ceases to amaze, and the recent China bashing from the Bush Commerce Department provides the latest burst of fun and weirdness. But to put this newest chapter in its glorious context, here's a refresher on the back story.

Our first protagonist, Sen. John Kerry, suffers from electionitis: Having behaved himself during a long Senate career, he's bolted off to join bad-boy protectionists. Kerry opposes the Central American Free Trade Agreement on the grounds that it lacks protections for workers, even though the deal does include such protections. He promises to halt the decline of America's manufacturing sector, even though this decline has been underway for decades and is all but inevitable in advanced economies. He frothed at the mouth recently when the World Trade Organization ruled against a U.S. trade law, even though the law in question was recognized as appalling by both the Clinton administration and responsible Republicans.

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The explanation for Kerry's behavior is obvious. He listens to consultants who tell him that swing states have lost thousands of jobs and that folks there blame trade for their misfortune. Unfortunately for him, swing voters may also hate calculating flip-flop types who lack the guts to defend what they believe in.

Then we have our second protagonist, George W. Bush. His antics defy simple diagnosis. In the 2000 presidential race, Bush campaigned as a free-trader, even though he was going after those same swing voters whom Democratic consultants label protectionist. Then, safely in office and free of immediate political pressure, Bush's spine turned into rubber: He pandered shamelessly to protectionist lobbies, notably on steel and farm subsidies. Next, when this year's campaign got started amid a sluggish economy and national paranoia about "offshoring," Bush chose this moment of all moments to rediscover his courage. He went to Ohio, a swing state with higher-than-average joblessness, and gave a rip-roaring defense of trade and globalization.

Part of Bush's counterintuitively courageous phase has featured forbearance toward China. Despite popular mythology, China is not a bigger, scarier version of the old Japan. Its growth strategy does not depend on running a huge trade surplus (it has a surplus with the United States, but its global trade is in balance); and unlike Japan it is wide open to outside investment, so subsidiaries of foreign firms account for more than half of China's exports. But this has not prevented everyone from the National Association of Manufacturers to organized labor from urging confrontation with China.

Given Kerry's loud complaints that Bush is not enforcing trade laws, you might have expected Bush to cave in to the anti-China lobbies. Instead his negotiators resolved a string of disputes with the Chinese in a quiet, grown-up way, advancing U.S. interests in such areas as soybeans, semiconductors and wireless encryption. None of these negotiations blew up into a fight, even though Bush might have bought himself some political cover by out-toughing Kerry.

Hence the weirdness of his administration's latest outburst. He is up in the polls, and his opponent appears unable to compose a coherent position on Iraq, but Bush has chosen this moment of all moments to threaten China with protectionism. Twice in the past three days, a senior Commerce Department official has said the administration might attempt to limit Chinese clothing imports.

This isn't just politically odd. It doesn't really fit with the sophisticated critique of trade that has begun to circulate recently. A number of authors, notably Paul Samuelson, the 89-year-old doyen of MIT, are reminding us that trade is not always mutually enriching: Sometimes dynamic competitors abroad can hurt us. If the United States is a net exporter of software and then India muscles into this business, the world price of software will fall and the United States may suffer.

This is not a new or heretical insight -- it was developed half a century ago. It is not an insight that should lead to protectionism, either; Jagdish Bhagwati, one of the economists who played a big role in the debates of the 1950s, has been a lifelong trade advocate. Despite the possibility that foreign competition can hurt, in practice it usually spurs changes that enrich everyone. Indian programmers take over the routine tasks, while Americans reorganize themselves to focus on the creative ones -- which are also the most lucrative.

But the insight of the 1950s is an especially strange basis for U.S. protectionism toward China. If China floods the world with cheap clothing, rival producers may suffer -- think Pakistan, Mauritius. But the United States, a net importer of cheap clothing, is bound to benefit if China drives the price of T-shirts lower.

The same is true of most things China makes. China is a low-wage, low-capital economy; the United States is a high-wage, capital-intensive economy; China is unlikely to make the same things we make. Instead, it will make the stuff we want to purchase. If it makes lots of it, forcing down prices, we may want to boost assistance to other low-wage countries, which may genuinely suffer. But we should hardly fear for our prosperity.

mallabys@washpost.com


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