IMAGINE THAT, at the height of the Cold War, the United States had gone to the arms control bargaining table with the Soviets after first declaring, in hyperbolic terms, that our future security and prosperity depended almost entirely on the outcome. Imagine further that, having climbed out on this negotiating limb, the president had then turned over details of the agreement to an army of bureaucrats who impatiently looked forward to the day when they could move into lucrative careers representing the nuclear arms industry. What kind of a deal do you suppose we would have gotten?
Probably something akin to the treatment the United States has received in the latest round of global trade talks -- the long-running effort to open up world markets carried out under the auspices of GATT, the General Agreement on Tariffs and Trade. Those talks, of course, sputtered to a near halt a week ago, the reported cause being the European Community's refusal to take seriously the United States' core demand that it quit sheltering its farmers and massively subsidizing their exports.
So much for the proximate cause. The ultimate cause of the GATT grounding is that, when push comes to shove, the major players don't take the trade talks very seriously -- and that is, to a large extent, our own fault. American presidents, long accustomed to taking our economic power for granted, find far more prestige in wheeling and dealing over weapons and borders. European and Asian leaders find far more advantage in quietly pursuing their own economic interests with an eye out for any trade concessions they might pick up on the cheap from the over-eager Americans.
Nor do we gain respect for our positions when they are advanced by senior trade officials half of whom, as a new study from the Center for Public Integrity documents, have left office to lobby on behalf of foreign interests -- and brag about it. "I don't do windows," said former U.S. trade representative Robert Strauss in describing the millions he garnered in representing both sides in the takeover of Hollywood's MCA Inc. by the Japanese conglomerate Matsushita. Our vulnerability is further enhanced by the typical U.S. trade expert's fear of being charged with the slightest dereliction in commitment to open trade. This sensitivity is not shared by our more sophisticated trade partners. (I once watched as a seminar audience of U.S. trade experts nodded in agreement while two panelists, one Japanese and one French, united in denouncing the United States for imposing "voluntary" quotas on Japanese vehicle exports to America. Why, I wondered, did not the Japanese speaker turn with still greater ferocity upon his French co-panelist, given that France puts far more severe limits on imports from Japan of cars and much else? The answer, of course, is that the French would be totally unmoved.)
So we sent our vice president last month, hat in hand, to beg the Japanese to allow a mere 5 percent of their rice consumption to be provided by foreign suppliers -- not right away, but 10 years from now. And the Japanese, who make no bones about not giving anything unless they have to (they even have a word, gaiatsu, for the foreign pressure needed to wring concessions) told him, politely but firmly, to get lost.
And we go to bargain imbued with faith in the efficacy of rules and regulations and armed with the roseate numbers our economic models spew forth. For example, as the Economic Strategy Institute recently pointed out, the administration predicted that a successful conclusion to the current (Uraguay) round of trade agreements would increase U.S. domestic output by $125 billion within just the first year. (This improbable assumption, ESI noted, is at least consistent with past practice -- in 1979 the U.S. Special Trade Representative's office estimated that the last round of trade talks would yield benefits to U.S. consumers 15 times as large as those that later analysis shows were realized.
"We're so out front on our obsession with rules that we've lost sight of our economic interests," says ESI fellow Robert W. Jerome, who points to the peculiar choice of the two priorities -- extension of GATT coverage to farm products and to services -- which the United States insisted upon for the current talks. U.S. exports in both these areas have grown handsomely in recent years outside the GATT trade regime, though further restrictions as Europe moves toward economic unity could certainly impede that progress.
But farm products are not a very substantial part of our current export mix (about 9 percent) nor are they likely to become so. Other countries set too much store by their farmland to opt for open agricultural markets. And while the United States might gain, by optimistic government estimate, at most $3 billion in farm exports from the GATT talks, it may soon find itself facing new limits imposed unilaterally by the Europeans on what is now a very profitable animal feed market. As for services, many, by their nature, tend to be produced where they are consumed. In any case, says Jerome, we went into the talks without having "even reached a definition of services, let alone deciding what we want to do about them." Meanwhile, the manufacturing sector gets short shrift on the administration's trade agenda. Never mind that manufacturing produced the lion's share of our productivity gains over the last decade or that it still accounts for two-thirds ($320 billion) of our exports -- swamped though they may be by our $453 billion in manufacturing imports. And forget that research and innovation tend to flourish best when they are informed by the experience of actual production.
Certainly none of our most prosperous trading partners are going to force manufacturing onto the agenda -- except to take aim at the relatively mild and undisguised efforts America still makes to protect its industry. And they are not likely to feel pressured by U.S. moves to establish "free trade zones" with Latin America as long as these arrangements promise to provide cheap platforms for exporting more of their own goods into the U.S. market.
Even our theoretical arguments sound too simple. Of course, the economists would argue, other countries pay a price for their protectionist ways. Their consumers cannot buy everything they want at the cheapest possible price. Not now, these countries might respond, but by forcibly curtailing our current appetites and investing instead in our productive potential, we are assuring ourselves a higher consumption level in the future. Workers without good jobs can't do much but window shop. And there are things, they would add, such as picturesque countrysides and stable communities -- the commodities at the heart of the fight over farm subsidies -- or even clean air and water, that world traders don't value on their ledgers. Countries can make perfectly rational decisions to be "inefficient."
Ah, say the economists, but our models demonstrate that world GNP would grow faster with open markets. True. But, as careful readers of Adam Smith will note, a faster growing world economy does not guarantee any one country will have a larger share in that growth -- or even maintain its current share. (One study done for the Twentieth Century Fund estimates that eliminating non-tariff barriers would actually add $35 billion to the U.S. trade deficit.) The fact is that the fastest growing economies in recent years have added to their policy mix -- along with important social factors such as high savings rates, investment in education and low population growth -- a measured but substantial dose of old-fashioned mercantilism.
Of course, the United States should continue to weigh in on the side of trade liberalization -- both in our own interests and those of the Third World. But we'll make our case more effectively if we keep those interests clearly in mind -- and skip the over-promises and ideological cant.
Maybe we're wising up already. There hasn't been much high-level hand-wringing about the trade talk impasse. And we've quietly let the dollar drop on foreign exchanges -- a self-punishing but potent way to price imports out of our markets. Just last week Treasury Undersecretary David Mulford laid down a new tough line in our efforts to get Japan to open up its financial markets to U.S. banks and securities companies. We learned a lot about how to drive mutually beneficial bargains in the national security arena over the last decade. Perhaps these lessons are starting to spill over into the economic arena as well.