No. 34 — September 1, 2000


Weekly Review

--- by Barbara Wanner

With the American presidential candidates battling for the political center, it is no surprise that the Republican and the Democratic platforms share some common themes, particularly with respect to trade. Each of the parties notes the importance of exports to continued U.S. economic growth. Each also emphasizes that trade must be fair. American companies should enjoy broad access to foreign markets and receive protection from unfair competition, the Republican and the Democratic policy blueprints both argue.

A Republican government headed by Texas Gov. George W. Bush would pursue trade expansion through such macro means as renewing the president's fast-track negotiating authority and initiating a new round of multilateral trade talks. A Democratic administration led by Vice President Al Gore, however, would place greater emphasis on rectifying trade imbalances in specific sectors and ensuring that environmental and labor standards were included in market-opening agreements. Such tactical differences reflect the undeniable influence of each party's core constituencies — big business and economic conservatives for the Republicans and organized labor and environmental groups for the Democrats. The overall theme of both parties' national conventions may have been inclusion, but stripped of the rhetoric, their policy proposals address the interests of party stalwarts.

The Japanese press zeroed in on the Democrats' trade plank in particular, hyping it as "tough on trade with Japan." The platform, adopted August 15 by the nearly 4,000 delegates attending the party's quadrennial convention in Los Angeles, does not specifically mention Japan, but it does call for the negotiation of "tough agreements to reduce our persistent automotive trade imbalances with our major trading partners." In view of the fact that the U.S.-Japan trade deficit in vehicles and parts hit an all-time high of $39.9 billion in 1999, the finger clearly is pointed at Japan.

Suffice it to say, a new record for the gap in transpacific automotive trade was not what President Clinton's trade policy team envisioned in 1995 when it battled with Japan to conclude a comprehensive automotive trade pact (see JEI Report No. 32B, August 25, 1995). The five-year accord, which expires at the end of 2000, aims to improve access for imported vehicles in Japan, deregulate the market there for repair parts and expand opportunities for U.S. manufacturers of production parts to do business with Japanese car and truck builders.

Admittedly, Japan's stubborn economic problems have had a devastating impact on sales of both domestic and imported vehicles. However, the fact that last year's automotive trade imbalance of $39.9 billion exceeded by $3.1 billion the 1994 deficit that created the pressure for the market-opening arrangement in the first place does not reflect well on the Clinton administration's efforts. The White House has indicated that it wants to negotiate a follow-on to the current accord, but it has yet to develop a consensus on how to proceed (see JEI Report No. 32B, August 18, 2000).

The Democratic platform also includes language lauding Mr. Gore's leadership in "help[ing] America's steel industry weather the effects of the Asian financial crisis." This statement evidently refers to the vice president's role in pressuring Russia to restrict its exports of hot-rolled steel to the United States. It also can be extended to the Clinton trade team's initiation during the past two years of hundreds of unfair pricing proceedings against steelmakers in Japan and elsewhere in the wake of a surge in imports in 1998 (see JEI Report No. 10B, March 10, 2000). Additional interpretations span the other steps that the administration included in its January 1999 action plan for the beleaguered U.S. steel industry or in its late July report, Global Steel Trade: Structural Problems and Future Solutions, on how to prevent a replay of the 1998 steel "crisis."

The platform drafters, indeed, may have wanted to put Tokyo on notice that a Gore administration would take a hard line on sectoral trade disputes. However, the specific mention of both the automotive trade deficit and help for the steel industry seems to have been driven as much or even more by a desire to assure the unions representing workers in the automotive and steel industries that the issues of concern to them would rank high on the trade agenda of a Gore administration. The United Auto Workers union, in particular, held out until the last minute before formally endorsing the vice president.

Further underscoring the Democratic Party's commitment to uphold the rights and the interests of workers, the platform promises that a Gore administration would provide training and other adjustment assistance to individuals who lose their jobs because of increased imports. Moreover, workers' rights and environmental preservation will not be sacrificed as part of a broader effort to expand trade. "Democrats know that to build a new consensus for more open trade, we must give workers the tools they need to compete in the global economy and support rules that will protect workers' rights, human rights and environmental protections," the platform states.

Reflecting the Republican Party's conservative business and academic constituencies, the platform adopted at its July 31-August 3 convention in Philadelphia does not target unfair trade in specific sectors but instead takes a big-picture view of trade and the economy. The party supporting Mr. Bush for president regards free trade as a foundation for broader economic prosperity:

Today's global economy of open markets in democratic nations ... is poised to sweep away both the counterproductive vestiges of protectionism and the backwater remnants of Marxism. We launched this revolution during the Reagan and Bush Administrations. Now we will bring it to completion: U.S. leadership of a global economy without limits to growth.

The Republicans blame the record U.S. trade deficit on the Clinton administration's failure to exercise leadership, specifically with regard to fast-track negotiating authority. "The [Clinton] administration's failure to renew fast-track authority has undermined its ability to open new markets abroad for American goods and services. As a result, America's trade deficit with the rest of the world has surged to record highs," the Republican platform states.

Fast-track authority refers to expedited legislative procedures for approving trade agreements between the United States and other countries that require changes in American laws, policies or practices. Basically, Congress must vote up or down on an agreement submitted by the president; it cannot alter the details through amendment. Notwithstanding support from congressional Republicans, the Clinton administration has been unable to secure reinstatement of this negotiating authority, which expired at the end of 1993. The problem has been deep divisions within the Democratic Party over the renewal legislation's inclusion of language mandating that new trade agreements adhere to U.S. labor and environmental standards.

While American trade officials obviously are not prohibited from entering into bilateral, regional or multilateral market-liberalization negotiations in the absence of fast-track authority, U.S. trading partners have proved less willing to make a good-faith effort knowing that Congress subsequently could upend any agreements reached. The drafters of the Republican platform contend that the lack of consensus among the Democrats has handicapped the White House trade team in its efforts to secure new export markets for American goods and services.

Importantly, the Republicans suggest that a Bush administration would be just as tough as a Democratic one on alleged perpetrators of unfair trading practices (read Japan), although their language is not as pointed as that of the party now in office. "The vitality of [the U.S. trade] agenda depends on the vigorous enforcement of U.S. trade laws against unfair competition. We will not tolerate the foreign practices, rules and subsidization that put our exports on an unequal footing," the platform says. This includes ensuring that trading partners follow through on promises they make, the Republicans add in what could be a veiled reference to the failed automotive trade agreement or other recurring U.S.-Japan trade disputes.

At first blush, it may appear that a Democratic administration would be more protectionist and tougher on Japan than a Republican government. However, neither candidate is bound by his party's platform. Presumably, the next president will use the trade section of this policy statement as a guide in formulating strategy while also taking into account domestic and international economic developments. The broader context might temper an aggressive Democratic approach to U.S.-Japan trade frictions or, alternatively, provoke a more targeted, sector-specific Republican response.

If the 1996 election is any indication, though, the American public probably will not learn much more about the candidates' views on trade. As the dearth of discussion on the convention floors revealed, trade, in all likelihood, will not be a hot topic on the campaign trail. Despite another record trade deficit in the making in 2000, the subject fails to resonate with the vast majority of voters. The strong performance of the American economy in recent years and the resulting all-time-low level of unemployment nationwide will keep Japan out of the spotlight in the 2000 election-year cycle.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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