As British Chancellor of the Exchequer Gordon Brown wrote recently in The Financial Times “the world economy faces an uncertain autumn … not only the impact of terrorism and geopolitical uncertainty on our economies, but also a surge of protectionism.”

On this side of the Atlantic, Brown’s warning should have the distinct ring of truth. In the wake of five years of accelerating globalization, during which American wages have stalled and job creation has slowed, the national consensus to continue to liberalize trade – one that has made America stronger for more than fifty years – is now unraveling. We need a clear vision, strong leadership and a serious program to ensure that working Americans benefit as much from globalization as American businesses. This memo analyzes what went wrong and highlights a number of areas– including a strong push to restart Doha – that can begin to rebuild our national consensus once again.

The Collapse of Doha

On July 25, 2006, the Doha Development Round of world trade talks were officially suspended without any final agreement or schedule to meet again. In Geneva, the six main participants, including the United States, the European Union and the largest developing countries, could not find a way through their negotiation impasse. Pascal Lamy, the head of the World Trade Organization, announced that he could not “hide the sad truth: we are in dire straits.”

The Doha Development Round began in 2001 with the explicit intent of helping the world’s poorer countries by boosting their trade and, with it, economic growth. The talks were meant to persuade the world’s rich countries, especially the United States, the EU and Japan, to reduce their domestic subsides and other protections for agricultural goods produced in the world’s developing nations – and in exchange, less developed nations would reduce their tariffs and quotas on the finished goods and services of the richer countries. 

Officially the end of the talks in July was, in the words of Mr. Lamy, a “time out”. But realistically the odds of a final deal are fading fast. The President’s authority to negotiate a “fast-track” deal for an up-or-down vote without amendments in Congress expires next July.  It will be very difficult to restart those negotiations, conclude them and then persuade Congress to approve the results in such a short time – and it’s even less likely that other countries will agree to negotiate with us if we cannot ensure them that the results will not be amended in Congress.  And given the current political environment it seems unlikely that Congress next year will extend the President’s fast-track negotiating authority.

At a time when global growth may well be slowing, a successful Doha could add $287 billion to the world economy, by the World Bank’s estimate. Developing nations would gain the lion’s share from expanded agricultural exports and cheaper imports of western goods, while here in America, consumers would enjoy lower food prices and exporters larger markets. 

Doha’s collapse, if left standing, could also erode confidence in the World Trade Organization (WTO) and the process of multilateral negotiations. No government or organization has been more critical than the WTO to the basic process of globalization, including opening up countries like China, India and Brazil to much greater foreign investment and competition. The WTO dispute-resolution process is also a powerful tool for protecting America’s interest against countries that trade unfairly. Most recently, the WTO supported the United States position that China’s currency is overvalued. We should not allow confidence in the WTO to ebb.

The Alternatives to Doha and Global Multilateral Trade Negotiations

Stung by its failure to resolve the outstanding issues at Doha, the Bush administration has offered the prospect of new bilateral or regional trade deals. But the record of most bilateral trade deals shows that they can distort and divert trade flows, usually require a “spaghetti bowl” of rules that American businesses must untangle, and can increase the cost of doing business. 

These bilateral deals also eat up the political capital for globalization at a time when the national pro-trade consensus is fraying.  Noted economist Jagdish Bhagwati of Columbia University recently described the view of these deals held by most trade experts, in Foreign Affairs:

It is almost insane to present Congress with a string of piffling FTAs and ask representatives to go to bat for trade liberalization again and again. Each time they do so they use up some political goodwill….These bilateral and less-than-multilateral FTAs are therefore dangerous…nearly all first-rate economists have now begun to tire of them and consider them to be a pox on the trading system

At a time when “economic nationalism” is increasing in Europe, and when Latin America countries have rejected the Free Trade Area of the Americas and increasingly cater to the anti-American and isolationist Hugo Chavez, it could prove very dangerous to undermine multilateralism. 

Why Doha Failed (1) - A Failure of Presidential Leadership

President’s Bush’s failure to exercise presidential leadership on trade is at least part of the reason why we face our current predicament.  To be sure, the governments of many European nations resisted compromise at Doha, as did a number of major developing nations. These are conditions that only a committed and far-seeing President of the United States, as the world’s premiere economy, can change. In July, as Doha entered its final critical phase, The Economist called on him to do just that:

At this eleventh hour, Mr. Bush may be the only person capable of breaking it. A dramatic display of political courage by the world's biggest economy and the traditional leader of the multilateral trading system could still jolt the round from apathy to action.

No such display of political courage and leadership was forthcoming from President Bush.  Instead, he gave his key trade negotiator, Rob Portman, a new job, creating an impression that America had given up on Doha.

The President and his officials talk frequently about the benefits of free trade. Treasury Secretary Henry Paulson has twice made robust speeches in defense of trade since taking office. But the collapse of Doha was not the first time that the Bush Administration declined to “walk the walk” for trade liberalization. While calling on other nations to reducing their tariffs and subsidies, President Bush in March 2002 imposed a 30 percent tariff on steel imports, in apparent violation of WTO rules. Experts estimate that the tariffs cost nearly 250,000 American jobs in companies using steel products, more than all of the jobs in the U.S. steel industry.  Two months later, he signed the Farm Bill, dramatically increasing subsidies to large agribusinesses just as the Doha round started talking seriously about reducing agricultural subsidies. And while the administration did manage to pass a flawed CAFTA agreement last year, they refused to consider reasonable amendments that could have maintained the real bipartisan support for such measures seen in the 1990s. 

Why Doha Failed (2) - Declining Broad-Based Support for Trade

The Bush administration also has not made the case for trade liberalization to the American people.  The vast increases in trade have produced cheaper electronics, clothes, computers and cars for American consumers.  But the administration’s indifference to the subtle effects of global competition on American jobs and wages has further eroded the support of the American people for liberal trade.  While cutting taxes for the wealthy and running up big budget deficits, President Bush has ignored the way that global competition, combined with rising health care and energy costs, squeezes American companies’ ability to create jobs and raise wages.  The result: despite strong GDP and productivity gains, this administration has the worst record in more than 50 years for job creation and income gains.

At the same time, the administration’s huge budget and trade deficits have made America dependent on foreign lending, especially from the Chinese, Japanese and Saudi governments.  Our large and growing dependence on foreign lenders not only reduces our leverage with them in negotiations such as Doha; it also could produce a “dollar crisis” that would dramatically slow the U.S. global economies. It’s little wonder that under this administration, support for globalization and liberal trade by American businesses and the American people is at its lowest ebb in generations. 

Rebuilding the National Consensus on Trade

For the past half century, trade liberalization has been a crucial part of the formula for global peace and prosperity; and America’s greatest leaders have maintained a broad, bipartisan consensus against protectionism. FDR and Harry Truman created the architecture for an open post-war system. JFK launched the modern series of multilateral trade talks.  President Reagan began the Uruguay Round and the NAFTA negotiations – and President Clinton enacted both with bipartisan support. And progressive Presidents from FDR to Clinton understood that liberalizing trade was an essential part of the formula that built the post-war period of relative peace and prosperity.

President Bush has failed to show any comparable leadership through the Doha Round and his broader economic policies.  Whatever we do, globalization is not going away or even slowing down. As FDR, Harry Truman, JFK and Bill Clinton all understood, liberal trade and globalization are ultimately progressive causes.  Progressives need to rebuild the national consensus for trade and globalization with a new program that will ensure that all Americans can benefit from both. In the coming months, six specific issues provide those who support trade liberalization with an opportunity to make our case.

1.  A New, Final Push on Doha. One last push to save Doha is the single most important step to support trade. No previous trade round has failed. Severe consequences would follow the failure of this one. US Trade rep Susan Schwab has promised America will “do what it takes.” President Bush must now demonstrate his commitment, by doing the same.

2.  Passing the Vietnam Trade Agreement. In November 2000 Bill Clinton became the first American President in a generation to visit Vietnam. Despite the drawbacks of bilateral agreements, passing this deal would be a victory for trade liberalization and a momentous step towards welcoming Vietnam back into the mainstream global community. The act is currently being held up in Congress. Republicans and Democrats should work together to ensure it passes swiftly.

3.  Caution Over A Slowing Economy. As the U.S. economy continues to slow, and the administration’s dismal record on wage gains and job creation grows even worse, anxiety about trade will increase.  This could provide another pretext for companies to plead for special trade protection, ultimately reducing competition and raising prices for Americans. All concerned must be careful not to scapegoat trade policy.

4.  Avoiding Restrictions on Foreign Investment Flows. Earlier this year, Congress torpedoed the Dubai Ports deal. Whether this was the right thing to do or not, many members have now called for legislation that would explicitly and permanently politicize the process of approving flows of foreign investment through the “Committee on Foreign Investment in the United States,” or CFIUS, to prevent foreign ownership of “critical infrastructure.” Free flows of foreign investment are at the heart of modernization in the developing world – and our own ability to run large current account deficits.  Congress should stay out of this.

5.  Finding The Right Reaction to China’s Currency. Economists agree that China’s currency is undervalued relative to the dollar, giving her exports an unfair competitive advantage, especially with exports from other developing nations. Steps should be taken to encourage a revaluation.  But they cannot provide a pretext for punitive tariffs on Chinese-made goods consumed by every American, similar to those threatened by Senators Schumer and Graham.

6.  Reforming Agricultural Subsidies. In 2007, Congress will have to decide whether to renew the 2002 Farm Bill or take steps to roll back some of its subsidies. Doha would have required that the EU, Japan and the United States pare back farm subsidies that make food more expensive for Americans and impede agricultural trade in every developing country. Retain the current system will make future multilateral negotiations even harder. Congress should produce a farm bill that supports needy rural communities but doesn’t make passing Doha, or the live of impoverished African farmers, more difficult.

In the long-term we need to develop policies that ensure that the American people both understand and feel the benefits of a liberal trade regime in a more competitive global economy. The first part of this equation requires real political leadership to ensure that the American public appreciates the benefits they receive from existing global integration: cheaper consumer prices; low domestic interest rates; the ability to borrow foreign capital, higher productivity gains; and so forth. Yet this is not enough. As Federal Reserve Chair Ben Bernanke said recently “the challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently widely shared.” To achieve this we need a fundamental rethink of economic policy, and a new national plan to ensure that gains from trade are broadly shared.

Progressives can re-build our national trade consensus by focusing on three core areas: restoring the economic integrity of the nation, fixing our rising cost crisis, and helping Americans adapt and adjust to globalization. First, fiscal discipline must be restored to lessen American reliance upon foreign lending, lower the budget deficit and increase national savings. Second, reform is needed to lower pension, health and energy costs for businesses and workers; only by doing so will more of the benefits of open trade be passed on to American works in higher wages and benefits. Third, and perhaps most importantly, more must be done to help people adapt and adjust to the impact of globalization by investing in the human capital of American workers and working to lessen the risk of unemployment

We believe an open global economy offers America great benefits. And there is no turning back: globalization is here to stay. Yet the benefits of globalization are currently not being shared fairly, and the national consensus for liberal trade policies is under threat. With strong leadership and new ideas we can rebuild that consensus, and ensure that globalization works for all Americans once again.

 Robert J. Shapiro, Globalization Initiative Director and Simon Rosenberg, NDN President

NDN Senior Political Advisor James Crabtree contributed to this memo. For more information e-mail jcrabtree@ndn.org or visit our blog at http://www.ndnblog.org/