Saturday, April 14, 2007

A Rising Tide of Protectionism Threatens to Swamp Clinton

Even though G-8 leaders say they're committed to free trade, actions in the U.S. and abroad show otherwise

The leaders of the world's largest industrial democracies concluded their economic summit in Cologne with firm handshakes and plenty of happy talk. But there was a disquieting undercurrent during the three-day G-8 meeting. The leaders are clearly fearful that a rising tide of protectionism could snuff out their plans to liberalize global trade. They also worry that a fragile world economy will derail the American boom of the Nineties.

On the surface, the heads of state agree on their desire for expanding international commerce. "They are all deeply committed to free trade," insists Jim Steinberg, the top U.S. G-8 negotiator in Cologne.

Problem is, the leaders aren't sure how to get there. Americans are wont to lecture others endlessly about the wonders of open markets, but the Republican-led Congress is on the verge of passing a steel-quota bill that would be the most protectionist trade legislation approved in decades. French President Jacques Chirac applauds the "freeing up of trade," but he's pushing to create a European health-safety agency that Americans and Canadians fear will serve to limit exports of products from beef to Coca Cola. And even while Japanese officials decry the incipient U.S. trade retaliation, they are resisting the efforts of U.S. trade negotiators to further open some of their markets to American products.

SEEKING CONSENSUS. As usual, President Clinton is trying to find a way to make everybody happy. In bilateral meetings with each of the leaders and in G-8 group sessions, he talked about the need for creating a political consensus within the industrialized countries on the merits of free trade. To do that, Clinton and British Prime Minister Tony Blair argued, the leaders must pay more attention to labor, environmental, and health and safety issues that cause blue-collar workers to question the wisdom of trade liberalization. "We have to ensure that average families and communities feel the benefits of open markets," argues Gene Sperling, chairman of Clinton's National Economic Council. "If we fail, people may turn against the very open-market strategies that feed our growth patterns."

Clinton and Blair also are talking about creating an "early warning system" to ensure that minor disputes -- such as the ongoing U.S.-European spat over bananas -- don't spiral into an international trade crisis. Still, it may be too late to stuff the genie of protectionism back in its bottle. White House officials fear that President Clinton doesn't have the votes to sustain his certain veto of the steel-quota legislation. Tokyo is not amused. "We are indeed worried about this protectionist trend," Sadaaki Numata, spokesperson for Japanese Prime Minister Keizo Obuchi, told Business Week Online.

In Europe, concern about food safety is turning into a trade showdown. Europeans condemn the use of growth hormones in beef and are angry that an insectide spray caused some European Coke drinkers to become ill. North American pols see protectionism behind Europe's alarmist rhetoric. Pas de tout, says France's Chirac. "Certain countries, such as Canada and the U.S., fear a return to protectionism," Chirac says. "That is a baseless fear."

WAITING FOR GEORGE W.? The trade tremors couldn't come at a worse time. The U.S. is scheduled to host a new round of world trade talks beginning this fall in Seattle. Clinton, searching for ways to gild his legacy, would like to see some concrete victories for trade liberalization, as well as early approval of China and Russia to join the World Trade Organization.

But problems at home and abroad complicate the situation. The Republican Congress is loath to give Clinton victories of any sort. They'd just as soon wait for their hero, George W. Bush, to win the 2000 Presidential campaign and to preside over the so-called "Seattle Round" beginning in 2001. And world leaders, while asserting their allegiance to free trade, too often surrender to their own domestic political needs.

All in all, it's a difficult challenge for a lame-duck President. The world will be watching to see if Clinton is up to it.

Dunham, White House correspondent for Business Week magazine, covered the G-8 summitt in Cologne. He offers his views on Mondays for BW Online