If you want to understand what’s going on in the
White House these days as President George W. Bush advances his trade
agenda, begin with a confidential memo from the presidential transition.
The memo strongly recommends that the incoming Republican administration
continue to assert
America
’s traditional leadership in multilateral trade liberalization —
despite the president’s campaign promises to slap on protectionist
measures for agriculture, textiles, and steel.
“If it is judged necessary to restrict imports in some fashion
— either for political reasons or because there is real economic
difficulty in an industry — the restriction should be temporary and
should be accompanied by measures of adjustment in the industry that will
make protection unnecessary in the future,” the head of the presidential
task force on international economics advised the White House. This is
exactly the rationale that President Bush subsequently used to explain his
steel tariff — and his farm subsidies, and also his repeated vows that
he will never trade away textiles in any international trade negotiations.
But the memo meant for the eyes of the president and his top aides
at the National Security Council was not written for incoming George W.
Bush in January, 2001. It was authored more than three decades ago by Alan
Greenspan, who chaired a transition task force on foreign trade policy for
President Richard M. Nixon, who took the oath of office in January, 1969.
Greenspan, now Federal Reserve chairman, was then a private-sector
economist and a Nixon campaign adviser.
Talk about déjà vu.
Greenspan’s private transition memo — along with hundreds of
other previously secret presidential documents — is now available to the
public in a treasure trove of 1,128 pages that reveal how President
Richard M. Nixon’s international economics- and trade policies were
shaped. The documents have been declassified by the State Department for
the most recent volume of its ongoing historical series, Foreign Relations
of the
United States
. For anyone interested in trade politics, Volume IV, Foreign Assistance,
International Development, Trade Policies, 1969-1972 is a fascinating
read. But the fascination doesn’t really involve the Nixon presidency
— but that of George W. Bush.
Consider a thumbnail sketch of the Nixon trade agenda.
•
Nixon wanted to launch a new round of multilateral trade
negotiations. The president wanted Congress to give him the necessary
“fast-track” trade negotiating authority so his negotiators would be
taken seriously, but knew that many on Capitol Hill didn’t trust the
executive branch to be tough enough on foreigners.
•
Nixon caused great consternation in sophisticated trade circles
when word leaked out that the new administration was thinking of
downgrading the status of the president’s first special trade
representative, Carl J. Gilbert. The STR would play
second fiddle to Nixon’s close friend and political
fundraiser, the secretary of Commerce (for details, see the Yankee Trader
column at page two).
•
If it had been up to Nixon trade negotiator William Eberle in 1972,
all industrial tariffs would have been phased out within 15 years.
•
Nixon said that he wanted to reassert
America
’s post-war leadership on trade liberalization, but in practice carried
a lot of political water for domestic steel, agriculture, and textile
protectionists.
•
Nixon fretted about the harmful effects to global trade posed by
European agriculture subsidies, an old problem that in 1969 seemed
politically intractable. Nixon also worried that
Japan
— resisting years of foreign pressure to do otherwise — was still
reluctant to do the necessary restructuring to fully open its markets to
imports. Meanwhile, the Europeans and Japanese wanted to talk about the
U.S.
antidumping regime.
•
And Nixon faced pressures from the world’s poorer countries who
were demanding more access to closed rich-country markets — which in
turn complicated other important foreign policy priorities.
Substitute “Bush” for “Nixon” in every one of the preceding
sentences, and history becomes today’s headlines. William Eberle would
have ended industrial tariffs by 1987; now U.S. Trade Representative
Robert Zoellick would do so by 2015. Nixon fended off pressures from the
Japanese to do something about protected
U.S.
markets for canned tuna; these days, it is the Latin Americans and Asians
who press
Washington
to grant more access to our canned tuna markets.
U.S.
trade pressures caused
Spain
to threaten to yank
U.S.
bases during the Nixon days. Now Bush asks countries like
Pakistan
to help in the war against terrorism — while playing tough on
Pakistan
’s desire to sell more of their textiles in protected
America
markets.
If there is anything new in today’s
Washington
, trade policy isn’t it. On textiles and clothing, the major change in
three decades is that these days countries like China and Indonesia are
demanding more access to protected U.S. markets; Japan — a major
exporter of textiles and apparel to the U.S. in Nixon’s day — has
moved on. The
United States
still hasn’t.
Let’s take a closer look at some of the highlights.
Presidents don’t get fresh starts.
“A new
administration wants to put its own stamp on things even if it wishes to
continue the main lines of a previous administration’s policy,”
Alan Greenspan noted in his memo written for the 1969 Nixon
presidential transition. “Sometimes this fresh start makes it possible
to pursue the goal more effectively because one can get rid of the
mortgages and barnacles that any administration or policy accumulates.”
But perhaps more often, the “fresh start” is mainly
presidential posturing. Reading Greenspan’s memo 34 years later suggests
that for presidents, the price of paying for their inherited political
mortgages and barnacles is dear.
Consider the WTO-illegal Foreign Sales Corporation export tax
subsidy scheme, which now threatens the
U.S.
with some $4 billion in European trade sanctions. George W. Bush inherited
FSC in 2001 from predecessor Bill Clinton. But the origins of FSC date to
a similar tax scheme called DISC — Domestic International Sales Corp.
— that was enacted by the
Nixon administration in 1971. DISC morphed into FSC under Ronald Reagan in
1984. Nixon had inherited the concerns of his predecessors, who worried
about a balance of payments deficit and how to help
U.S.
exporters get around European taxation that put foreigners at a
competitive disadvantage.
Speaking of inherited political barnacles, Nixon’s answer to the
U.S.
steel lobby’s demands for protection was to give the domestic mills what
they had wanted: “temporary“ and “voluntary” import quotas. There
was no requirement that the troubled
U.S.
mills take any meaningful steps to restructure and improve their
competitiveness. As
Washington
trade lawyers
William
Bar
ringer and Kenneth Pierce pointed out in Paying the Price for Big Steel,
the Nixon VRAs from 1969-74 “came at great cost to the broader
U.S.
economy.” Bar ringer and Pierce estimated those costs as high as $1.9
billion at the time, which translates to more than $8 billion in 1999
dollars (numbers that have not been disputed by the American Iron &
Steel Institute).
Nixon’s steel plan caused widespread foreign resentment that
America
was not being true to its espoused free-trade principles. Sound familiar?
“In spite of the fact that the
United States
has led the world in the reduction of trade barriers for a third of a
century, there is still a tendency to regard us as a protectionist
country,” Greenspan had noted in his 1969 transition memo. “The
post-Kennedy Round wave of proposals for quotas, plus our performance in
certain fields, lends support to the stereotype.” If the
United States
wished to “actively pursue the aim of further removing barriers to
international trade,” Greenspan added a wonderful observation that is
ignored today as much as it was in 1969: “[S]ooner or later awkward
questions about ‘domestic’ policy and behavior will arise, and we
cannot get without giving.”
Awkward questions about textiles
Some of
those awkward questions, then as now, were about
U.S.
textile protectionism, another perennial embarrassment for the
United States
. Nixon didn’t invent this game either. In 1961, President John F.
Kennedy had followed up on his campaign pledges by negotiating trade
restrictions called the Short-Term Cotton Textile Arrangement, which
within a year had become the Long-Term Cotton Textile Arrangement. Kennedy
was following an American tradition that stretched to 1789, when the first
Congress slapped on high tariffs on cotton and clothing.
In his 1968 campaign, Nixon promised southern states that if
elected he would curb imports of textiles and apparel. He kept the promise
by concluding a series of bilateral restraint agreements with U.S. trading
partners, which in 1974 became the Multifibre Arrangement — a quota
scheme that isn’t scheduled to expire until January, 2005.
Inside the Nixon administration, there wasn’t any false pretense
that textile protectionism was anything but a political payback. Nixon the
politician knew fully well that he was engaged in dubious economics.
Shortly after assuming office in 1969, the new president expressed a
certain discomfort in carrying out his protectionist chores (even as
Commerce Secretary Maurice Stans immediately got busy working with
domestic textile lobbyists to advance quota legislation). The president
instructed his aides that “he did not want his first communication
with” Japanese Prime Minister Eisaku Sato to be on “the textile
issue,” according to an editorial note in the recently declassified
presidential papers.
A
June 4, 1970
memo to the president from two key Nixon aides, congressional relations
lobbyist William Timmons and Republican political operative Harry Dent,
quickly got to the bottom line: “Textile industry leaders raised a
considerable sum which was used to run a special operation in key Southern
states, all of which were carried except
Georgia
.” Presumably, White House political operative Karl Rove is more careful
in whatever he puts in writing in his secret memos to President Bush these
days, but the underlying political calculations remain the same.
Timmons and Dent laid the groundwork for Nixon’s meeting with key
textile lobbyists in the Cabinet Room on June 8. “All of the people
present for the meeting are supporters of this Administration,” Timmons
and Dent informed Nixon. “Speaking principally for the industry will be
Roger Milliken, the foremost Republican among them.”
Thirty-three years later, and
South Carolina
textile magnate Roger Milliken is still a prominent Republican
contributor, and is still leading the charge for continued protectionism.
Did Nixon know better? Sure.
On
July 9, 1970
, Nixon held a private White House meeting with top economic aides and key
congressional leaders, the most important of which was Rep. Wilbur Mills,
who was then the powerful chairman of the Ways and Means Committee. Like
Nixon, Mills had also been lured into supporting a textile-quota bill for
political reasons. “Mills indicated that there was a problem, since
textiles could only show injury in limited areas,” notes a memorandum of
conversation of that meeting that was drafted by National Security Council
aide Fred Bergsten. “In an aside, he remarked to the President that they
had both been fooled by the textile industry, which had no case for
overall protection.”
These days, the textile lobby is still in the business of fooling
presidents. How else, for example, to interpret the requirement in the
proposed U.S.-Singapore preferential trade deal that Singapore can qualify
for duty-free treatments for clothing exports only if the clothes are made
from U.S. cloth?
Agriculture headaches
never end
In February, 1969, Nixon’s agriculture secretary,
Clifford Hardin, sent the president a paper on
Europe
’s Common Agricultural Policy. “We
are headed for a major confrontation with the European Community regarding
its agricultural trade policy,” Hardin informed the president. “The
root of the problem is that the Community has spent the last eight years
perfecting an agricultural policy which is completely insular, and
consequently incompatible with the objectives of expanding world trade. It
is a policy which does not recognize the principle that the most efficient
producers should be the dominant suppliers in international trade.”
Hardin went on to complain that the Europeans “also assumed the right to
export their surpluses in world commerce through heavy subsidization.”
Hardin’s criticisms of European farm subsidies sound as fresh
today as they did back in 1969. And they also describe the farm bill that
George W. Bush signed in May, 2002. We Americans have been in the business
of blaming
Europe
for our own “temporary” farm protectionism for a long time.
Presidents talk big, but often act small
Despite
Nixon’s spotty record on trade, the more enlightened members of his
administration pressed on to launch what they hoped would be the “Nixon
Round” of global trade liberalizing talks under the General Agreement on
Tariffs and Trade. The Nixon men wanted Congress to give the president
“fast-track” negotiating authority.
Such negotiations “will not be meaningful unless the President
has authority,” remarked Secretary of State William Rogers in one
high-level meeting on
December 15, 1972
. “In my talks with foreign ministers it is clear that no one will take
us seriously if we don’t have authority.” A few minutes later,
Treasury Secretary George Schultz noted that “the Europeans are making
things worse” with their own continuing protectionism, as were the
Japanese. Despite the difficulties, however, the high-level officials
remained optimistic. “1973,” noted Federal Reserve Chairman Arthur
Burns, “will be a good year. The economy is moving forward.
Protectionist forces may weaken. This is as good a year as I can
visualize.”
It didn’t turn out that way. The Nixon administration imploded in
1973 with the explosion of the Watergate scandal. While the administration
would eventually get fast-track negotiating authority and the launch of a
new round of GATT talks in 1974, the “Nixon Round” became the Tokyo
Round, which was completed by President Jimmy Carter. Today, President
Bush and the energetic U.S. Trade Representative Robert Zoellick are
aiming to successfully wrap up the WTO’s Doha Round by 2005. Hopefully,
Bush’s record will end up better than Nixon’s.
But the lingering impression from a review of the Nixon
presidential archives and subsequent trade history up to the present is
that presidents talk big, but often act small. The real focus always seems
to be on the next election. Progress on genuine trade liberalization
remains glacial. Other countries — Australia and New Zealand come
immediately to mind — have realized that their own leverage in
international economic circles, not to mention increased domestic
prosperity, has been vastly enhanced by opening their own markets, on
their own. Unlike their American (and European) counterparts, Aussie and
Kiwi taxpayers and consumers are not saddled with massive multi-billion
dollar farm subsidies, steel import restraints, etc. It would be naïve to
think that any American president is going to follow suit anytime soon.
Meanwhile, in
Washington
, every new president acts as if he is the one who is going to get the
game of trade politics right.
“All this déjà vu reminds me of what Gene McCarthy once said
about politics,” remarks veteran Washington trade lawyer Robert
Hertzstein. “Politics is like baseball; you have to be smart enough to
understand the game, and dumb enough to think it is important.”
Of course, Hertzstein adds, international trade is very important,
as is genuine American leadership in the World Trade Organization. It’s
just that over the years, so many of the key players never seem to get
beyond the gamesmanship.
