Washington’s trade policies set to become more pushy

By Stewart Fleming

Date: 10/11/04

In most areas of policy, a European government official told to expect "more of the same" from the second Bush administration would grit his teeth and prepare for the worst. But not in trade policy.

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On the contrary, in the past three years, one of the achievements of EU Trade Commissioner Pascal Lamy and US trade representative Robert Zoellick has been to prevent trade relations from becoming just another lump in the rubble which today passes for the transatlantic alliance.

To his credit President George W. Bush has for the most part stuck with a pro-trade policy agenda, despite the political risks. In part this reflects his own instincts and those of Zoellick.

But in addition, the US - like the EU - has recognized that, with transatlantic trade expected to hit &036;475 billion (€370bn) this year, US-based subsidiaries of European companies likely to post profits of around &036;60bn (€47bn) in 2004 and American affiliates in the EU earning &036;82bn (€64bn) in 2003, there are powerful constituencies on both sides of the Atlantic with a stake in avoiding too much discord.

"During the Bush administration several difficult transatlantic trade issues burdened with actual or potential large-scale retaliation have been relatively well managed," says David Woods, director of World Trade Agenda Consultants in Geneva.

He cites the continuing dispute over genetically modified foods, and the confrontation over Bush's decision to impose safeguard duties on foreign steel, as examples.

A trade official in Geneva argues that the protracted battle over the Foreign Sales Corporation tax allowances is further testimony to the first Bush administration's readiness to play by at least the multilateral trade rules. It may have taken two attempts, plenty of arm-twisting and some well-sugared pills for particular special interests to get the necessary tax package through Congress. But at least this long-festering trade dispute was more or less resolved last month.

The deeply rooted personal relationship between Zoellick and Lamy has played an important role in smoothing relations and helping both sides work together to keep the Doha trade negotiations on track.

On this score at least, despite the likely departure of Zoellick, there may still be a glimmer of light on a western horizon, which, to most European eyes, has darkened since the re-election of Bush. Assuming Zoellick does quit, his replacement is likely to be another pragmatist. (See page 16.)

But it would be premature to break out the champagne. The US decision to refer to the World Trade Organization the EU's government subsidies to Airbus and the counter-claim which the EU has filed against the US and Boeing present a stark reminder that the road ahead is already bumpy. It may also presage a more aggressive US trade policy stance.

For there is every reason to expect that the underlying economic background against which transatlantic trade relations will play out will get worse, not better, over the next four years.

There is the risk that, as the US economy slows in 2005, perhaps to the point of incipient recession late in the year, trade will again become a neuralgic issue in Washington. With voters worried about "outsourcing" and the trade deficit of more than &036;500bn (l385bn) and counting, it cannot be ruled out that protectionist pressures will play a bigger role in the years ahead.

Professor Mac Destler, an authority on trade policy at the University of Maryland, says that despite the soaring trade deficit since the late 1990s, Washington has not seen a resurgence of the extreme protectionist sentiment which surfaced in the mid-1980s when the trade balance last plunged heavily into the red.

In part he puts this down to the fact that, with the broadening of the globalization process, US corporations are no longer seeking protection as they did in the 1980s. "Major US firms have overwhelmingly seen their futures as intertwined with global markets and global supply chains," he says. It has helped too that economic growth has been sustained and that, unlike the 1980s, there has been no economic rival like Japan threatening to supplant the US.

These benevolent conditions may now be changing. The US economy is slowing, the trade deficit still ballooning and many Americans suffering as a result of the outsourcing of their jobs to countries such as China, which, on current trends at least, is fast emerging as an economic and geopolitical rival.

Most observers believe that, in an effort to boost US exports and cut the trade deficit, Bush will opt for a dollar devaluation strategy - indeed this may already have started - rather than protectionism. But US trade policy is likely to become much more aggressive as Washington pushes to open markets and combat "unfair" trade practices.

• Stewart Fleming is a Brussels-based freelance journalist.

Analysis feature in which the author says that although trade policy has not been the most controversial field in EU-US relations the US Government might pursue a more aggressive strategy during George W. Bush's second term in office.