Agriculture
China
Corporate Sustainability
Imports
Poverty
Security
TPA (Fast Track)

In-Service Seminars
ITEF
Trade Curriculum

Calendars
Publications
Web Links
WTO Archives

Become A Member
Benefits of Membership
Member Directory
Member Spotlight

Email Directory
Internship Program
Job Opportunities
Past Presidents
President

 TRADE TOPICS
 Agriculture |  China | Corporate Sustainability | Import  | Poverty |  Security |  TPA/Fast Track

The Road to Seattle:
Creating a Domestic Climate for Trade Expansion
Keynote Address by Susan Aaronson,
guest scholar at the Brookings Institution, author of Trade and the American Dream

September 23, 1999

Trade 2000
Completing the Equation: Imports and Washington State
sponsored by WCIT and the Puget Sound Business Journal

Thank you for inviting me to speak with you today about the road to Seattle.

Some fifty years ago policymakers got lost on the road to Seattle.  They did not involve the public in the development of the GATT and did not link multilateral trade liberalization to the economic circumstances of the voting people.  A similar phenomenon happened during the development of WTO.  Few Americans read many thousands of pages of implementing legislation and supporting statements.  The magnitude of the legislation furthered an impression that the WTO and U.S. trade policy were undemocratic.  This was exacerbated by the time constraint inherent in the fast-track legislation.  Finally, the Reagan, Bush and Clinton Administrations did not fully explain why we needed a new organization to replace the GATT.  Was it toothless or was it the world’s policeman?  In its four-year history, proponents of the WTO have failed to explain how the WTO system of rules benefits us in our daily lives.  That is what I would like to do today.  But let me warn you.  Proponents of trade have to change how we talk about trade, and begin relating trade to people’s daily lives.

Let me begin by talking about my neighborhood.  The people on my block work hard, save for their children’s education, and look forward to their retirement.  But they rarely think about trade policy.

Yet trade policy is an integral part of their daily life.  My neighbors, like yours, drink French wine, eat Mexican foods, and work on computers made in Malaysia.  When they save for college or retirement, their savings are invested in U.S. companies that import goods; U.S. companies that sell goods overseas; and foreign companies that invest in the United States.  When they go shopping, they load up their Fords and Hondas with many products, some of which are made overseas.  

Like most Americans, my neighbors rarely connect trade policies to what they do and how they do it.  For example, Mike, my next-door neighbor, markets Georgetown 
University’s basketball team.  Some of the team’s uniforms, like some of the team’s top 
players, are imported.    

Sandra, a prosecutor, lives across the street from Mike.  Like Mike, she rarely thinks about trade policy.  Yet Sandra often prosecutes major drug cases involving individuals who have brought illegal drugs into the United States.  Jeff, who lives on the corner, owns a dry-cleaning operation where many Washington hotels send their linen. His job is to guarantee that Washington’s visitors, many of who come from abroad, eat and sleep on fresh linen.  But he doesn’t see how his business relates to trade.  In contrast, Sam, who lives two doors down, is very worried about trade policy.  As an economist for a labor union, he closely monitors how Washington policies affect people on the shop floors who work producing goods for home markets and for export.

My neighbors know that the United States is the world’s most active trading nation, but they are more aware that the United States is relatively self-sufficient in many products.  They tend to believe that trade agreements are policies that enable other nations to trade unfairly.  Although they have heard many clichés about the global village, most of my neighbors don’t think they live there.  Yet if we live in the global village we want all of its citizens to adhere to its rules.

There is another important reason we must talk differently when we talk about trade.  Our trade deficit is growing rapidly and becoming a political issue.  While Conservative Commentator Pat Buchanan describes it as “ a cancer that could kill American, Federal Reserve Chairman Alan Greenspan believes the deficit actually has curative propensities.  He stresses that America’s receptivity to imports has helped stimulate economic recovery in Asia and Latin America.  And it helps maintain U.S. prosperity by helping to keep inflation low.

Whether the trade deficit is economic disease, cure, or a placebo, it is the statistic Americans use when they talk about trade.  The statistics are not pretty.  America’s trade deficit in goods and services rose to record $168.6 billion in 1998; a 53% increase over 1997 trade figures of $110 billion.  Next year, it may be $250 billion.  Although the deficit is huge and growing, adjusted for inflation, it is less than 2% of GDP, a smaller percentage of gross domestic products than in the mid 1980s, when it peaked at some 3% of GDP.

The trade deficit, however, tells us very little about the health of the United States economy.  Trade figures simply tell us that U.S. economy is consuming more than it is producing.  The United States may be a production powerhouse, but obviously America does not efficiently produce all of the goods and services Americans need or desire. A surplus of imports over exports is not inherently “bad” unless it reveals that American producers are unwilling or unable to produce the goods and services consumers demand.

Many Americans are concerned about the trade deficit’s impact upon jobs and long-term economic growth.  This seems logical, because many workers, especially in the steel and textile industries, have been hurt by foreign competition.  However the trade deficit, jobs, and economic growth have a contradictory relationship.  When U.S. unemployment is low, as it is today, the trade deficit is often high because both variables are driven by strong U.S. economic growth.  Conversely, when unemployment is high, trade deficit tends to decline.  Americans buy more goods (including imports) when the economy is doing well and buy fewer goods of any sort of the economy is sluggish.

Americans are clearly ambivalent about the policy implications of the trade deficit.  In 1995, the Michigan polling firm EPIC/MRA polled some 999 active voters and found 69% believed that the U.S. should impose increased tariffs on those countries running bilateral trade surplus with the United States, such as Japan, Mexico, or Canada.  Some 54% of those polled favor tariffs on those countries that paid those workers low wages.  They pressure our trade partners will just accept protectionism to maintain market share.  Yet this will do nothing to raise Mexican or Malaysian wages or working conditions.  On the other hand, in May 1998, EPIC/MRA found 83% of those polled said imports keep U.S. manufacturers on their toes; and 74% said lower priced imports help make producers affordable for lower income families.  Thus, the public seems to believe that protection helps protect U.S. producers from unfair foreign trade.  At the same time, the public seems to believe that imports help make equitable as well as more efficient.

Is protectionism the correct response to America’s trade deficit?  Economists generally agree that protection can help certain sectors.  But there is no evidence that protection can improve the economy as a whole or the welfare of citizens.  Moreover, protectionism is inherently inequitable because it favors certain sectors of the economy. To justify such tailored intervention, protectionists export the issue of equity.  They argue that foreigners are treating Americans unfairly, thus the federal government should intervene to protect U.S. producers from unemployment or lost opportunities.  But does government responsibility for equity end at the U.S. border?  Is it equitable for U.S. policymakers to deny our markets to citizens of other nations?  The trade deficit is not a symbol from the gods that America’s economy will soon falter.  But it is good place to start creating greater understanding. We need to remember that imports also stimulate economic growth.  And we can’t have exports without imports, as we learned in the study discussed earlier.  So again, we need to change how we talk about trade.  I want to make several suggestions as to how to facilitate better public understanding of how trade and economic interdependence affects us and has long affected us.

1.  Stop talking about trade as if it is only about economics. It is also about governance. Trade is where foreign and domestic policies meet. Trade policies do not only affect Americans’ standard of living but quality of life.

One quarter of the goods and services we produce are directly linked to policies that govern trade among nations.  Yet although Americans capably meet the challenge of new markets, most policymakers still talk about trade and globalization in the language of the 19th century.

2.  Stop talking about trade as if it is a dialectic between the free traders and the protectionists.  It has never been that simple.

Trade proponents need to show that trade is a subset of capitalism.  Capitalism flourishes when markets are governed by rules to ensure that markets work efficiently and equitably.  Trade agreements provide such rules.  Today, all nations must trade; even the richest most powerful, most diversified economies.  This was not as true for some nations in 19th century.  Moreover, in contrast with the 19th century, we have an international organization that governs how entities may trade and how nations may protect.

As trade has changed, protectionism has changed too.  Nations used to rely on tariffs and other border measures toprotect.  Nations today rely on a wide range of measures to distort trade to favor their local producers.  But sometimes without intent, regulations designed to protect citizens from harm may distort trade as well.  Such measures include health and safety standards, environmental standards, and worker protections as example.  These regulations appear protectionist, but were not designed explicitly to protect the home market.  And the people who want to preserve such rules may not be inherently protectionist. 

However our vocabulary has not kept pace with these changes.  We still talk about trade as if it is a dialectic between free traders and protectionists, but the reality is so much more complex.

How we talk about trade, globalization, and the new economy can help facilitate our success in developing the right policies to foster growth and equity.  As example, a May 1998 survey by EPIC/MRA found that the American public has a negative image of foreign trade, but is more amenable to world trade.  And the public likes fair trade over free trade.  What this poll teaches me is that how we talk about trade and who is doing the talking matters.  In October 1997, The Washington Post published a series of articles comparing how Americans trained in economics and the general public (often untrained in economics) see the nation’s economic status.  This study, funded by the Kaiser Foundation found that Americans trained in economics (such as economists, business leaders and many policymakers) tend to see trade’s benefits to local, national and global economic efficiency, but the public tended to focus upon trade’s costs to jobs, wages, and communities.  The public has a more local focus, which is a further argument for relating trade to people’s daily lives.  Moreover, while some 50% of economists believe free trade helps create jobs, only 17% of the public did.  While 5% of economists believe trade agreements have cost U.S. jobs, some 54% of the public did.  Thus, the world looks different from Main Street.

Proponents of trade agreements need to abandon talking about trade as if it is the abortion debate, free trade vs. protection.  The pro-lifers and pro-choicers are not connecting because they value and talking about different norms.  But in trade, we are talking about developing shared rules; rules governing our children’s future, our quality of life, the environment.  This is the regulation. There is room for common ground if we seek it.  Trade rules are not perfect.  When we hold trade talks, we are talking about how to improve trade rules.

3.  Use history to meet protectionism head on.  The United States has always mixed policies to open markets overseas with policies to facilitate the competitiveness of U.S. producers in their home market.  Remind your fellow Americans that the U.S. was born of a trade dispute; that trade and foreign investment were crucial to America’s development; that the British government used trade policies to affect human rights in the United States (to protest against slavery); and that food safety was an issue between Europe and the United States in the 1870s.  In 1911, the United States and other nations negotiated the Fur Seal Treaty to regulate seal hunting.  Trade regulation and social regulation have long intersected. 

However, protectionism can best be refund by examining whether it really works.  When people make a case against open markets because Americans may lose jobs, protectionists sound like patriots and caring good guys.  They have a two-hundred-year legacy of relating protection to other important policy goals such as preserving U.S. sovereignty or U.S. social stability.  They can also make a case that protectionist policies are policies in the national interest and not policies in the French or Chinese interest.  Freer traders, in contrast, tend to make a microeconomic case for freer trade; yet the benefits of freer trade are amorphous, diffused and not always immediate.  So that is a more difficult case to make.

However, protectionism is inherently unfair; it favors some interests at the expense of others.  Moreover, there is no evidence that protection actually works.  Economic historians are divided as to whether protectionism truly deserves the credit for nurturing America’s strong manufacturing based economy in the 19th century.  As we enter the millennium, protectionism seems absolutely the wrong policy for the information age when markets and producers must always be flexible and must often be global.  Protectionism does nothing to improve U.S. products or U.S. productivity.  There are better policies to help American business, workers and the communities in which they operate.

The answer is not to say free trade is great or protectionism is terrible.  The answer is to honestly acknowledge the costs and benefits of trade and to relate this to people’s daily lives.

How?

4.  Relate trade to where people live, work, study, play, and shop.

Every hour of every day, Americans see, smell, touch, taste, and hear goods and services that are trade between the United States and other nations.  Americans tend to look as trade as producers –However trade also affects us as shareholders, citizens, taxpayers, consumers, and friends of the earth.  As shareholders, they may benefit by lower operating costs, greater global market share, more jobs, and higher profits.  At the same time, as producers, some may experience lower wages or declining benefits as they indirectly complete with equally well-educated but less well-compensated workers overseas.  As friends of the earth, Americans may perceive that trade is creating greater environmental destruction.  But it may also provide the funds for nations to invest in pollution controls and cleaner production techniques.  Trade policies may also affect in indirectly.  As homeowners, Americans benefit from foreign investment in the U.S. which increases the supply of capital and lowers its costs.  As taxpayers, we benefit when the federal government procures goods from competitive companies that have achieved global economies of scale.  As citizens, we benefit when governments don’t resort to protection, but find means to arbitrate their differences under the WTO’s dispute resolution.  It provides cover for actions that policymakers may want to take but may be unable to do for political reasons.  Talking about trade in this way doesn’t fit in a sound bite, but this strategy treats voters and citizens as rational economic and political actors.  People will make good decisions with full information.

5. We need to acknowledge that people are afraid of agreements.  They are 
responding to critics’ arguments that such agreements are deregulatory and impede U.S. 
sovereignty.  Let’s be honest.  Trade agreements are regulation; they regulate how 
entities may trade and how nations may protect.  This is in the interest of all of us – as 
taxpayers, shareholders, consumers, and friends of the earth.

This approach may not initially sell you.  But for 51 years proponents of the GATT/WTO system have talked about trade in terms of macroeconomic benefits to the economy as a whole.  They say things like open markets will yield high wage export jobs or help foster global stability.  But the public doesn’t concur.  As example, in 1995, Ann Landers received two letters.  In September1995, a Philadelphia reader wrote, “ I know why…young people are not getting jobs…between the greedy politicians and the unions…most of our products are not made in the USA.”  Ann, if I may call her that responded by warning the Clinton administration’s top trade official, ‘Mickey Kantor’, called your office.  Less than a month later, Ann printed another letter this time from California, ‘Outraged in Agura Hill,’ who wanted to know why she could not buy American made clothes.  Ann responded by asking for help from Washington.   These readers were writing to Ann Landers because they did not understand or trust what the experts (government officials, the press, business leaders, academics) say about trade and in particular about imports.

Let me conclude with an anecdote from my own life and how I talk about trade.  I admit that I am an obsessive runner.  I often run in my blue GATT t-shirt.  That t-shirt has kept me from being bored or lonely.  In Dallas, Texas, home of many high tech companies that are successful exporters, that t-shirt once led to a debate as to whether foreigners are taking advantage of us.  In Centralia Illinois, a small farming town that produces wheat and corn, it stimulated and interesting discussion—can you say you believe in laissez-fair, but advocate that open markets should stop at the U.S. border?  In New York’s Central Park, one of the world’s most foremost tourist destinations, the shirt led to a debate as to whether trade has led to a decline in the nations standard of living.  And in Arlington, VA, the t-shirt led to a dialogue about whether trade encourages child labor or can provide a means of creating higher wage jobs for adults so that parents can earn a living wage without their young children working.

These runs taught me that people are eager to talk about trade.  They are eager to understand it.  The ministerial provides an opportunity to begin that dialogue.  We should seize it.  This means being honest about what we are discussing when we talk trade.  We are talking about how to regulate markets that are now global.  After all, trade is everybody’s business, but it is a business Americans need to know more about.