America’s Economic Nationalists Find New Anxieties to Feed On

It’s a sign of the times that the House Republican leadership believes the only way to win approval of a free trade agreement with Central America this week is to first pass legislation bashing China for its trade practices.

That legislative minuet is a clear indication the economic nationalists are back.

The economic nationalists were the politicians and policy analysts who raised the loudest alarms about the commercial challenge posed by Japan in the 1980s and early 1990s. They wrote books such as “Japan as Number One,” warned of the “deindustrialization of America” and touted industrial policies to promote more cooperation between business and government.

Former Rep. Dick Gephardt (D-Mo.) was an economic nationalist. So was Ross Perot. Clyde V. Prestowitz Jr., a former trade official under President Reagan, was a leading thinker among them. Labor union presidents, executives at manufacturing companies threatened by low-wage foreign competition and members of Congress sympathetic to either filled in their ranks.

For roughly the last dozen years, the economic nationalists have been exiled to the edge of American politics (more on that below). But like the cicada, they have returned, this time in the debate about the Central American Free Trade Agreement and the noisy dispute over the bid from China’s CNOOC Ltd. to purchase Unocal Corp.

In the 1980s, the economic nationalists fed on anxiety that Japan was eclipsing the U.S. as the world’s dominant economy. Today, they are drawing energy from concern about the loss of jobs to rising economic powers like China and India, as well as to low-wage competitors like the six small nations included in the proposed CAFTA.

The common thread is that the economic nationalists, then and now, insist the U.S. needs a more confrontational trade policy, and a more activist government economic strategy, to promote and protect high-paying American jobs.

“A lot of these issues were raised in the 1980s, then we got really lucky when Japan hit a bump in the 1990s,” said Prestowitz, president of the Economic Strategy Institute and author of “Three Billion New Capitalists,” a compelling new book on the challenge from Asia. “But we haven’t really addressed most of the issues that Japan posed in the 1980s, and a lot of those things are coming back.”

The economic nationalists don’t uniformly oppose future trade deals; Prestowitz, for instance, supports CAFTA. Yet almost everyone in this camp shares a fear that in the international economic competition, America is “falling dangerously behind,” as Sen. John F. Kerry (D-Mass.), the 2004 Democratic presidential nominee, put it as the Senate debated CAFTA last month.

The economic nationalists also share a common agenda centered on increasing federal funding for scientific research and education, reducing the federal deficit and dependence on foreign oil, cutting healthcare costs for U.S. employers, reforming education and pressuring China, which agreed to modestly revalue its currency last week, to let the yuan appreciate further.

The convergence of the disputes over CAFTA and CNOOC have provided the economic nationalists with their biggest megaphone in years to press these arguments.

Fears about American decline dissipated in the 1990s as Japan’s economy stumbled and America’s took off, especially in the Internet boom. Although President Clinton’s administration pushed to open the Japanese market, his overall free market orientation -- symbolized by his support for the North American Free Trade Agreement -- reduced the influence of the economic nationalists dubious of free trade.

As America’s trade deficit steadily rose through Clinton’s second term and President Bush’s first, free trade skeptics in both parties continued a drumbeat of concern. But they mostly retreated, as Congress approved free trade deals with countries such as Jordan and Australia, and granted China permanent low-tariff access to the U.S. market.

After the Sept. 11 terrorist attacks, the economic nationalists faced an even larger problem: Their arguments about America’s economic security were almost entirely drowned out by the focus on the nation’s military security.

But in the 2004 presidential race, the wind shifted. While Bush staunchly defended free trade, all of the leading contenders for the Democratic presidential nomination expressed far more skepticism toward open markets than Clinton had.

The same drift has continued this year. CAFTA squeezed through the Senate, 54 to 45. That’s seven fewer votes than NAFTA won 12 years ago. In 1993, half of Senate Democrats voted for NAFTA. Less than one-fourth of Senate Democrats supported CAFTA.

In the Senate, Rob Portman, U.S. trade representative, skillfully negotiated for votes from Republicans worried about protecting U.S. sugar growers and Democrats concerned about labor rights in Central America.

Yet the agreement faces a close vote in the House less because of its practical impact than because it has become a symbol of economic globalization.

That’s where the pending vote targeting China’s trading practices fits in. Free trade advocates widely agree that China’s rise has deepened anxiety about competing with any low-wage economy, which hurts CAFTA.

“China just has a shadow on all trade things,” says Bill Miller, the top lobbyist and political strategist at the U.S. Chamber of Commerce.

The calculation is that if House Republicans can please anti-trade interests by first casting a vote to whack China, more GOP lawmakers would risk disappointing those interests by supporting CAFTA.

As legislative strategy, it’s a brilliant idea. And it might work for CAFTA. But it doesn’t change the underlying dynamic. Amid a new wave of global competition, concern about America’s ability to generate good jobs is cresting again -- and returning economic nationalism from the periphery of the Washington debate.