Trade Rule: No Bashing Allowed

President Bush has been given some wise counsel by the chairman of his Council of Economic Advisers: Don’t bash trading partners.

Michael J. Boskin was saying openly what most of the Cabinet has been saying privately as the United States faces enormously difficult choices implementing the new omnibus trade law that makes retaliation easier to use as an instrument of trade relations. Under terms of the law, U.S. Trade Representative Carla Hills even now is sorting out a list of nations to be accused of unfair trading practices subject to action by the U.S. government.

On one case there is not much debate in the United States. That is the charge that Japan has unfairly limited American telecommunications imports. Like the computer-chip case two years ago, the United States almost certainly will impose retaliatory tariffs on particular Japanese products to extract a penalty equivalent to the losses suffered by American telecommunications makers through exclusion from the Japanese market.

The precise response given in the telecommunications case is appropriate. But the new trade law also encourages ambiguous and generalized responses which could simply camouflage a reaction to nations that are more competitive. The United States itself has in force many unfair protectionist trade policies, some of them directly impacting nations whose trade is freer. The solution to those inequities lies not in bashing but in the new General Agreement on Tariffs and Trade now being negotiated in Geneva. The alternative is a breakdown of order and a round of trade wars.

“We are starting to see an immense amount of bashing of our trading partners,” Boskin told a recent meeting of the U.S. Chamber of Commerce. “A lot of actions are coming up that have to be handled with aplomb,” he later told the New York Times. “If it got out of hand, it could cause a trade war and a world recession.”

The new trade law requires the listing of those nations suspected of unfair trading. But it gives broad discretion, and it provides for up to 18 months of negotiations to resolve disputes. The President makes the final decision on how to respond to persistent unfair practices. He must, at that point, resist the pressures for protectionism while insisting on fairness in world markets.