Global Trade Relations: Why Is the Rhetoric More Radical Than the Reform?

by: Michael Panzner

It seems last November’s U.S. elections were both influenced by and a catalyst for deteriorating global trade relations.

In “US-China Tensions Rise over Subsidies," the Financial Times reports on the latest development, which could have serious unintended consequences at a time of myriad economic and financial imbalances.

The US on Friday launched a major trade dispute with China over alleged subsidies for manufacturing exports in an escalation of economic tensions with Beijing.

Susan Schwab, the US trade representative, said: “Our decision to bring this case to the World Trade Organisation comes after our efforts at dialogue failed.”

The escalation by the Bush administration follows pressure from the new Democratic majority in Congress and for tougher action over a record annual trade deficit with China of $214bn.

The US filing alleges China “uses its basic tax laws and other tools to encourage exports and to discriminate against imports of a variety of American manufactured goods”.

“The subsidies at issue are offered across the spectrum of industry sectors in China - whether in steel, wood products, information technology, or others,” said Ms Schwab.

The action by the Bush administration was viewed as part of a strategy to win Congressional approval for the renewal of the president’s fast-track trade negotiating authority when it expires on June 30….

Daniel Griswold, an analyst at the Cato Institute, a conservative think tank, said the case would “give the US leverage with China to compel it to change its tax laws”.

“I think this strategy does carry the risk that it will create tensions and maybe even harden the Chinese position,” he said.

China isn't the only Asian rival being targeted. In “Japan Is Currency Cheat, Claims US,” the Guardian reports:

Japan has become the latest scapegoat for protectionist rhetoric in Washington, as Congress urges Treasury Secretary Hank Paulson to use this week's meeting of G7 finance ministers to accuse Tokyo of fixing the exchange rate of the yen.

With the Democrats keen to make their mark on Capitol Hill after their victory in November's elections, Michigan Congressman John Dingell sent the President a letter last week - publicised on his website under the title, 'Dingell to Bush: You Just Don't Get It' - urging the White House to prosecute Japan for currency manipulation.

The yen has sunk to four-year lows against the dollar, and the 'big three' US carmakers, Ford, GM and Chrysler, have argued that Tokyo is 'manipulating' the currency markets by talking down the yen, making imported Japanese cars unfairly cheap.

Dan Ikenson of the Cato Institute in Washington said the car firms, and the new Democratic Congress, were looking for someone to blame for the poor fortunes of US manufacturing. 'To them, exports are good, imports are bad. Why are we losing at trade? It must be because our competitors are cheating.'

It’s not just the Americans, however, who are feeling hard done by. Across the Atlantic, the anti-trade rhetoric is also growing more heated, if a report in the International Herald Tribune, “EU Calls for Overhaul of Defense Industry, Blasts U.S. ‘protectionism’," is anything to go by.

Senior European Union officials on Thursday warned that the continent's defense market needs a radical overhaul to survive.

The bloc's industrial policy chief also blasted the United States for "protectionism" that shuts out EU military exports.

"The protectionist spirit in the United States is much more strong than in Europe," said European Industry Commissioner Guenter Verheugen.

Speaking to reporters at a defense industry conference, he expressed concern that the new Democrat-led Congress would be less likely to open up U.S. markets to European competition.

"Especially in Congress, it is obvious that as a result of the American electoral system you find such a position that American jobs must be protected, even if it is economically not very sound," said Verheugen, who also serves as vice president of the EU Commission.

That follows complaints raised in late January, after the U.S. moved to block Americans’ access to internet gambling sites, many of which are operated by companies based in Europe.

US legislation on online betting was described as "protectionist" by the European Union's top financial regulator on Tuesday and may trigger legal action before the World Trade Organisation.

The legislation makes it illegal for banks and credit card companies to process online bets placed by American citizens with foreign gambling sites.

Charlie McCreevy, the EU internal market commissioner, said: "In my view it is probably a restrictive practice and we might take it up in another forum." He added that the case could go to the WTO, and also suggested he would pursue the matter with his American counterparts on a visit to the US in March.

As always, agricultural policies remain a serious bone of contention. Indeed, despite efforts to breathe fresh life into the multilateral global trade talks that fell apart last summer, there are signs that the degree of mistrust may have moved past the point of no return, as a report in Australian, “US Bill Reneges on Trade Promise,” seems to indicate.

AMERICAN taxpayers will subsidise their farmers to the tune of $US87.3 billion ($112.8 billion) over the next five years, under a new farm protection plan unveiled in Washington and immediately slammed in Canberra as reneging on promises made just days before to kick-start free trade talks.

The so-called Farm Bill, redrafted roughly every five years, is laden with support for American farmers and reflects the weakened position of President George W. Bush, who is facing a hostile Democrat-controlled Congress.

While the subsidy levels are down from the $US105 billion paid to farmers in the past five years, trade analysts said it would do little to satisfy critics of the subsidies - including Australia - and was not the kind of radical reform program that might have given fresh impetus to the Doha round of global free trade talks on track.

Rather than reform, it seems the only thing getting more radical is the rhetoric.