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Brash, hard-nosed, quick-tempered. When Los Angeles lawyer Mickey Kantor became U.S. trade representative in 1993, those adjectives fit him like a well-tailored suit. They were a sign that things would be different in the antebellum building that houses the trade representative's small staff. Bill Clinton had made trade a major issue in his 1992 presidential campaign, and the belief that other countries were getting the best of the United States ran deep in the new administration. Kantor, who had been Clinton's national campaign chair, was given the highly sensitive job of making sure America got a fair shake in world trade.
By most measures Kantor's tenure has been a resounding success. The Clinton administration has not produced a similar record of achievement in any other field, foreign or domestic. On Kantor's watch two major accords to reduce tariffs and trade barriers have come to fruition, the North American Free Trade Agreement (NAFTA) and the 112-nation pact creating the World Trade Organization (WTO). The Clinton-inspired Summit of the Americas in 1994 set a course for a future free trade pact covering the entire western hemisphere, and the administration helped persuade the Asia-Pacific Economic Cooperation forum to adopt free trade as its goal for the coming decade. In tense negotiations on a host of difficult bilateral issues, Kantor's confrontational tactics have wrung concessions from trading partners and earned Clinton political points at home.
Yet for all Kantor's peripatetic diplomacy, his reign as trade representative cannot be judged favorably on the most important criterion. Protectionist sentiment, normally a sign of bad times, is flourishing among the American people despite a growing economy and a low unemployment rate. Not since the Great Depression, when Congress passed the Smoot-Hawley Tariff Act of 1930, not even during the mid-1980s, when trade deficits ballooned, has opposition to an open international economy been so prevalent. The long-standing pro-trade coalition on Capitol Hill has all but dissolved, and important elements in both parties now dismiss trade liberalization as a major goal of U.S. foreign policy. Last year a minor bill authorizing the administration to negotiate a free trade agreement with Chile under fast-track authority--which requires Congress to vote an agreement up or down within 90 days of submission--foundered on the rocks of isolationism, even though Chile enjoys unique popularity among both liberals and conservatives. The protectionist backlash is not of Kantor's making. But rather than douse its flames, he and Clinton have helped fan them, largely by misunderstanding what trade policy can accomplish.
THE NEOMERCANTILIST MYTH
Mickey Kantor was no trade expert when he took office. A long-time friend of First Lady Hillary Rodham Clinton, Kantor had made his mark as an entertainment lawyer and Democratic Party fundraiser. His inexperience with the subject was not an inherent handicap. Many previous trade representatives, including Carter administration negotiator Robert S. Strauss and Bush appointee Carla A. Hills, had been chosen for their political contacts and deal-making skill rather than their knowledge of trade law. But as veteran Washington insiders, they understood that they were stepping into a well-established process of striking trade agreements, smoothing trade frictions, and defusing domestic complaints about foreign competition. Kantor, however, fancied himself a revolutionary. In his view, the way things had worked in the past was irrelevant because the process had proved itself inadequate.
The incoming Clinton administration accepted as dogma that U.S. trade policy had failed. "We're weak in the world," Clinton claimed when a 1992 campaign debate with George Bush and H. Ross Perot turned to the global economy. The proof lay in persistent U.S. trade deficits, particularly with Japan. The purported threat that subsidized and protected foreign competitors posed to American aircraft and electronics companies was another piece of evidence. Trade policy, Clinton asserted, could help U.S. industry become more competitive, providing more high-paying jobs for American workers. Although he understood that trade could generate economic growth and hence pledged to support NAFTA and the General Agreement on Tariffs and Trade (the WTO's predecessor), Clinton had promised in his election manifesto, Putting People First, to "stand up for American workers by standing up to countries that don't play by the rules of free and fair trade." Much of the intellectual support for this two-track approach came from the work of economist Laura D'Andrea Tyson, whose book, Who's Bashing Whom?, published just before the election, argued that the United States was being victimized by other countries' subsidies and trade barriers and needed to fight back. Tyson became Clinton's chairman of the Council of Economic Advisers and a major player in trade debates.
Kantor enthusiastically embraced Tyson's views. Trade policy under Carla Hills had been "passive," he charged. The United States had been a patsy at the bargaining table, signing anything that seemed like liberalization while gaining little in return. The Clinton administration would pursue a dramatically different policy, one focused on achieving not freer trade but "comparably open markets" in other countries. Openness would be judged not by the text of a formal agreement but by the success of U.S. companies in penetrating the foreign market. In Kantorese, negotiations would be "results-oriented," and the results would have to be "measurable."
Those precepts are dubious. Differences in countries' laws and practices mean that no two markets can ever be comparably open. Even if the United States has an overall trade surplus with a country, exporters of particular products are likely to assert that the other country's regulations and market structure prevent free competition and that the U.S. market is more open. Moreover, the premise underlying the Kantor approach is just a modern formulation of the eighteenth-century mercantilist fallacy that foreign trade has value only insofar as it leads to exports. That misconception gets the trade story backward: imports improve domestic living standards and force U.S. firms to become more productive, while exports represent the American labor, capital, and natural resources devoted to products Americans will not be able to enjoy.
The Clinton administration, transfixed by the idea of a globalizing economy, has dramatically overemphasized the importance of trade to the country's short-term economic health. Kantor has maintained an extraordinarily high profile, and other cabinet members have spent U.S. diplomatic capital promoting American-made power plants and telephone systems abroad. At times the bilateral trade balance seems to have become Washington's most important measure of its relationships with other countries. The fact that trade has relatively little short-term impact on employment and wages has gotten short shrift. That the trade representative's wheeling and dealing is marginal to America's $1.2 trillion annual trade flow has been ignored. An open global economy is vital to the country's future prosperity, but that does not mean the U.S. trade representative can deliver good jobs at good wages.
EMPTY WORDS, WEAK WILLS
Kantor has carried out his mandate with an intensity that has confused friends and foes alike. Stepped-up U.S. rhetoric was a deliberate policy decision, designed to convince trading partners and American voters that the new administration was serious about bringing down trade barriers. Protracted disputes, such as the decade-old impasse over European subsidies for Airbus jetliners, suddenly escalated when Kantor issued deadlines and threats of sanctions. In March 1993 Kantor abruptly suspended two-year-old negotiations over European Community rules on procurement by state-owned telephone companies, threatening retaliation. Last year he walked away from the first multilateral pact on trade in financial services, an agreement which the United States had originally pushed hard for. Kantor's methods have left many foreign diplomats convinced he is more interested in scoring points with voters than solving problems. Asked in 1994 about his relationship with Kantor, Canadian International Trade Minister Roy MacLaren tersely replied, "What's your next question?"
In principle, there is nothing wrong with taking a hard line in bargaining. Although the practice horrifies free trade purists, the judicious use of threats and sanctions can help break a deadlock. Empty noise, on the other hand, is a poor negotiating tool. Kantor's reluctance to follow through on his threats quickly stripped them of all value. The European Community ignored his warnings, and Kantor abandoned his attacks on its Airbus policies. South Korea, also a target in 1993 because of alleged impediments to foreign agricultural products, correctly calculated that the United States would not risk destabilizing a key ally in a volatile corner of the world for the sake of selling more chickens.
Nowhere has Kantor's big talk proved more disastrous than in Mexico. NAFTA, which eliminated many tariffs and barriers between Canada, Mexico, and the United States, was initialed during the closing days of the Bush administration. Clinton straddled the fence, supporting the concept but arguing for new provisions that would force Mexico to strengthen its environmental and labor regulations. The details fell to Kantor. In his zeal to meet Clinton's political needs, he forgot that the underlying purpose of NAFTA was not to promote trade but to cement Mexico's economic reforms. Kantor did not articulate clear goals--a risky approach given that there was no precedent for incorporating environmental and labor concerns into a trade pact. As the negotiations became difficult, he repeatedly made tough-sounding statements, oblivious to the fact that the mere hint that the United States might walk away was enough to shake the Mexican government and undermine the very economic confidence that NAFTA was intended to buttress. Kantor's on-again, off-again approach helped weaken Mexican President Carlos Salinas de Gortari during 1993 and fray U.S. domestic support for the agreement, turning congressional ratification from a sure thing into an unnecessarily close call.
Another big test for Kantor's bargaining techniques has been China, whose high trade barriers and large surplus with the United States have become a growing concern in Washington. Kantor has stood in the way of China's accession to the WTO, setting as a condition a sweeping commitment to open the Chinese economy to imports. His office also crafted a novel pact, signed last year, which obligates the Chinese to crack down on patent and copyright violators. But with China, too, his policies have failed. China has not won admission to the WTO, but it also has not made life easier for American exporters. And many U.S. companies still complain about Chinese theft of designs, computer software, and other forms of intellectual property. Despite the 1995 agreement's detailed enforcement provisions, an estimated 256 mil-lion pirated compact disks were sold in China last year, and the owners of the factories that produce them are so well entrenched that they forced a music industry antipiracy group to temporarily close its Guangdong office in December.
Kantor seemed to have learned his lesson last spring when, after talks on Japan's barriers to imported cars and auto parts had collapsed, he finally went beyond threats and slapped punitive 100 percent tariffs on Japanese luxury cars. Kantor defined the negotiations that followed as the acid test of his strategy. It was found wanting. In the glare of intense media coverage in Geneva, Kantor issued resolute demands. A "results-oriented" agreement with "measurable" results was his price for canceling the tariffs. The chief Japanese negotiator, Minister of International Trade and Industry Ryutaro Hashimoto, simply said no. Japanese public opinion was firmly behind him, for Kantor's insistence that Japan set market-share targets for American products allowed the Japanese to portray themselves as the injured free traders. Faced with an intransigent bargaining partner, Kantor retreated. In the end, Japan's only express commitment was to alter its rules for automobile inspections. When Kantor claimed that Hashimoto had pledged to increase the market share of American-made cars and parts by a specified amount, the Japanese brusquely repudiated his assertion. In practical terms the details mattered little, since the combination of a strong yen and the construction of more Japanese-owned car plants in the United States was already winning imports a larger slice of Japan's market. But the diplomatic consequences were significant. The world learned that standing up to Washington on trade can be both a good bargaining strategy and good for the bargainer: Hashimoto's skill at repelling Kantor's attacks bolstered his reputation, helping to make him prime minister in January.
Kantor's style and strategies have not effected a major change in international trade.ffi Despite angry words and ruffled feathers, the large trends have continued on course. Trade barriers are still diminishing. Bilateral and regional trade agreements have not supplanted the WTO. An endless array of new issues--research subsidies and differences in national antitrust rules, to name two--has kept trade friction ever present even as the familiar problems of quotas and tariffs fade away. Most important, international trade is continuing to expand rapidly. Contrary to the carping of Kantor's critics, his aggressiveness has not come close to plunging the world into a trade war. Contrary to the claims of his friends, his tactics have not revolutionized world trade negotiations.
Kantor has, however, changed the way in which the United States deals with trade. Since the 1930s, when the Roosevelt administration began to undo the damage caused by the Smoot-Hawley Act's high tariffs, Congress has relied on the White House to defend the national interest in freer trade. The system involves elementary role-playing. Legislators can respond sympathetically to the demands of their business or labor constituents for shelter from imports, confident that the president and his trade officials will keep most of their promises from taking effect. The trade representative can, in turn, use congressional outrage to win concessions from trading partners with a simple good cop--bad cop routine: deal with me, or those irresponsible fools in Congress might pass a law that will make you wish you had. Congressional attacks on the trade representative's weak-kneed diplomacy and administration assaults on Congress for pandering to protectionists are all part of the show.
Kantor and Clinton have played the game differently. Rather than stand against those suspicious of free trade, they have been inclined to join them. The administration's legislative efforts, such as the drive to ensure the ratification of NAFTA and last year's attempt to win fast-track authority for free trade negotiations with Chile, have begun by trying to propitiate critics, not rally supporters. Until only six weeks before the vote on NAFTA, the pact's staunchest congressional backers wondered whether the president was truly committed to the cause. Past presidents could count on the old trade hands in Congress to control key committees, push bills through, and keep their colleagues' protectionist instincts in check. But those old warriors of both parties, like Democratic Representative Dan Rostenkowski of Illinois and Republican Senator John C. Danforth of Missouri, have largely departed. Their replacements have less perspective on and less interest in anything international.
The prospects for the president's proposals, such as an expanded free trade area throughout the western hemisphere, are dim unless Kantor and Clinton offer more consistent leadership and a much firmer message about the importance of an open economy. The administration, unfortunately, often seems not to believe in that message itself. Kantor's initiative in January to establish a new enforcement office within his agency moved it even further toward being a cop on the trade beat rather than a proponent of trade.
The greatest threat to an open international economy at the end of the twentieth century is not Japan or the European Union. It is public opinion. Voters in many countries are now looking inward, more concerned with conserving what they have than with building the world economy of tomorrow. In the United States, the distrust of things foreign--be they trade, immigration, or investment--is apparent in opinion polls and on the presidential campaign trail. Regrettably, Kantor and Clinton have fostered that trend with their rhetoric. By pledging to pursue a trade policy that would bring good jobs at good wages, the administration promised far more than it was capable of delivering and left voters all the more disenchanted with free trade when it delivered neither. By repeatedly engaging in on-camera brinkmanship over disputes large and small, the Clinton team has strengthened the misimpression that the United States alone favors open markets and that other countries are simply exploiting American naiveté. And by suggesting again and again that other countries' promises cannot be trusted but that the United States always keeps its word, it has reinforced latent public suspicion of trade. If he is to succeed in expanding trade, the U.S. trade representative must focus not on wielding the crowbar abroad but on his most important job: shaping public opinion at home.