Trade as a Weapon of War
February 24, 2003
by Irwin Stelzer
U.S. Trade Representative Bob Zoellick may have persuaded China to support America’s campaign to cut worldwide tariffs on agricultural products while in Beijing last week, but events at home are conspiring to make the administration reconsider its deeply held commitment to freer trade. For one thing, a new report that the U.S. trade deficit reached a record $435.2 billion last year rattled even the strongest congressional proponents of new rounds of trade-opening talks. For another, a report by the nation’s leading executives that few planned any new hires this year focused attention on the weak job market. It doesn’t take much for voters to relate the trade deficit to conditions in the job market. As Columbia University professor Jagdish Bhagwati points our in his new book, Free Trade Today, “Most people … seem to attach an infinite weight to jobs that they lose to trade and zero weight to jobs that are created….”
Most important, there is talk in the Defense Department of integrating policy on trade with national security policies. One official at the very highest level asked me, “Why shouldn’t we use trade policy to reward our friends and hurt those who don’t support us?” His idea: to transfer China’s textile quota to Turkey.
Use of access to American markets as a new weapon is nothing new. Boycotts and trade sanctions have often been are being used to retaliate against our enemies. The question now being debated in Washington is whether it is worth the undeniable cost of deviating further from President Bush’s free trade agenda to let our friends know we appreciate them, and our opponents know that tweaking Uncle Sam’s nose is not a costless bit of strutting on the international stage.
Some congressmen are calling for consumer boycotts of French and German products. They feel that Jacques Chirac’s farmer-constituents will not enjoy seeing French wine sales plummet as wines from America’s allies—Australian shirazes, Spanish riojas, Portuguese ports—replace them on the nation’s dining tables. And they might just ask their president to tone down his anti-American rhetoric if they see French cheeses replaced in supermarket coolers by Danish Blue Castello and Havarti, and British Montgomery Cheddar, Stinking Bishop, and Lancashire Kirkhams.
Don’t underestimate the power of consumer boycotts. When I recently gave a speech to the German-British Chamber of Industry and Commerce in Birmigham, a representative of Germany’s auto manufacturers worriedly inquired about the effect on sales of Gerhard Schroeder’s attacks on America. He has reason to worry. Remember: sponsors of television programs here are often pressured by the threat of boycotts into dropping support for programs that consumers find objectionable.
But such boycotts might peter out after the war with Iraq is concluded. Which is why what are called “non-tariff barriers to trade” are being considered. This is an art form most recently used by the French and Germans to keep genetically modified foods out of the EU, even though their own scientists found these foods perfectly safe, and EU trade representatives privately admit that they could not sustain the ban if the U.S. challenged it at the World Trade Organization.
So some congressmen are suggesting similar measures, such as requiring more detailed labeling of Evian and other French waters that we consume by the millions of gallons. Picture large red letters on an Evian bottle, honestly revealing, “This water contains magnesium, silica, and sulfates.” Scary stuff to most consumers.
Then there are all those German cars. There is a lesson to be learned from the French, who once required that electronic products coming into the country pass through a single port of entry, manned by a single inspector, who quite understandably fell far behind in the paper work required of importers. Or from the Japanese, who at one time required that each vehicle imported into the country be given a safety test—blanket approval of each brand not allowed.
Such a program might well succeed in getting the business communities of Germany and France, both of which countries run a trade surplus with the U.S., to ask their governments to reconsider the most blatant aspects of their anti-American foreign policies. Germany is in recession, its official unemployment rate at 11 percent and rising, and no prospect of a recovery of domestic demand. Selective measures making it more difficult for German products to penetrate U.S. markets would be a blow to Germany’s hopes for an export-led recovery, and show that Bush-bashing not a costless exercise.
But there is more to a national-defense-oriented trade policy than putting a bit of stick about. There are also carrots to be offered. Mexico, a member of the Security Council, might be promised some form of legalization for the millions of so-called “undocumented” immigrants that cross into America looking for work, and send billions in remittances back across the border. Chile might receive prompt congressional approval of the free trade agreement it has negotiated with the U.S. Trade Representative, and a similar agreement reached with Australia, which has already committed troops to the Gulf. Poland can be assured that if NATO hesitates to come to its aid if assistance is needed, we stand ready to fill the gap. And Americans are prepared to give Great Britain just about anything within their gift by way of thanking Tony Blair for risking his political future by sticking to his moral principles. Finally, any EU applicant that is vetoed by a petulant Chirac for supporting the U.S. should immediately be granted a free trade agreement with us.
The use of trade as a weapon is not costless, and Adam Smith might spin in his grave were he still among us and a reader of this column. But the cost of keeping hundreds of thousands of service men and women sitting in the desert waiting for France to end its UN stall costs a lot more than doing without champagne and Chablis.
This article appeared in London’s Sunday Times on February 23, 2003, and is reprinted with permission.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.