By George Felcyn, Senior Account Management, PBN•DC

Often used as a political football in the U.S., international trade is being hotly debated once again as part of the Bush-Kerry presidential campaign and in Congressional election contests throughout the country.

Trade is always a politically sensitive issue, especially during presidential election years. This year, with the U.S. emerging from a period of economic recession and a new issue — "outsourcing" — entering the political lexicon, both Democrats and Republicans are working to define the debate over trade issues.

Bush Administration & Steel Tariffs

Early in his administration, President Bush, after taking a strong free-trade stance during the 2000 campaign, imposed tariffs on steel imports in what many analysts believe was an attempt to curry political favor with several important electoral "swing" states with large numbers of steel retirees. The move backfired, because for the first time, U.S. steel consuming industries, which employ far more U.S. workers than U.S. steel producers, organized as a political force. Led by The PBN Company's client, the Consuming Industries Trade Action Coalition (CITAC), consuming industries raised an enormous outcry, forcing the President to terminate the steel tariffs early.

The Bush Administration has since tried to burnish its free-trade credibility by negotiating bilateral trade agreements with Singapore, Chile, Australia and, most recently, Morocco. However, protectionism — in the form of the abuse of anti-dumping laws — is still alive and well as evidenced by the Bush Administration's decision to impose preliminary dumping duties on imported shrimp from China and Vietnam, as well as smaller, though not negligible, preliminary duties on imported Chinese wooden bedroom furniture. Final decisions on both cases will come after the election.

The Democratic Ticket: Free Trader & Protectionist

John Edwards, who is now the Democratic Party's vice presidential candidate, set the tone early for Democrats in the 2004 Democratic presidential primary campaign as he sought to use trade issues to highlight his differences with Senator John Kerry. Edwards scored political points with his well-received calls for protectionism and the "enforcement of labor and environmental provisions" in trade agreements, rhetoric which some view as a first step toward scaling back United States' commitment to trade deals. Edwards, the son of a North Carolina textile mill worker who lost his job, went so far as to state that he would have voted against the North Atlantic Free Trade Agreement (NAFTA) had he been a Senator in the early 1990s. Senator Kerry, a strong supporter of NAFTA, has sought to walk a fine line between defending free trade but also calling for the "strong enforcement" of U.S. trade laws and trade agreements.

Kerry's track record is one of a "free-trade Democrat" in the tradition of Bill Clinton while Edwards' record is much more protectionist. Kerry voted for trade promotion authority and the African Growth and Opportunity Act. Edwards voted against both. Kerry voted against steel quotas in 1999. Edwards voted in favor. With Edwards joining the Presidential ticket, politic pundits are debating how free trade would fare in a Kerry presidential administration.

Trade and "outsourcing" are separate issues that are being brought together — mostly by the Democrats — during this election year. "Outsourcing" is the offshoring of work by private firms in the US to lower-cost countries. The perceived outsourcing of high tech jobs to India and other countries created a media frenzy over the past year because many believe the U.S. tech sector was thought to be immune to global competition. Offshoring, Kerry said earlier in the campaign, is the product of "Benedict Arnold CEOs." Despite the fact that, as reported by the Cato Institute, the rest of the world also outsources their services to the U.S. and that American companies sell three times more IT services to the rest of the world-more than $10 billion worth-than they buy, the issue of outsourcing will continue to be loudly debated in the coming months.

High Tariffs = Higher Inflation

Overshadowing the political gamesmanship are genuine concerns over the prospect of rising inflation in the U.S., which could threaten the still halting economic recovery. Protectionist trade barriers on imports — whether steel, shrimp, furniture, or other current disputes involving hosiery and TV sets from China — only add to inflationary pressures by imposing artificial costs on consumer goods.

Throughout the past several years, U.S. consumer spending has been an invaluable component of overall economic stability. But if protectionist policy decisions force consumers to pay artificially high prices for goods while inflationary pressures that traditionally discourage consumer spending continue to grow, both the political and economic fallout could be severe.

Consumers, however, are not sitting still. The threat of protectionist trade barriers to the average American's wallet and to the U.S. consuming industries that serve them has led to concerted efforts on the part of these groups to organize in order to "level the playing field." In this case, to "level the playing field" means to force U.S. policymakers to consider the needs of consumers and U.S. companies who must pay new federal taxes — in the form of tariffs and duties — every time the government seeks to spare old-line industries from global competition by imposing trade restrictions.