Whose side are you on, Democrat legislators?

The party, historically the champion of free trade, may yet come to regret its union-led move towards protectionism, says Amity Shlaes.

The striking thing about Capitol Hill's battle over legislation to promote freer trade is not that it is taking place but that the Democrats are playing the role of protectionists and the Republicans that of free marketeers. In last week's House vote, President George W. Bush came within two votes of failing to win new freedom to write trade treaties in the form of so-called Trade Promotion Authority. All but 21 Democrats opposed the legislation, which would confine Congress's say in the treaty writing to veto power. The legislation is likely to pass the Senate - but with more resistance from Democrats than liberalisation has faced at other points.

This constitutes a flamboyant reversal for the Democratic party. Through much of America's history, the Democrats were the free traders and the Republicans were the nasty tariff men. And while the switch could pay off in the short term, it may not prove so wise in the end. For, as recent Republican experience has shown, attempting to block freer trade can backfire badly.

To understand the scale of the heritage the Democrats are abandoning, it helps to recall some history. As far back as 1888, Democratic president Grover Cleveland made tariff reduction the centrepiece of his campaign. He lost to Benjamin Harrison after Republicans accused him of the great sin of attempting to "fasten upon this country the British policy of free foreign trade". Forty-five years later, Franklin D. Roosevelt beat Herbert Hoover after Hoover had signed into law the now infamous Smoot-Hawley Tariff Act.

In the 1960s, John F. Kennedy saw expanding international trade as crucial to cold war victory. Speaking of the European Common Market, he said: "To share in that market we must strike a bargain - we must have something to give the Europeans - we must be willing to give them access to our markets." The political encyclopaedist Michael Barone, who has made a study of the Democratic switch, notes that one of Kennedy's opponents was Prescott Bush, grandfather of the current president.

The Democratic commitment to trade was so strong that it trumped partisan concerns. In the 1970s and 1980s, a Democratic congress repeatedly opted to tie its own hands by backing Republican presidents in giving them fast track, the precursor to TPA.

President Bill Clinton likewise muted the objections of his own union supporters when he pushed through the North American Free Trade Agreement. The results were positive for nearly everyone, including many Democrats and union workers. As Robert Zoellick, the current US Trade Representative, has talked himself hoarse pointing out, the Clinton trade work generated gains of $1,300-$2,000 a year for the average household.

So what moved the Democrats to jettison their legacy?

Organised labour is the first answer. America's AFL-CIO is fast moving leftward on trade - taking the Democratic party with it. For while ignoring labour's wishes used to be possible for the Democrats, it is not any more. Unions have become too big a source of Democratic campaign funds (the biggest, if you include in kind donations such as organised telephone drives). John Sweeney, AFL-CIO president, worked hard for the Democrats in 2000. The nays on TPA are his reward.

Of course, the Democrats have long been affiliated with unions. But today, notes scholar Leo Troy of Rutgers University, the Democrats have turned into something akin to the UK Labour party of 1970s. Tellingly, trade legislation produced by Democrats in the House as an alternate to TPA included a bid to strengthen union power across the globe by requiring that the US back the right of workers in other countries to collective bargaining. Nice try, fellows.

The second force behind the Democratic switch is what might be called the Nike attitude - a growing desire to put social goals above "mere economics". Younger Democrats, especially those representing wealthy constituencies, are susceptible to the Nike attitude. In the case of the TPA debate, they are saying new trade freedoms cannot be granted without higher pay scales for workers worldwide.

The attitude has some sentimental appeal but wilfully ignores the genuine and social benefits that accrue from trade-generated growth, both abroad and at home. Senator Maria Cantwell of Washington state, for example, opposes TPA for Mr Bush, even though she herself made an internet fortune by participating in international trade and even though Microsoft, her constituent, supports TPA.

The third thing motivating the Democrats on trade is simple partisan politics. With their trade vote, the Democrats in the House badly wanted to hand Mr Bush his first big legislative defeat. What is more, they reason that if, in a time of recession, they can depict Mr Bush as sacrificing the working man in all his vulnerability, they will move on to big election victories.

Such calculations have proved risky. In the 1990s, many Republicans opposed Nafta and fast track not so much because they believed in protectionism as because they thought their opposition would unman Mr Clinton. When the economy expanded after Nafta's passage, it was the Republicans' own image that was badly undermined - especially their precious reputation as economic rainmakers.

This is a story without angels. Politicians are trade hypocrites a thousand times over, as the Bush administration demonstrated again just now by its unnecessarily vigorous defence of Big Steel. Still, going protectionist in these days of diversified, flexible economies means ceding the centre. Come recovery, the Democrats who opposed TPA will have a hard time proving that they did not make a bad trade.

© Copyright 2001 Financial Times

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To book Amity Shlaes for a speaking engagement, contact Jamie Brickhouse at the Red Brick Agency, 646.281.9041.
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