New Democrat's Unaffordable Luxury

If America is to come bounding back, it needs further trade liberalisation. And few parts of the country are more dependent on freer markets than high-technology regions. US computer- and chip-makers need to sell more abroad to grow. So do information technology service providers and their customers, banks and insurance groups.

One of the Bush administration's goals for the World Trade Organisation's Doha round is to get countries that maintain barriers hurting high-tech regions to reduce them. Yet Silicon Valley's Anna Eshoo, the congresswoman representing the region that is the epitome of high technology, has not, at this writing, yet decided whether she will support legislation crucial to the Doha round's success. Ms Eshoo is sitting on the fence about the Trade Promotion Authority, which would grant administration negotiators the power to conclude trade treaties, confining Congress's say to veto power. This is despite the fact that Ms Eshoo is a centrist New Democrat and has been pro-trade.

Nor is Ms Eshoo alone: some other New Democrats, especially those from the high-tech west coast, have not promised to support the legislation. Because the vote, which may come as soon as this week, will be a tight one, their hesitation may well kill TPA.

The obvious and most discussed explanation for the New Democrats' reluctance is partisan politics. New Democrats are still Democrats. The House leadership is Republican. But additional institutional and cultural factors are also at work here.

The first is the power of America's unions, which oppose TPA vehemently. This may not matter because the sort of high-tech regions that these lawmakers represent are not, typically, heavily unionised. They are, on the contrary, often filled with non-union service workers.

Still, unions have outsize influence with even New Democrats. In the recent election cycle, Ms Eshoo, for example, received support from numerous unions, according to Federal Election Committee data. Among the donors have been the Amalgamated Transit Union, the United Mine Workers, the United Auto Workers and the Sheet Metal Workers.

Zoe Lofgren, another Californian New Democrat who has prevaricated on TPA, received cash from the American Federation of State, County and Municipal Employees, the International Brotherhood of Electrical Workers and the United Food and Commercial Workers. Adam Smith, a New Democrat from Washington state, who voted against the House version of TPA over the winter, has received similar union support.

A less visible form of union aid, non-cash help, is also vital to the New Democrats. Whether through posters, "get out the vote" drives or manning telephone banks, the unions routinely provide infrastructure for political campaigns. That infrastructure may disappear with union disapproval.

The second reason New Democrats are acting like trade hawks is a simple one: their constituents are not pushing them to act that way. This sounds paradoxical. Washington state, Mr Smith's home, is the most trade-dependent state in the nation. What is more, the average big New Democrat donor owes his fortune to an environment of free trade. But, born and bred as they have been in an era of economic freedom, citizens on the west coast and in other high-tech locales tend to take open markets for granted. Not so abortion, civil rights, the protection of the environment or social benefits. In the case of TPA, the New Democrats want more cash for displaced workers. These are the issues they insist lawmakers achieve results on.

But what about donors who do recognise the primacy of trade to prosperity? Why do they tolerate a non-trade agenda? Here the coolness factor comes into play. If all the people you know and socialise with are Democrats, you tend to be a Democrat too. Intellectuals, professors - the sort of people techies grew up with, or are married to - are Democrats. There is also the attitude, a product of the 1990s, that all the new wealth is somehow dirty and must be redeemed through collective social projects. This is despite the fact that, over the past 18 months, the simple sustaining of growth has become far more urgent than the building of any utopia.

The net effect of such constituent attitudes is that lawmakers have a number of pressures on them to support protectionism and few to fight tooth and nail for the abstraction of freer trade. There simply is no strong "Coalition for Openness" galvanising Washington.

Nevertheless, if Silicon Valley and other high-tech areas are to continue to grow as they did in the 1990s, they will need freer trade. As the Information Technology Association of America noted recently, the US IT market grew 1 per cent last year, while it grew 10 per cent in India, China, and Brazil. But with TPA, more is at stake than the growth of a sub-sector of high technology. This spring, the US took two damaging protectionist steps on trade. The first was to protect "Big Steel". The second was to protect agriculture. Both these measures will slow recovery. It is certainly the wrong moment for a third protectionist step, which is what the failure of TPA would amount to.

Persistent protectionism, as the historians are recalling this week, is one of the few policies that can practically guarantee that a slowdown becomes something more serious. Seventy-odd years ago, the US Congress helped to ensure the Great Depression by passing the now-infamous Smoot-Hawley Tariff Act.

It would be hyperbole to equate that moment with the current one. Still, blocking TPA is myopic and a dangerous luxury inappropriate to the current era.

© Copyright 2002 Financial Times

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