President Bush, Trade Policy, and Recession

A great deal of stock has been put on progress toward a new round occurring after the US Presidential election. However, the jury on Mr. Bush is still out. US Trade Representative Charlene Barshefsky indicated during the November APEC Leaders meeting in Brunei Darussalam, that regardless of the political preferences of the incoming administration no new round would proceed in the absence of labour and environmental standards somewhere in the negotiation agenda. Considering the difficulty faced by the thin Republican majority in the US House of Representatives, she assessed an amendment to existing policy as remote.

President-Elect George W. Bush may well have other views on the matter. He could resist pressures to incorporate labour, gender, environment, and development perspectives into US foreign trade policy. In addition, the US desire for a narrow round remains firmly entrenched, reflecting US corporate interests than are more interested in prying open foreign markets than they are in 'harnessing globalisation'. In effect, the business community - if mobilised - may be sufficient to overcome resistance on the left.

Mr. Bush spoke infrequently on trade policy during the primaries and in the election campaign, but when he did, he spoke of the need for the President to have fast track negotiating authority.

With a 50-50 party split in the Senate and a slim edge in the House, Mr. Bush faces profound political division. This is fertile ground for widespread policy gridlock. The economic and social policy goals of the new administration will almost surely exceed its ability to implement them.

In a climate of unprecedented political acrimony, there is little chance of finding the common ground of bipartisan support that is typically needed to legislate major policy initiatives. Even with a slight margin in the US Congress, President Bush ultimately may have to accommodate Democratic sensibilities if he is to secure fast track trade negotiation authority, a feat that eluded President Clinton.

In addition, a potential economic decline in the US economy could mean that the Bush Administration will meet its first test almost immediately after taking office on 20 January, 2001. It seems likely that President Bush and his advisers will have to make the economy their number one priority for 2001-2002. This issue has both domestic and foreign components.

The economic data suggest US market conditions are worsening. The potential for a full-scale recession appears to be mounting.

In the fall of 2000, US consumer credit card debt eased, new durable goods orders fell, and consumer confidence in the economy declined to levels not seen in more than a year. The early December plunge in the University of Michigan consumer confidence index confirmed other signs of trouble. Auto sales, for example, weakened in November to 16.6 million units on an annualised basis, the lowest level since early 1999.

In addition, revised U.S. Gross Domestic Product growth for the third quarter of fiscal 2000 showed the U.S. economy advancing at a 2.4% annualised rate, down from 2.7% originally reported. Notably, the third quarter's rate of GDP growth was the smallest since the third quarter of 1996, when U.S. economic activity advanced at an annualised rate of 2%. The final reading of third quarter U.S. GDP growth will be released on 21 December.

According to the National Association of Purchasing Managers, U.S. manufacturing activity continued to contract in November, with the organisation's index declining to 47.7 last month from 48.3 in October. November's reading was the lowest since November 1998 and, more importantly, the fourth consecutive monthly decline.

There is an important foreign component to the economic puzzle: the U.S. trade deficit suffered another setback in September. US trade deficits with Canada, China and Mexico, all set new records. According to the US Commerce Department, the trade balances show a US$34.3 billion gap in September, up from a $29.8 billion deficit in August. The trend of steadily widening trade deficits continued through September, led by a 3.1% surge in imports to a record $126.6 billion and weaker than expected exports, which fell 0.7% to $92.4 billion.

Foreign demand for U.S. made cars and car parts, food and other consumer goods is weakening. Through September, the US trade deficit reached $270.2 billion, surpassing the all time full-year record of $265 billion set in 1999. The trade deficit declined slightly in October, but was still the second-highest level on record as imbalances with China and Japan hit all-time highs.

The Otober trade deficit narrowed marginally to $33.18 billion. Through the first 10 months of the year, the trade deficit totaled $302.5 billion, for an annual rate of $363 billion, almost $100 billion higher than the 1999 deficit.

In the context of heightened recession risk, it seems clear that President Bush must cope both with political and economic uncertainty. His administration could come under early and considerable pressure to protect domestic markets, defend vulnerable industries, and aggressively eliminate foreign barriers to US exports. Few politicians allow principles - even free trade principles - to overrule domestic expediency. Accordingly, US trading partners ought not expect an easy ride, or any early compromises from the new Washington.