A Small and Dangerous Spat
President Obama has been warning that tit-for-tat protectionism could drive the world into an even worse economic slump than it is already in. He is right. Unfortunately, Congress doesn’t seem to be listening.
The $410 billion spending bill that Mr. Obama signed into law last week cuts off financing for a pilot program that allows Mexican trucks to deliver goods across the United States. The move clearly violates the North American Free Trade Agreement, which promised — starting in 2000 — to open cargo transport throughout the United States, Mexico and Canada to carriers from all three countries. This week, Mexico retaliated, leveling tariffs against $2.4 billion worth of American imports.
Both the United States and Mexico must be careful. A full-fledged fight could threaten more than $350 billion in annual commerce between the two countries. That is clearly in nobody’s interest.
An arbitration panel ruled in 2001 that the United States was in breach of its Nafta obligations on Mexican trucks. But thanks to the Teamsters union and its allies in Congress, all but a small number of Mexican carriers are restricted to operating within a 25-mile band from the border.
The truck drivers’ argument that Mexican trucks are unsafe is spurious — a flimsy cover for protectionism. Data from the Department of Transportation show that Mexican trucks and drivers operating in the United States — along the border and in the pilot program — have a better inspection record, with fewer violations, than their American counterparts.
President Obama has so far shown a worrying ambivalence about trade. He has called for renegotiating Nafta, creating anxiety in both Ottawa and Mexico City — claiming that this can somehow be done without harming trade. While he managed to persuade Congressional Democrats to water down a “Buy American” provision in the fiscal stimulus package, he did not get them to pull it altogether.
We understand the White House did not want to threaten the passage of the spending bill by raising a ruckus over Mexican trucking, a comparatively minor issue. But it is time for Mr. Obama to put some political muscle behind his declared support for open trade.
He can start by persuading Congress to revive the truck pilot program or start a new one. And he must make clear that — sometime soon — all properly inspected Mexican trucks must be able to work throughout the country, as Nafta requires. That would not only solve this trade spat, but it would provide the world with needed reassurance that the United States will stand by its trade agreements in these difficult times.
Editorial The New York Times
Regarding Barack Obama and NAFTA, conventional wisdom holds that the president talks like a protectionist when he’s around union types, but he acts like a pragmatist who understands the benefits of trade. During the campaign, candidate Obama took a tough stance when he pledged to reopen the 16-year-old trade agreement and force Canada and Mexico back to the bargaining table. Shortly thereafter, an adviser to the campaign was caught telling Canadian officials not to take such “political posturing” seriously.
But since his election, Obama has found this two-step increasingly difficult to dance. Democrats in Congress are, in general, more protectionist than at any time in recent history. A number of Obama appointees had to adopt protectionist poses in order to pass Senate muster, and Hill Democrats inserted a “Buy American” clause into the stimulus package. Obama was able to get them to water down the provision but not to remove it entirely.
Now the Democrats in Congress have put Obama in a real bind. Sen. Byron Dorgan, a stubbornly protectionist Democrat from North Dakota, inserted a provision into the recently passed omnibus spending bill that erased the funding for a pilot program allowing Mexican truckers to haul goods into the U.S. interior. The Mexican government has claimed, correctly, that this provision violates NAFTA, and it has announced that it will retaliate by levying tariffs on a range of U.S. agricultural and industrial goods.
We applauded the pilot program when the Bush administration launched it because it made economic sense and because it adequately addressed safety concerns. The program permitted qualified Mexican truckers to drive their cargo to its final destination in the U.S. instead of offloading it onto an American truck at the border. This increases efficiency and saves consumers money, but it also explains why the Teamsters oppose the program: Inefficiency under the old system created work for American truckers. This is the kind of thing that led Bastiat to wonder why we should not build “a railroad composed of a whole series of breaks in the tracks.”
Instead of making an honest argument from self-interest, however, Teamsters president Jim Hoffa calls the Mexican trucks unsafe. Yet a U.S. Department of Transportation report that came out last month found that participating truckers actually had a better safety record than their American counterparts. The report’s only caveat was that participation in the program was too low to yield statistically solid claims, but Mexican officials say that low participation was a function of political uncertainty about the fate of the program. Unfortunately, Senator Dorgan has proved those fears to be well founded.
Mexico’s retaliatory tariffs would affect $2.4 billion worth of products from 40 states. These tariffs will hurt Mexican consumers as much as they hurt American exporters, bringing to mind the ancient wisdom that trade wars are wars waged by governments against their own people. In 2003, Bush was able to roll up his steel tariffs right before European countermeasures took effect. Obama will not have the same flexibility. He’ll need Congress to cooperate, and he’ll need to act within the next few weeks. Exports to Mexico have already fallen by 17.5 percent year-over-year. The tariffs would deliver another crushing blow to exporters at the worst possible time.
Obama has announced that he wants to avoid these sanctions by crafting a new trucking program that satisfies everyone; it seems to us that trying to have it both ways on trade is exactly what got Obama into this mess. He can never satisfy the Teamsters, because their alleged safety concerns are a smokescreen for naked self-interest. According to the conventional wisdom, Obama is not a protectionist at heart. But unless he demonstrates an ability to rein in the protectionists in his own party, does that make any difference?
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