A New Kind of Trade War

On the eve of the day that changed everything, America was charging into a new era of globalization, with capital soaring through an increasingly borderless world. New technologies in communication and transportation whisked us, and our voices and documents, farther and faster than we had dreamed possible a few years earlier. But then as summer slipped into fall, an act of terrorism sparked a human catastrophe that would halt trade and other peaceful international exchanges for years.

The terrorist attack was the assassination of Archduke Franz Ferdinand of Austria, which led to the dark day of Aug. 4, 1914, when German troops entered Belgium and started the first world war.

Trade has never got along very well with terror or war. International commerce contracted sharply after the outbreak of World War I. A round of protectionist measures in the 1920s and '30s contributed mightily to the Great Depression and World War II. And in the wake of the Sept. 11 terror attacks, shipments were held up for days at the U.S. borders with Canada and Mexico, and at airports around the world, forcing Detroit assembly lines to shut down for lack of parts and spurring U.S. and foreign executives to seek suppliers closer to home.

But in today's war against terror, the Bush Administration and trade promoters in Congress and business are battling to resist the historic pattern in which commercial shipping becomes target practice and borders become moats. Since Sept. 11, President Bush and his emissaries have emphasized that agreements to lower trade barriers can help attract and hold allies to the antiterror campaign by bringing needed jobs and income to impoverished regions. "The launch of a new global trade round is important for economic recovery in the short term and for economic growth over time," U.S. Trade Representative Robert Zoellick told TIME. "A signal that the world's trading nations are committed to open markets would inject additional confidence into financial markets."

In the attacks' aftermath, Chinese, U.S. and European negotiators resolved the last issues holding up the Asian giant's membership in the World Trade Organization. Bush signed into law a trade agreement with Jordan, and the Senate ratified another with Vietnam. Eleven days after the attacks, Bush lifted sanctions on Pakistan and India adopted in May 1998 when the two nations each conducted nuclear weapons tests. Bush delivered yearlong trade privileges to Indonesia, the world's most populous Muslim state. And he sought to encourage a new round of trade expansion by the WTO when he backed an amendment to a farm bill that would have directed billions of dollars to conservation programs instead of farm subsidies that the WTO frowns upon. (The House defeated that amendment on Oct. 4.)

Beyond these initiatives, the Administration's boldest move, which some call foolhardy, has been to use the crisis as a prod for Congress to reinstate the President's ability to negotiate "fast-track" trade deals with other countries--pacts that Congress can approve or reject but not amend. Such trade-promotion authority, as it is called, has proved essential to winning landmark deals like the North American Free Trade Agreement treaty among the U.S., Canada and Mexico, and is widely considered indispensable to future progress in trade talks. Even Secretary of State Colin Powell, recently writing in the Wall Street Journal, says that "we need--America needs--trade promotion authority in our tool box" to help create a more secure world.

But most labor unions oppose it, as do many environmental groups and others who believe that the fruits of expanded trade flow mostly to the wealthy and pit workers in the U.S. against those elsewhere who will labor for lower wages and under worse working conditions. "For the vast majority of workers, the negative distributional effects of trade over the last two decades almost certainly outweighed the positive growth effects, causing them a net loss of real income," economists Dean Baker and Mark Weisbrot wrote early this month in a briefing paper for the Center for Economic and Policy Research, a liberal think tank in Washington.

Other economists fear that new trade deals might at least initially benefit other countries more than the U.S. Of particular concern: if the U.S. emerges from its slump faster than the rest of the world, the U.S. trade deficit, which in 2000 reached a record $375 billion, could swell further and eventually destabilize the economy.

Zoellick believes, however, that extending trade privileges through bilateral agreements may one day offer new opportunities to impoverished people in countries such as Pakistan and the Philippines, and help the leaders of those countries maintain their pro-market, pro-U.S. stance. "Many developing countries are struggling to maintain economic reforms under difficult conditions," Zoellick says. "U.S. leadership on trade helps them maintain their commitment to open, competitive economies."