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Trade Tension May Be Rising

Increasing support for barriers could threaten global liberalization, economists fear.

June 06, 2005|Evelyn Iritani | Times Staff Writer

Growing protectionist sentiments in this country, which have escalated tensions between the United States and some of its key trading partners, are threatening to stall the global movement toward freer trade.

That in turn could provoke trade wars that would slow global economic growth and penalize American consumers through higher prices for a wide variety of goods, including clothing and television sets, some economists fear.

Signs of growing trade tensions are appearing almost daily, with the United States as the focal point.

"If you look around the world, there are a lot of reasons to think leaders are actually interested in trade liberalization," said Columbia University economist Jagdish Bhagwati, pointing to economic reforms in China and India. "The one problem is really at our end. Americans are terrified by trade. We worry that if we trade with relatively poor countries, we're going to be impoverished ourselves."

More than a dozen bills pending in Congress seek to penalize China for unfair trade practices, moves that could lead to retaliation by the Asian nation.

The U.S. and the European Union are locked in a brewing battle over alleged government subsidies to their respective aircraft giants, Boeing Co. and Airbus. Europe and Canada last month imposed more than $40 million in tariffs on U.S. goods because Congress has refused to amend an anti-dumping law deemed illegal by the World Trade Organization.

Sugar growers, textile manufacturers and labor unions have teamed up with congressional Democrats, seeking to derail a proposed trade agreement with Central America. Failure to ratify that measure could undermine more ambitious efforts to enact broader free trade initiatives encompassing all of the Western Hemisphere and the entire world, experts warn.

Opponents of these free trade initiatives say their opposition stems mostly from wanting to ensure a level playing field or to protect worker rights. But free trade supporters fear that a retreat by the leading champion of free-market capitalism will open the door for an escalation in tit-for-tat measures that will ignite inflation and spook financial markets.

"If the U.S. really starts playing hardball, does that tip the balance and do other countries start taking similar measures in the middle of a global slowdown in growth?" asked Jason Kindopp, an analyst with Eurasia Group, an international consulting firm.

Most economists and lawmakers, liberal and conservative, agree in principle that America's post-World War II push to free up capital and encourage trade across borders has been good for global growth. The removal of tariffs and other trade barriers has allowed American companies to expand their markets overseas, seek out the cheapest producers and provide lower prices and more choices to consumers.

But though the benefits of trade are distributed broadly across an economy, the pain is generally concentrated in regions or industries that are threatened by low-cost competition. In response to pressure from farmers for protection, the U.S. government passed the Smoot-Hawley Tariff Act of 1930, which many believe was a key factor fueling the Great Depression.

More recent examples of an upsurge in protectionist sentiment included the backlash against surging Japanese imports and investment in the 1980s and the prolonged political battle over passage of the North American Free Trade Agreement in 1994.

But some analysts say the present unease with free trade is broader and deeper, triggered by shifts in the global economy that have accelerated domestic job churn at a time when pensions and other parts of the social safety net are eroding.

U.S.-European trade ties are fraying at a time when the process of European integration is under siege. In recent days, French and Dutch citizens voted down the European Union constitution, in part because of fears about low-cost imports and cheap labor.

Tensions increased Tuesday, when the Bush administration announced it was filing a case with the WTO over billions of dollars in alleged subsidies for Europe's Airbus. The Europeans fired back a counter-claim against purported government aid to Boeing.

In the latest sign of increased U.S.-China discord, China's Commerce Minister Bo Xilai said Friday that U.S. curbs on Chinese textile exports were "trade protectionism."

Earlier in the week, China said it was rescinding taxes aimed at slowing its textile exports and threatened to file a complaint with the WTO if the U.S. and Europe pushed forward with those restrictions on Chinese textile products. In addition, China said it might reconsider promises to open up its agricultural and service sectors if the textile curbs weren't removed.

The U.S. also is threatening sanctions if China doesn't move more quickly to revalue its currency, the yuan. U.S. manufacturers say the Chinese currency -- which is pegged to the dollar -- is undervalued by as much as 40%, giving that nation's exporters an unfair advantage.

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