Fair Trade, Free Trade

IS the George Bush who talks tough on trade with Japan the same president who is pushing a North American free-trade pact?

It has been a little hard to figure just where the White House has been on trade lately. The most recent zig in a zigzag course has been in the administration's determination that the Honda Civics assembled in Canada are insufficiently North American in content to qualify for tariff-free import into the United States under the US-Canada free-trade pact. The Customs Service has determined the Canadian Civics to be only 46 percent North American; Honda calculates the proportion at 69 percent.

This of course comes after the president's first-of-the year trip to Asia and the Pacific, a trip that "was supposed to be about the new world order but became an auto-parts trade mission," as Washington consultant Richard Whalen describes it.

"George Bush is in the most vulnerable position he is ever in when he has to campaign on domestic issues," says Mr. Whalen, who works with Japanese, European, and Canadian firms. Looking for a domestic issue, the president was "ill-advised" by some of his staff, including Commerce Secretary Robert Mosbacher and chief of staff Sam Skinner, to start hammering on the "Japan is unfair" theme. Bush ended up "trying to fix something that isn't broken," as Whalen puts it.

Not that the president's Japan-bashing has been continuous. On the eve of the New Hampshire primary election, Republican pollster Richard Wirthlin predicted that Bush would back off from this kind of rhetoric, and resume the free-trade stance that has overall been more typical of him. Indeed, in recent days he's been deriding Patrick Buchanan's unabashed protectionism.

Jeff Faux, president of the Economic Policy Institute in Washington, offers a couple of possible explanations for the apparent contradiction on free trade vs. fair trade. One is that Bush simply isn't an ideological president, and doesn't have that much of a program: His "principles are rather thin," as Mr. Faux puts it.

But aside from this, Faux continues, "If you consider this from the point of view of large multinationals which still have US production, it is consistent to tighten up against Japan, which is a real threat" in this view, even as a free-trade pact with Mexico is sought to provide cheap labor for those multinationals.

In other words, if the president sees corporate America as his main constituency, fair trade with Japan but free trade with Mexico and Canada is "perfectly consistent" politically, if not economically.

And yet the kind of official US toughness evidenced by the recent Honda decision endangers one of America's best hopes for rejuvenating its auto industry - namely, the remarkable Japanese investment in a "transplanted" auto industry in America that has been made in recent years.

And critics like Whalen worry even more about the legislation introduced into Congress in January by House majority leader Richard Gephardt and Sen. Donald Riegle (D) of Michigan that would seek to "protect" American jobs by, among other things, construing the production from Japanese-owned or -affiliated American plants as "foreign," and hence subject to import quotas.

Calling this "the epitome of 'managed trade,' " Whalen says, "It will actively discourage investment" not only from the Japanese but any foreign firms.

And that would deprive the American industrial community of an opportunity to learn from its international competitors. If the Japanese are that good, Americans should want to learn from them.

In its understandable zeal to avoid becoming a nation of hamburger flippers, the United States should be concerned about more than just a narrow definition of manufacturing and should worry less about where which pieces of hardware were bolted together.

The critical issue for long-term global industrial competition is creating wealth, adding value. If the president can make this case to the American people, he will be on the road to correcting his problem with the "vision thing."

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