Created 2/21/1996
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Clinton v. Dole on Trade

Brad DeLong
U.C. Berkeley

Brad DeLong is Associate Professor of Economics at U.C. Berkeley, and served as Deputy Assistant Secretary of the Treasury for Economic Policy for the first two and a half years of the Clinton administration; he is co-author of a recent article in Foreign Affairs on The Mexican Peso Crisis entitled "The Case for Mexico's Rescue".

Thank you for asking me here today.

If you had asked me three and a half years ago, on Inauguration Day back in 1993, what the differences were between President Clinton and then-Senator Dole on international trade issues, I would have replied that the differences were small and unimportant: both were strong believers in the freer-trade policy consensus that has guided American international economic policy for the past half century.

Maybe the Democrat would have been more likely to restrict imports to protect the domestic markets of particular unionized industries, or more likely to restrict exports in an attempt to express moral displeasure with particular barbaric regimes. But then-Senator Dole had a visible strain of protectionism (as applied to any agricultural product that might be grown in Kansas); he shared an old-time midwestern Republican suspicion of any of the international arrangements and agencies originally sponsored by Roosevelt and Truman; he had spent a lot of time in the Washington culture of favors--you help me get reelected, and I'll help you--and restrictions on people's foreign competitors are a way for those in government to help.

But these caveats are small potatoes and side issues. I would have said that there was barely a dime's worth of difference--if that--between the two.

I would have been wrong. Today I think it is clear that the differences between President Clinton and former Senator Dole on international trade issues are large and important.

Three factors have led me to change my mind.

The first is that I did not understand, three and a half years ago, how being Governor of Arkansas for more than a decade had molded President Clinton's thinking about the importance of international trade for economic growth. In Governor Clinton's experience, the economy of Arkansas stagnated unless Arkansas companies could sell their products outside of Arkansas--and he spent a large chunk of his time as Governor promoting Arkansas companies and products, both to buyers in other states and to buyers abroad. He has generalized this more than decade of experience with the state to the nation. Thus ex-Governor Clinton feels in his bones the connection between exports in economic growth in a way that no ex-Senator does.

This leads into the second factor, the high demonstrated priority that President Clinton has given to trade--both trade liberalization measures, and also export expansion measures--in his administration. I heard domestic advisors warn that making NAFTA a high priority in the fall of 1993 would push health care into 1994, and give opponents an extra year to organize against health care reform; yet he made NAFTA his highest priority in the fall of 1993. I heard strategists warn that pushing for GATT approval in the fall of 1994 might weaken his political base among the non-pro-free-trade elements of the Democratic coalition; he made GATT approval a high priority in the fall of 1994.

In early 1995--when the administration was working to contain the Mexican peso crisis, and to stop it from becoming a general liquidity crisis affecting many industrializing economies--administration opposition to a badly-drafted balanced-budget amendment was moderated if it threatened to endanger bipartisan cooperation on international finance.

President Clinton has a proven, tested, visible record of being willing to take major political risks in order to do what he thinks is right for the country as far as international economic policy is concerned. And what he thinks is right for the country is lowering barriers to international trade and expanding U.S. access to export markets.

By contrast--and this is the third factor--ex-Senator Dole has no such record of a willingness to take political risks for the sake of the international economy. I remember the winter of 1995, when the Treasury's international economists headed by Deputy Secretary Lawrence Summers, the IMF's economists headed by Principal Deputy Director Stanley Fischer, and the Federal Reserve headed by Chairman Alan Greenspan all agreed that we faced a classic liquidity crisis: government action to maintain orderly market conditions and provide liquidity to the international economy could avoid a deep depression in the industrializing world at very little risk to the U.S. Treasury or the U.S. economy. The President and the bipartisan Congressional leadership agreed that a loan guarantee program was good--non-partisan--policy, and that they should go forward with it.

Then things got hot.

The Ralph Naders and the Pat Buchanans began denouncing the $50 billion dollar bailout by U.S. taxpayers for Mexican plutocrats--never mind that the U.S. Treasury is so far up $2 billion on the deal, and that Mexico is paying back its loans to the U.S. Treasury as fast as it can because they were made at truly usurious interest rates.

The President stayed the course, spending political capital and finally running major political risks on an international economic issue yet again by going ahead with a peso rescue package based on his own executive powers. Speaker Gingrich stayed the course for a while, spending political capital to try to corral Republican house members in support--and some of his troubles with the Republican fundamentalists in the fall of 1995 would, I think, have been avoided had he not spent political capital trying for a while to do the right thing on the international economy.

Majority Leader Dole? He quickly vanished.

Moreover, Senator D'Amato--close political ally of Dole, the guy who made sure everyone else was kept off of the New York Republican primary ballot this spring--began leaking documents. I remmber one memorandum of mine appearing in a story by a tame reporter with passages ripped from context and surrounded by quotes from D'Amato, the--false--import of which was that the Treasury had foreseen Mexico's devaluation more than eight months in advance, and had kept quiet to help Mexican plutocrats profit at the expense of American investors.

My suspicion then--my belief today--is that Dole was looking for an exit strategy: he would not have been displeased had D'Amato found something in administration decision-making that would allow Dole to say that he had been deceived, and give him an excuse to change course and oppose the peso rescue.

This is not to say that I think that ex-Senator Dole is opposed to U.S. action to maintain the stability of the international financial system, or is opposed to freer trade--although Pat Buchanan did get Dole to grumble in New Hampshire that he would not vote for the NAFTA treaty if it were before him today. I think that Dole supports the free-trade free-investment consensus in a tepid way: is willing, for example, to respect and follow, say, Chairman Greenspan's judgment or, say, the pro-free-trade consensus--as long as the political heat is low.

But I do not think that international trade and financial issues are among the set of issues where ex-Senator Dole cares deeply about making sure we follow the right policy.

From our perspective this is unfortunate: for if the GATT and NAFTA debates have taught us anything, it is that the political heat on trade liberalization issues has become extremely high, as trade and the international economy have become lightning rods for economic discontent in general, economic discontent that has in reality very, very little to do with international trade.

So now I think that there is much more than a dime's worth of difference between the President and ex-Senator Dole on international economic issues. I think that trade liberalization and export expansion will do much better under President Clinton than they would do under a President Dole--not because the two candidates say very different things on the stump, but because of how high the political heat is, because of what they have done, and because of who they are.

Thank you.

Summary of Dole's "Asia Speech": America and Asia: Restoring U.S. Leadership in the Pacific

(May 9, 1996; Center for Strategic & International Studies Statesmen Forum)

Claim: "Candidate Clinton's new China policy had an unusually short shelf life once he became President Clinton-- collapsing in about six months under the weight of its own naive and contradictory purposes. After considerable confusion and embarrassment, and after substantially damaging America's international credibility, the President had arrived at an argument that was identical to the Bush Administration's position on MFN which President Clinton had condemned as immoral."

Response: True.

Claim: "the Administration's amateurish and ineffective posturing on trade disputes had strained [U.S.-Japanese] ties...In 1995, the Clinton Administration provoked a trade war, lost it, and then declared victory ...The result has been an increase in both the bilateral trade deficit and in Japanese trade nationalism."

Response: The bilateral trade deficit has grown--Robert Dole's economists say--because of Japan's recession. President Clinton has made progress (certainly more progress than any other recent president) in opening Japan's markets:

Claim: "Sustained trade deficits with Japan constitute a transfer of wealth and jobs from America."

Response: Gee. Most economists would say that sustained trade deficits with Japan are necessary to finance the Japanese purchases of U.S. Treasury securities that have kept the federal budget deficits that Bob Dole created as Chairman of the Senate Finance Committee from having even more destructive consequences for the American economy.

Claim: "Japan must open its sanctuary market and level the playing field. We must start by resolving ongoing commercial disputes that cost U.S.companies millions of dollars in lost sales. If negotiated solutions are not reached, swift action under existing U.S. trade laws will be required."

Response: Either the Clinton administration's handling of U.S.-Japan bilateral trade relations has been too aggressive and confrontational, or not aggressive enough. Which is it? It's hard to make sense of this claim--except that Dole's strategists decided that they should drop a pro-U.S. access to Japanese markets paragraph into the middle of the speech, even though it does not fit.

Claim: "It is no secret that I did not agree with President Clinton's decision to normalize relations with Vietnam....shared economic and other interests can only be realized after the -- as yet unachieved-- fullest possible accounting for our missing servicemen. Vietnam must understand that further progress on the POW/MIA issue will remain our highest bilateral priority."

Response: We all know that should Dole become President, his Defense Secretary will report what Bush's Defense Secretary reported--that the POW/MIA issue in Vietnam is a red herring. This shows Dole's willingness to sacrifice international substance to domestic political shadow--and to cruelly torment with false hopes the relatives of some who died in Vietnam.

Claim: "The growing rapprochement between Russia and China is more than a cause for concern -- it is cry for responsible American leadership and sound American policy."

Response: The Cold War is over. Russia is a struggling democracy, for which we should wish peace so that they can attempt the arduous task of domestic political and economic reconstruction. To lament that Russia is no longer at crossed swords with China is "old thinking"--thinking that fails to realize that the world has changed, and that the Chief of Staff in the Kremlin is no longer the totalitarian Vyacheslav Molotov but the democrat Anatoly Chubias.

Claim: "Incredibly, in the face of all these urgent challenges, President Clinton told Chinese President Jiang last year that the greatest threat China posed to American security was China's pollution potential."

Response: There is a good chance that President Clinton is right if you take the long view. Just because Republican politicians would rather not think about the possibility of global climate change under the impact of human industrial civilization does not mean that it may not become the important issue of the second half of the twenty-first century.

Claim: "Our current trade deficit [with China] is $34 billion and climbing. China holds immense promise as a market for U.S. goods, services and agricultural products. But China is mortgaging that promise through protectionist policies."

Response: Our current trade deficit of China arises because Chinese entrepreneurs take their dollar earnings and stash them in New York banks--so that they will have resources should China once again reverse its politics and should they be forced to flee.

Clinton Administration 1997 Trade Agenda


Created 2/21/1996
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Associate Professor of Economics Brad De Long, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax