Policy that is not consistent is always suspect.
The 30 percent steel tariff on imports that was suddenly enacted in early 2002 was totally inconsistent with President Bush’s free-trade policy. The protectionist tariff hurt many small companies that were importers of steel and did nothing to help the major steel companies that are saddled with heavy pension obligations.
Last month’s much-discussed Group of Seven meeting in Dubai, where policymakers made a very public announcement promoting the “flexibility” of currency pricing, caused a quick devaluation of the U.S. dollar. But what happened to the administrations strong dollar policy? The U.S. current account has gone from surplus to substantial deficit quicker than one can say “jump.” Why go weak on the dollar?
And what are the taxpayers, voters, and investors to think of these “new” policy directions and their ramifications? The general public, it turns out, has no say in these matters. But the financial markets do — and they often turn in a quick response when policies shift without warning.
In both the steel tariff and the flexible-currency issue, the market response was negative — the dollar and the bond market weakened as the fear of protectionism filled the air. If these ill-advised policies gather steam, the stock market and the country — including taxpayers, voters, and investors — will ultimately bear the burden.
On tariffs and the dollar, the Bush administration has been very shortsighted. These new policies carry a protectionist risk to the U.S. and stand in the way of the goal of global growth for all. Are we out for a select few (some would say the rich, or powerful American corporations), or are we out to be a major player in delivering global prosperity, where the broad benefits of democracy and free-market capitalism trickle down to the masses? The many or the few? Maybe these policies are just a form of vote-getting on the part of politicians — the worst scenario of all.
Many of these questions are being asked around the world. American citizens need to understand and debate the important issues of free trade and the goal of an economically stable world. We need to make sure that our politicians look long on these issues, rather than to the next election.
When tariffs are used to defend local political turf and currency levels are manipulated in order to stimulate the sale of a few goods abroad, the basic problems always remain. These policies may gain politicians a few extra votes, but the general public pays the price of a reduced standard of living. And the world — which in general does not enjoy the strength of middle-class structure like the one in America — will pay an even dearer price: more poverty.
The diverse countries of the world are an integral part of America’s future — but only if they can build mobile middle-classes through education and training. Americans, and our politicians, must remember how this nation developed: We went from an agricultural community to an industrial community to a service/technology/research community. Remaining open to growth, within a democratic framework, is the only way.
— Patricia A. Small is a partner with KCM Investment Advisors and is the former treasurer of the University of California.