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10/29/92

TITLE THE NEW WORLD (TRADE) ORDER?

A New Generation May Not Be Pro-Free Trade Chuck Freadhoff

Win or lose Tuesday, George Bush likely will be the last in a
long line of American presidents whose bedrock beliefs were born
in the Great Depression and shaped by World War II.

Likewise, win or lose, Bill Clinton symbolizes a generational
change in American leadership - a change already taking place
from the ivory towers of academia to corporate boardrooms to the
vestibules of our nation's churches.  "We're guaranteed that
George Bush is the last World War II president whose foremost ex-
periences were the Depression, World War II and rebuilding Eu-
rope," said Alan Stoga, managing director of Kissinger Associ-
ates, a New York consulting firm.  "The next president will come
out of a different system," he said.  But how that "different
system" will shape the country's leaders and their policies
remains a mystery. Will this new generation see the nation's fu-
ture in the Pacific Rim instead of Europe, as our current leaders
have?  "The next president is not going to come out of the same
external tradition that was focused on the Atlantic," Stoga said.
The men and women who led the nation from the dropping of the
atom bomb to the fall of the Berlin Wall "all believed that the
Atlantic was the key to avoiding the next war," Stoga said.
These beliefs shaped U.S. economic policy during that time, in-
cluding the Marshall Plan, the establishment of the World Bank
and the International Monetary Fund and the active promotion of
the General Agreement on Tariffs and Trade.  But the new genera-
tion sees the international challenges quite differently. They'll
be fighting in a global market, not in a theater of war, they be-
lieve.  This generation has no illusions about how small the
world has become. They've grown up seeing wars and revolutions
televised live from around the world. They've seen foreign com-
petition hit some of the nation's biggest, oldest and most power-
ful industries hard.

Yet, this new perception that a global economic challenge has re-
placed the military one raises important questions about the
direction of the nation and its future leaders.  Will the
nation's new leaders, who probably remember their first Japanese
transistor radio and may have owned a Volkswagen beetle, be more
prone to free trade? Will they push for more trade agreements,
such as the one recently negotiated between the U.S., Canada and
Mexico, to ensure access to foreign markets?

Or will they, as many experts fear, be more demanding, less flex-
ible and quicker to retaliate against perceived unfair trade
practices?

These are not idle questions. The policies that the nation's
leaders choose could determine the difference between economic
growth and stagnation. They /jtopp:42:3>THE NEW WORLD (TRADE)
ORDER?

could lead to greater U.S. exports or, in the extreme, touch off
trade wars.  In just the past 25 years, world trade has surged
from $360 billion a year to an estimated $6.99 trillion last
year. That has helped boost output, employment, incomes and stan-
dards of living for much of the world. Free trade policies have
been one of the few unquestioned successes of the postwar era.

Export-Oriented Generation


Claude Barfield, coordinator of trade policies at the American
Enterprise Institute in Washington, is hopeful.  "You won't get a
return to old- fashioned protectionism," he said. "What you'll
have is a new (generation) that is export-oriented." "There are
fewer people who are protectionist. More (people) sense that
economic competition" has replaced old Cold War alliances, added
I.M. Destler, a professor of public affairs and trade analyst at
the University of Maryland.  But there are potential problems,
too. This new generation of American leaders may be far more
demanding in international trade negotiations than the current
generation ever was.  "As I think about the difference in genera-
tions (anf) think about the baby boomers, I detect a kind of ri-
gidity," said Neal Soss, chief economist at First Boston Corp. in
New York.  "The 'do yo5{ own thing' generation now won't let you
smoke in their house," he said. "We're a very moralistic bunch."
Still, the nation's new generation of leaders is guided by a
sense of fair play, Soss says. When it comes to international
trade, he says, they may demand "fair trade." Trade experts worry
that this demand for fair play will make the new crop of leaders
willing backers of trade policies such as the Super 301 section
of the omnibus trade law. That piece of trade law empowered the
administration to bypass international agreements and retaliate
against perceived unfair trade practices.  The danger, of course,
is that the U.S. will punish a trading partner - as it is now
threatening to do with the EC over agricultural policies, and
which it threatened to do earlier this year against Japan - that
will retaliate in turn. That type of tit-for-tat could quickly
escalate into a trade war, they warn.

GATT Talks A Test

Whoever wins the White House Tuesday may face the toughest trade
test of his administration within days of taking office.  The
test, trade experts say, is not the fate of the North American
Free Trade Agreement, which has played a role in the presidential
election. Rather, it is the future of world trade talks organized
by the 108-nation GATT.  Just a few weeks ago, it appeared that
after six years of at-times tortuous negotiating, the talks were
almost complete. Now, though, there appears little chance that
the current round of global trade talks will be completed before
the election.  It is also far from certain that the negotiations
will be completed before the next president is inaugurated Jan.
20. If they are, the next president will have to fight for
congressional approval.

But if the negotiators can't strike a compromise, the problem be-
comes even tougher for the president.  To keep the talks moving,
the president will have to ask Congress to renew the
administration's negotiating authority. In the past, such appro-
val was almost automatic.  The main problem in the GATT continues
to be a dispute between the European Community and the U.S. over
farm trade. The European position is largely dictated by the
French government, which fears the wrath of its nation's farmers
if it agrees to deep cuts in agricultural subsidies.  Perhaps no
issue crystalizes the clash, both here and abroad, between the
old views that shape current policy and those of the new genera-
tion as well as the GATT.

For Bush and every president since Harry Truman, the GATT has
been an integral part of America's overall foreign policy.  While
Bush and his Republican allies often differed from the Democrats
on politics and economic policy, they generally shared one set of
beliefs that shaped the nation's trade and economic policies for
almost half a century.

These leaders, and the American public, believed that protection-
ism - especially the infamous Smoot Hawley#m#cq#m# tariffs enact-
ed in the early 1930s -caused, or at least exacerbated, the world
Depression. The Depression, in turn, led to the second World War,
they believed.  That logic provided the bedrock for America's
postwar policies, especially its active promotion of world trade
and its willingness to negotiate in the GATT.  In the decades
following the war, as America and the free world faced down the
Soviet Union, a second set of shared beliefs developed.
America's allies - especially Western Europe and Japan - were
treated gently, some would say generously, in trade talks because
U.S. economic policy often played second fiddle to foreign policy
and military objectives.

No Intellectual Arguments

It's unclear, though, that the nation's new leaders have the same
gut-level commitment to global trade negotiations and the idea of
multinational give-and-take that the Bush generation did.  The
baby boomers don't want to hear intellectual arguments about the
general benefits of free trade and reciprocity, said one trade
expert with close ties to the Clinton campaign, who spoke on the
condition of anonymity.  "They want to trade a horse for a horse,
not a horse for a cow or a horse for a canary," he said.  That's
somewhat contrary to the classical economic theory of comparative
advantage - first developed by the 19th century English stock-
broker and economist David Ricardo -
 which says that both nations gain when each trades what it pro-
duces most efficiently. Thus, trading a horse for a cow makes
sense if a nation is more efficient at raising horses than cows.
America's new leaders also may find their European and Japanese
counterparts less willing to trade. Just as in America, in the
near future a new generation of leaders will emerge within our
key trading partners.  "In Europe the old generation of leaders
is falling away," said Wolfhard Graetz, chief economist for Bank
J. Vontobel, a private investment bank headquartered in Switzer-
land.

French President Francois "Mitterand is looking more and more
like an old Sphinx," he said.  Across Europe there are signs of
change. Margaret Thatcher, who led Great Britain through the
1980s economic boom, is gone, replaced by John Major, who is now
in political trouble. And in Germany, Chancellor Helmut Kohl's
popularity is near an all-time low.  The biggest change in Eu-
rope, though, isn't in the political leaders but in the attitude
of the next generation, said J. Paul Horne, chief economist for
Smith Barney in Paris.  Like their American counterparts, "the
younger generation is much more international and much more
consumer-oriented," Horn said.

That doesn't necessarily mean they'll be more inclined to the
give and take of international trade negotiations, however.  With
the economies slowing across Europe, "Now the question is if
there's going to be an ongoing stagnation or an outright dip into
recession," Horne said.

"They want access to all the goodies (free trade brings) but they
don't want to threaten their jobs," Horn said. That dichotomy
could make negotiating trade agreements tougher.

Japan's 'Nationalist Generation'


Nor will things be easier in talks with Japan.  "Those born after
World War II are more protectionist," said Robert Wescott, an
international economist at the Wefa Group, an economic consulting
firm in Bala Cynwyd, Pa. "I see a very nationalist generation" in
Japan, Wescott said.

When Bush leaves the White House, whether next January or in
January 1997, he will be replaced by a leader who grew up with
Howdy Doody and the Beatles. But whoever follows Bush will not
find the peaceful Age of Aquarius has arrived in international
trade relations.

This article is copyright 1992 Investors Business Daily. Redis-
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