Kerry or Bush needs to update trade policy

The Insider

Your Money

March 28, 2004|By BILL BARNHART

TRADE policy doesn't sound like a riveting talking point for the 2004 presidential campaign.

But for investors, this year's campaign slogan might as well be, "It's the exports, stupid."

A major investment theme this year has been to bet on economic growth overseas.

"We're seeing a dramatic shift in consumption from the West to the East," said Francisco Alzuru, manager of the Harris Insight Emerging Markets Fund.

Fund managers who typically focus on domestic stocks and bonds are hunting for bargains in emerging economies as well as developed countries. Greater U.S. exports, purchased by more prosperous foreigners, would prove the strategy is working.

For George Bush and John Kerry, promoting exports is a more pragmatic political theme than job security, especially when federal deficits limit spending to hire or train workers directly.

The winner in November likely will disrupt the status quo of U.S. trade policy, which currently consists of selective protectionism for politically favored industries, bilateral trade deals with friendly regions and endless free-trade jawboning.

A second Bush administration, free from courting political constituencies such as the sugar and steel industries, could push a bold trade strategy.

There's no shortage of ideas, though none yet from Bush. Some would be unsettling. A pure free-trade doctrine would shock protected industries, such as agriculture, as well as firms enjoying tax subsidies.

Unilateral disarmament is one controversial idea.

"When I hear of foreign companies dumping their products in the U.S. market under cost, I personally say if they want to give it to us under cost, let's take it," said James O'Sullivan, chief U.S. economist at UBS.

David Wyss, chief economist at Standard & Poor's, says a bold step would be shifting federal taxes toward consumption (sales) taxes, away from income taxes, to align U.S. tax policy with the rest of the world.

"Abolish the corporate income taxes, get rid of Medicare taxes and move to a more value-added structure," he said.

Competing national tax policies currently favor European exporters over U.S. exporters, Wyss said.

The National Association of Business Economics said last week that companies support tax reforms aimed at reducing the U.S. trade deficit.

The John Kerry campaign picked up the theme Friday, proposing to cut the corporate income tax rate in return for curtailing tax relief for corporate profits earned overseas.

People who know Kerry but disagree with him politically say their concern is not that he flip-flops on issues, as Bush charges, but that he doesn't.

There's a good chance he would follow through on aggressive campaign pledges (quoting the JohnKerry.com Web site) to "crack down on countries that are avoiding trade laws or manipulating currency."

Kerry promises to "enforce and strengthen intellectual property protections ... open key export markets in places like Japan and Korea," using existing laws and treaties.

With the U.S. economy strengthening and investors betting on a global rebound, the time is right for a groundbreaking trade policy - the Big Idea or the Big Stick, or both.

Bill Barnhart is a financial columnist for the Chicago Tribune, a Tribune Publishing newspaper. E-mail him at yourmoney@tribune.com.

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