Global Policy Forum

By David Ignatius

The Bush administration has had an unpleasant lesson during the past two weeks in the politics of hypocrisy in trade policy. Unless it acts quickly, it's in danger of losing control over trade to a Congress whose line is, at bottom: If the president can be protectionist, why can't I?

The Bush administration set this cycle of hypocrisy in motion in March, when the president chose politics over principle and imposed steel tariffs. Predictably, that has spawned a feeding frenzy of protectionism on Capitol Hill -- in which each member wants to show his constituents that he, too, is ready to sell out global trade for the sake of politically powerful interests back home.

The latest example of this downward spiral was Tuesday's Senate vote to reject fast-track authority for the president to negotiate trade agreements unless Congress has the right to veto any dilution of anti-dumping and other trade remedy laws. This amendment, which would effectively gut the trade negotiating process, had broad bipartisan support in a body that traditionally has been a defender of free trade.

The previous week Congress had passed an appalling farm bill that is worse than anything Europe's agricultural protectionists have dared to propose in years. The administration officially disapproved, but its resistance was lame and ineffectual. As a result, the president signed an anti-market bill that will raise farm subsidies by more than 80 percent and abandon the previous decade's effort to kill off this wasteful spending.

Bush sadly doesn't have anyone to blame for this unraveling of trade policy but himself -- and his White House political savant, Karl Rove. You increasingly get the sense that what really matters in Washington these days is the 2004 electoral map in Rove's head. If a decision looks like it will expand the number of states that will vote Republican, then it's good.

Unfortunately, the politics of hypocrisy is global. It's a godsend for protectionists in Europe and Asia to see the recent antics in Washington, for it allows them to play politics, too. Even communists now feel free to lecture to this administration about the free market! "Advanced economies which once preached free trade are now undermining free trade," said Chinese trade minister Shi Guangsheng after the steel tariffs were announced.

Since it was Bush's decision on steel tariffs that began this miserable process, it's worth revisiting that decision to understand how it went so badly wrong. For it appears this was, quite literally, a case of policy by opinion poll.

I'm told that the steel-lobbying coalition commissioned private polls in key steel states such as West Virginia, Pennsylvania and Ohio. The polls documented how Bush and the Republicans would gain from enacting the steel tariffs. These numbers were then presented to Rove and other White House aides. The political case was so potent that the president overruled his chief economic advisers, including Treasury Secretary Paul O'Neill.

The steel story is actually weirder than this last, craven chapter. It begins in the first weeks of the Bush administration, when O'Neill privately warned the president that the steel industry would be a problem. Because of global overcapacity, pressure was building for new protective tariffs, O'Neill advised. He had just moved to Washington from Pittsburgh, and he asked the president to let him try to find a creative solution to the steel problem before the protectionist pressures got any stronger.

O'Neill had led a successful effort at Alcoa to reduce excess capacity in the global aluminum industry, largely by buying decrepit plants abroad and closing them. He wanted to try something similar in steel.

He knew he would need numbers to prove his case about overcapacity, so he commissioned a quick study of the global steel industry from a leading strategic consulting group in Boston. Its report concluded that the world had 35 percent more steel-making capacity than it needed, and that a significant part of that excess capacity was in the United States.

The Treasury secretary's idea was that instead of protectionism, U.S. steel companies should join with their counterparts around the world and find an orderly way to reduce capacity, perhaps under the auspices of the Organization for Economic Cooperation and Development. The alternative, he suspected, would either be protectionist tariffs or a price war that would shake out the excess capacity the hard way -- by driving more steel companies into bankruptcy.

I'm not sure O'Neill's approach made sense. It was the sort of grand "industrial policy" that gives free marketeers the jitters. But we'll never know. Because the steel lobby decided not to waste time with big, woolly ideas and instead to go for the political jugular.

Rove got the message. The president caved on his principles and, in my view, fundamentally weakened his administration.

A born conniver like Lyndon Johnson or Bill Clinton might get caught doing a backroom deal, but that was to be expected. They practically advertised their malleability. But Bush has pretended to be a different sort of animal. He's a moralizer, who uses words like "good" and "evil" in policy debates. That makes it especially dangerous for him to play politics on issues that matter.

If Bush wants to get his trade and economic policy back on track, he must vow never again to do what he did in steel.

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