In the FT, Jagdish Bhagwati writes:

Once the staunchest supporter of multilateral free trade, the US has turned into arguably its greatest foe. Both multilateralism and free trade are at risk…

Even the free-traders, among them many Republicans, have undermined multilateralism by embracing preferential trade agreements. These PTAs masquerade as free trade but are plainly not…

Amid anxiety over wages and jobs, wrongly blamed on trade and globalisation, it makes no political sense to take one piffling PTA after another to Congress, as the Bush administration has done. Each time a congressman votes for it, he expends scarce political goodwill. This applies particularly to Democrats whose constituents include a high proportion of workers. Asking Congress members to go repeatedly to a poisoned well has reduced their willingness to do so…

That assessment concurs with Evenett & Meier’s take on competitive liberalization’s domestic impact.

The result? Disaster, Bhagwati argues:

[T]he new Democrats insist on inclusion in trade treaties of labour and (domestic) environmental standards as elements of “fair trade” in a tougher way than ever before… It is comforting: you need not feel guilty if you can deceive yourself into thinking you are flogging the foreigner in his own interest.

It is a gift to protectionism that the Democrats can hardly wait to give to their lobbyists such as the AFL-CIO union federation.

Shrimp protectionism extortion.

Yonhap:

A South Korean man set himself afire on Sunday to dramatize his opposition to a proposed free trade agreement between his country and the United States, as negotiations were coming to a close, with an extended deadline only hours away.

The US Commerce Department has approved the application of countervailing duties to Chinese exports of coated paper, ending a 23-year policy of not applying CVDs to non-market economies. The FT says the move has weakened the dollar. Emmanuel thinks the US may be unleashing a trade war.

CVDs are the economically appropriate response to damaging subsidization (which may or may not be what’s happening here) and authorized under WTO rules, so the US action is not a blatant act of protectionism.

Here’s a helpful GAO backgrounder explaining some of the complications the move may involve:

Commerce could reclassify China as a market economy or individual Chinese industries as “market oriented” and apply CVDs against China as a market economy. Commerce has criteria for such determinations, but said that China is unlikely to satisfy them in the near term. It could also reverse its 1984 position and apply CVDs without any change in China’s NME status. However, absent a congressional grant of authority, such a decision could be challenged in court, with uncertain results. World Trade Organization (WTO) rules do not explicitly preclude either alternative.

Commerce would face challenges, regardless of the alternative adopted. Chinese subsidies remain difficult to identify and measure. Employing third-country information or “facts available” may help, but would not eliminate these difficulties. Commerce lacks clear authority to fully implement China’s WTO commitment on use of third-country information in CVD cases.

What happens next?

China will have a window of seven days to decide whether it wants to negotiate a suspension agreement with the United States. We have a funny feeling you should be on the lookout for this, since a suspension agreement would let China avoid the technical decision of U.S. anti-subsidy duties, which it clearly wants to avoid.

But a suspension agreement would come with a price – and that is likely to be a Chinese commitment to eliminate any of the subsides Commerce targets in its preliminary ruling, which could be tough.

The Department of Commerce press release is not very informative about the methodology used or particular subsidies identified, so I don’t have a clear understanding of the issue at this stage. Developing…

UPDATE: FT: ”’The Chinese side strongly demands the US to reconsider this decision and make prompt changes’… Beijing’s commerce ministry hinted it might consider retaliatory action for the new US duties, or if it is subjected to additional penalties.”

Non-sequitars from the Minnesota Fair Trade Coalition:

The damage of the NAFTA-WTO model hits all of us, not workers whose job was sent to a low-wage nation: U.S. productivity jumped 80% and GDP rose over 160% since Fast Track was established, but U.S. workers’ wages rose less than 10%! The average worker’s hourly wage has only gone up a nickel from 1973 to 2006! Since 2001, the U.S. economy grew 15% and productivity 16%, while wages have only gone up one percent.

And trade explains all of those facts, huh?

Before Fast Track, the U.S. enjoyed balanced trade. In every year but one since we have had deficits. NAFTA and WTO boosters said the deals would fix the deficit. Instead NAFTA turned our trade surplus with Mexico into a massive deficit and a small deficit with Canada jumped. And everyone knows our China trade deficit exploded with that nation’s entry into WTO.

And everyone knows that the United States didn’t make many new trade concessions to China when it joined the WTO, so it’s strange to imply that the trade deficit is a function of China’s WTO membership rather than China’s economic growth and global integration.

If you are able to distinguish between correlation and causation, this press release falls apart quickly.

US sugar may finally face import competition in 2008:

NAFTA will allow Mexican sugar to enter the U.S. market without restrictions in 2008. Sugar producers have been trying – unsuccessfully – to amend or delay the expiration of the transitional mechanism. “In any case, the legislators who write the 2007 farm bill will not be able to craft a sugar title without taking post-2008 Mexican access into account,” says the Sweetener Users’ Randy Green.

The backpage of my local newspaper’s sports section had a half-page color advertisement titled:
GM vs. IMPORTS: ‘BUY AMERICAN… BECAUSE IT MATTERS!’

*Why should you buy new American cars, particularly GM, versus the imports?

1. GM’s quality is as good as or better than the imports

2. GM’s gas mileage is better

3. GM’s dependability is better

4. You will help lower our trade deficit

5. You will help keep more jobs in America

6. Profits from new American vehicles will help provide more services for American Citizens and help keep America strong.

7. To the best of our knowledge all of these statements are still factual and if not we apologize for any discrepancies.

8. Because it matters!

Buy a GM car or truck, today. Help support Americans.. BECAUSE IT MATTERS.

Is this type of advertising an indicator of (a) rising protectionist sentiments, (b) increasing desperation on the part of US manufacturers, or (c) my failure to notice it previously?

An interesting divide in feelings about the level and rate of change of economic openness:

The survey, by the German Marshall Fund of the US, a transatlantic think-tank, shows that public opinion across a range of European countries and America has become more confident over the past year about economic growth and the positive effects of existing international trade. But there is much less support for more trade liberalisation, with 59 per cent of American respondents and 58 per cent of French thinking that freer trade will cost them more jobs than it creates. [FT]

Robert Samuelson voices concern over the risk of protectionist backsliding in the next Congress:

Just last week, Democratic congressional leaders signaled they might oppose new trade agreements with Colombia and Peru. Who, if anyone, would benefit is unclear…

We are dealing with something new here. It transcends traditional protectionism, which tries to shield specific industries and workers from imports. It’s trade obstructionism: a reflexive reaction against almost any trade agreement. The idea is that much trade is inherently “unfair.” …

Every three months, 7 million to 8 million U.S. jobs disappear, and roughly an equal or greater number are created. Trade is a relatively minor factor in job loss.

It is, however, an easy scapegoat. It enables critics to blame foreigners and suggest a solution — restrict trade. Globalization becomes a convenient explanation for many economic discontents, from job insecurity to squeezed living standards.

Hence, trade obstructionism…

The next Congress must decide whether it embraces the symbolism or reality of trade. If it chooses symbolism, it will perversely harm many of the workers it’s trying to help.

[HT: Mankiw]

Recall the anti-trade bias puzzle, highlighted in Dani Rodrik’s influential 1995 survey of the political economy of trade policy:

Current models treat trade policy as a redistributive tool, but do not explain why it emerges in political equilibrium in preference over more direct policy instruments. Further, existing models do not generate a bias against trade, implying that pro-trade interventions are as likely as trade-restricting interventions.

In a working paper (pdf) on the political economy of multilateral trade agreements, Wilfred Ethier of UPenn writes:

[T]he Anti-Trade-Bias Puzzle has been widely recognized. But it has not been successfully addressed. Papers typically either ignore the problem or eliminate it by arbitrarily constraining the ability of the government to adopt export-promotion policies.

Perhaps many authors “ignore the problem or eliminate it” by assumption, but there has been some interesting scholarship in the last few years that addresses the topic. I’ve seen at least five hypotheses spelled out at length which produce anti-trade bias effects:

(1) The government’s objective function includes a desire to reduce inequality.
(2) Governments are revenue constrained.
(3) Individuals are loss averse.
(4) Prior entrants have sunk costs in a shrinking industry.
(5) General equilibrium models don’t produce the bias.

Inequality (Nuno Limao & Arvind Panagariya):

In this paper, we show that if the government’s objective reflects a concern for inequality then trade policy generally exhibits an anti-trade bias. Importantly, under neutral assumptions, the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors.

Revenue constraints (Paul Pecorino):

In this paper, the Grossman and Helpman (1994) “Protection for Sale” model is
extended by adding exogenous government expenditure. This expenditure may be financed via a
combination of tariff revenue and a distorting income tax. In addition to the exogenous
expenditure, export subsidies need to be financed either via tariff revenue or a distorting wage
tax. With this addition to the model, plausible values of the model’s parameters yield import
protection bias.

Loss aversion (Patricia Tovar):

[W]e show that if individual preferences exhibit loss aversion and the coefficient of loss aversion is large enough, there will be an anti-trade bias in trade policy. We also show that, for a sufficiently high coefficient of loss aversion, more import-competing lobbies will form than under the current leading political economy model of trade protection due to Grossman and Helpman (1994), and import-competing sectors will be more likely to form a lobby than export sectors, reinforcing the anti-trade bias result. The predictions for protection that we obtain also imply that, everything else equal, higher protection will be given to those sectors in which profitability is declining. We use a nonlinear regression procedure to directly estimate the parameters of the model and test the empirical validity of its predictions. We find empirical support for the model and, very importantly, we obtain estimates of the parameters that are very close to those estimated by Kahneman and Tversky (1992) using experimental data.

Costs of entry (Richard Baldwin & Frederic Robert-Nicoud):

Governments frequently intervene to support domestic industries, but a surprising amount of this support goes to ailing sectors. We explain this with a lobbying model that allows for entry and sunk costs. Specifically, policy is influenced by pressure groups that incur lobbying expenses to create rents. In expanding industry, entry tends to erode such rents, but in declining industries, sunk costs rule out entry as long as the rents are not too high. This asymmetric appropriablity of rents means losers lobby harder. Thus it is not that government policy picks losers, it is that losers pick government policy.

General equilibrium (Nuno Limao & Arvind Panagariya):

We demonstrate that if we replace the almost partial equilibrium model with a general equilibrium model in the Grossman-Helpman political economy model, anti-trade bias may emerge even if we assume symmetric technologies, endowments and preferences across sectors provided that the elasticity of substitution in production exceeds unity. In addition, we show that ceteris paribus, in general equilibrium, increases in the imports-to-GDP ratio lower the endogenously chosen tariff and the production share of the import sector in GDP has an ambiguous effect.

Economists have produced a number of hypotheses to explain anti-trade policies. But I doubt that we will be able to easily test these competing explanations. Are there other hypotheses? Bryan Caplan might suggest public opinion.