South By North Strategies, Ltd.

Writing in The American Prospect, Clyde Prestowitz, a trade official in the Reagan Administration, explains why American trade policy continues to fail.

Most misplaced has been the geopolitical priority with its subordination of long-term economic interests to short-term political/military objectives. Washington continually makes concessions, refrains from insisting on application of the GATT/WTO rules, or backs away from taking actions to counter mercantilism on national–security grounds. In the 1980s, the Reagan administration declined to invoke GATT rules against European subsidization of the Airbus, because Secretary of State George Shultz said doing so would shatter the North Atlantic Treaty Organization. Today, Washington declines to respond to China’s blatant currency manipulation. Why? It thinks it needs the Chinese to help with problems like Iran and North Korea. It doesn’t understand that erosion of U.S. wealth-producing capacity is the most important national–security threat.
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A corollary is the false premise that mercantilists who intervene to distort markets should not face retaliation because they are only hurting themselves and will eventually see that and abandon their policies. Studies have shown that the Airbus subsidies helped rather than hurt the European Union economy. The Airbus killed off all the U.S. commercial aircraft makers except Boeing and cost the U.S. economy many thousands of jobs that won’t be recovered even if Europe stops the subsidies. All the evidence of the past 200 years suggests that mercantilism works and that mercantilists win.