Financial Times

Financial Times

Cesar Conda and Stuart Anderson


August 26, 2004

Financial Times - NFAP Op-ed


John Kerry has said that as President he would work closely with allies and bring greater prosperity to the US and the world.


However, Mr Kerry's campaign statements on trade and offshore outsourcing contradict this. Simply put, his campaign rhetoric bodes ill for enhancing international economic cooperation and liberalising global trade in goods and services.


When Mr Kerry famously branded US companies that do business outside America's borders as traitors headed by "Benedict Arnold CEOs”, many Europeans probably dismissed the comments as pure politics. After winning the nomination Mr Kerry encouraged such thinking. He attributed the comments to "overzealous speechwriters", saying in a Wall Street Journal interview: "Benedict Arnold does not refer to somebody who in the normal course of business is going to go overseas and take jobs overseas. That happens. I support that."


But in his acceptance speech at the Democratic Convention, Mr Kerry seemed to have gone full circle on trade, declaring: "We're told that outsourcing jobs is good for America. . . What does it mean in America today when Dave McCune, a steel worker that I met in Canton, Ohio, saw his job sent overseas and the equipment in his factory literally unbolted, crated up, and shipped thousands of miles away along with that job? What does it mean when workers I've met had to train their foreign replacements?"


Mr Kerry's most detailed proposal on trade and outsourcing is to change the tax treatment of money earned abroad by US multinational companies.


Currently, income earned abroad is generally taxed when repatriated to the US, even though most countries do not tax such earnings at all. Under Mr Kerry's proposal there will be no change in tax treatment, for example, if Caterpillar builds tractors in Bulgaria and sells those vehicles there. However, if Caterpillar's Bulgarian factory exported those goods, then those earnings would be taxed in America in that tax year. The non-partisan Institute for International Economics concluded, “Our analysis indicates that the proposed reforms would do more to benefit foreign-based MNCs [multinational companies] than to prompt US-based companies to relocate operations in the United States.”


Technology, economic logic, and rising education levels in developing countries indicate that offshore outsourcing will increase in coming years. Outsourcing information technology globally enables a US company to operate 24 hours a day to meet the needs of a worldwide customer base, something that wage rates and work practices generally make prohibitively expensive with US-based employees alone. However, if he is elected, Mr Kerry may be forced by his supporters and past statements into taking more protectionist measures. One might be to block future liberalisation of global trade by insisting on the inclusion of western labour and environmental standards -- a goal stated plainly on his website.


If those pledges are adhered to in the way US trade unions expect, it is difficult to believe significant multilateral trade agreements with the developing world would occur during a Kerry Administration.


Europeans might also have to look out for an attempt to steer the US into more trade disputes at the World Trade Organisation. A recent Kerry campaign document criticized George W. Bush on trade by stating, "While the Bush administration has filed only 12 cases, our trading partners have brought 32 cases against the US."


While it is easy to dismiss pre-election statements, people often forget it was the 2000 presidential campaign that led to the much-criticized steel tariffs. Expecting a close 2000 election, George W. Bush saw an opportunity to lure Democratic West Virginia into the Republican column by vowing to be tougher than Bill Clinton on steel. Once elected and faced with a choice between action to "stand up" for steel, as the slogan promised, or opposition to new tariffs, Mr Bush retained his campaign stance. Politicians prefer to keep their promises.


Mr Kerry has said US allies in Europe and elsewhere will welcome his election. It might be a good time for those allies to tell him that trade policy is a vital part of a nation's foreign policy and that, so far, they do not like what they are hearing.


Cesar Conda, formerly assistant for domestic policy under vice-president Dick Cheney, is a principal of Navigators LLC, a public affairs consultancy, and an advisory board member of the National Foundation for American Policy (NFAP), a non-profit, non-partisan research group. Stuart Anderson is Executive Director of NFAP.

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