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Edward Goldberg Headshot

American Jobs and the Never Ending Politics of the Cold War

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International commodity traders have an oft-used expression: "Gold has no Politics." The corollary to this expression is of course that trade creates economic growth and fosters both cultural understanding and peace.

Unfortunately in the U.S. Congress, trade not only carries the weight of politics but also carries the weight of corruptive historic memory.

Even though the Cold War ended in 1991, when it comes to trade policy, Congress still perceives both Russia and Cuba as a threat rather than an opportunity. Appealing to the most parochial of interests, and making policy based on irrational fears and Florida's potential Electoral College votes, Congress is refusing to change, or amend trade legislation. Changes, which would immediately spur American, job growth without the need for stimulus or deficit spending.

During the height of the cold war in 1972, Congress unanimously passed the Jackson/Vanik amendment. The purpose of the amendment was to forbid granting Most Favored Nation Trade Status to any country that had a non-market economy and also prevented free emigration. Most Favored Nation Status means that a country receives the same trade advantages, i.e. tariff rates, as any other country trading with the United States. Although not specifically stated, the amendment was aimed to punish the Soviet Union for not allowing Russian Jews to freely emigrate.

Since the collapse of the Soviet Union, Russia has had totally free emigration and has been a semi-market economy, but the Jackson/ Vanik amendment is still part of U.S. law. This past December, after 18 years of negotiations, Russia was formally asked to join the World Trade Organization (WTO). According to WTO rules all WTO members have Most Favored Nation Status. Thus, unless Congress amends or retracts the Jackson/Vanik amendment before Russia's ascension, the U.S. will be in violation of its WTO treaty obligations.

Ironically this is a minor problem compared to the loss of potential U.S. jobs and business that will occur. By entering the WTO, Russia not only gains Most Favored Nation Status with other members of the WTO, but Russia's tariffs on imports will be reduced (in some cases by up to 10 percent), along with the elimination of many non-tariff barriers to trade. However until the Jackson Vanik amendment is changed, the United States will not be able to have Most Favored Nation Status with Russia. U.S. companies whether they are Caterpillar, GE or Procter and Gamble will not be able to benefit from Russia's reduction in tariffs. Instead business and job growth that should be coming to the United States will go to Europe and Japan.

The logic for not repealing Jackson/Vanik, beyond cold war nightmares, is that it is an instrument to hold Russia accountable; to force it to be more democratic and punish it for any perceived violations of human rights. Of course the logic here is faulty on so many levels. First we either believe in free markets or not. Russia will now be a part of the global market and if Caterpillar cannot sell them construction equipment because of higher tariff rates on American products, surely Japan's Komatsu will. Second the list of WTO members that are either non democratic or could be perceived as violating human rights according to American standards is long, and includes such countries as China, Vietnam, Egypt and Pakistan.

Like Jackson/Vanik, the restrictions on trade with Cuba are awash in cold war nightmares. In addition, they have over the years become part of the American Presidential election system. Candidates of both parties are fearful that if they advocate trade with Cuba they will alienate Florida's Cuban émigré community and possibly loose Florida's electoral votes.

Despite the fact that Cuba is changing, and that America should be encouraging that change (as an example, much of the country's farming is now being privatized, and Cubans can now buy and sell private homes and cars), American Presidential politics prevents any American job creation that would come from relaxing trade restrictions with Cuba.

As an example, Cuba is now drilling for oil within its off shore boundaries in the Straits of Florida. Because of our trade restrictions, the deep oil rig being used is made in and illogically transported from China to the Gulf of Mexico. The main piece of American made equipment in the rig; the blowout preventer, manufactured by National Oilwell Varco in Houston, cannot by American law be serviced by that company.

One has to seriously question why in an economic reversal of the Monroe Doctrine are we not only encouraging the Chinese to become more proficient in one of our key industries-oil drilling technology but also ceding to them what should be our market.

U.S. trade policy needs to be based on what is good for the U.S. economy and U.S. job growth. And Congress needs to recognize that in an ever more globalized world, using trade as a political instrument to fight yesterday's wars is at best self defeating.