Q&A with Gene Sperling

With hundreds of thousands of Europeans taking to the streets to protest the U.S.-led war in Iraq -- and American politicians openly mocking foreigners, especially the French -- the U.S. and European Union aren't likely to make progress on free trade. The potential hit to business could be significant. Consider just this one stat: While the average international sales of an Inc. 500 company amounted to just 3% of its total sales in 1991, by 2002, the average stood at 14%. And of course, that doesn't take into account the businesses that heavily rely on imported products. To assess the state of global free trade, Executive Editor Edward Sussman talked to Gene Sperling, President Clinton's top economic adviser from 1997 to 2001, who is currently a Senior Fellow at the Council of Foreign Relations.

Will global trade suffer because of the war with Iraq?

The optimistic scenario is that we'll see -- similar to post-9/11 -- a strong sentiment around the world to repair the international breach. While I wouldn't rule that out, it's also possible that anti-U.S. sentiment abroad and rising nationalism here at home will exacerbate already difficult trade relations.

It will be critical for the U.S. and EU to seize the moment to repair not only Iraq-related grievances but existing trade disputes. Currently, the two have loaded trade guns at each other's heads. The EU already won a lawsuit brought at the World Trade Organization, which ruled that a U.S. tax break for exporters was actually an illegal trade subsidy. Now the EU is threatening $4 billion in tariffs if we don't comply with the ruling. At the same time the Bush administration may file a massive lawsuit against the EU for effectively banning the import of U.S. genetically modified agricultural products, such as corn.

What kinds of businesses would be hit hardest by an EU retaliation?

The EU trade rep announced in late February a list of 1,800 U.S. products that could be subject to sanctions. He said that the choices from this list would be "strategic," in other words, designed to hurt important U.S. industries. That might include high tech, and also industries in politically sensitive areas, like citrus in Florida or textiles in the Southeast.

How do you see events unfolding?

The animosity over Iraq makes it much more difficult for either side to be seen making concessions. In the worst-case scenario, one side might even feel pressured to launch a first strike. So far, the Bush administration hasn't gone over that line. I think the U.S. and EU trade reps will understand the high stakes and bend over backward to not let trade disputes spiral out of control. But there may be so much domestic opposition, especially in the legislatures, that the trade reps won't have enough elbow room. Trade agreements always involve painful compromises, which are difficult for politicians to swallow in a climate of hostility. The best case post-Iraq is that Congress could move for more open trade with the Middle East, building on the momentum begun by the Clinton Administration's agreement with Jordan and the Bush Administration's trade negotiations with Morocco.

How can trade help us achieve foreign policy objectives?

We should use trade in positive ways that promote our long-term foreign policy and economic goals, such as trade opening with China, Africa, and the Middle East. When we use trade to punish countries over policy disagreements, we risk undermining a key economic message: Trade liberalization is a win-win for long-term economic development and is not about doling out quasi-bribes or quasi-punishments. It's critical that the world understand our commitment to multilateral trade liberalization not as a vehicle for U.S. hegemony but as a policy that helps raise living standards worldwide.

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