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Bush Pitches Free-Trade Policies in Annual Economic Report

Free-trade policies that make it easier for U.S. companies to sell their products are important to the economy's vitality, President Bush said Monday as he projected a year of good -- though somewhat slower -- economic growth.

Bush, in his annual economic report to Congress, made a fresh pitch for breaking down trade barriers and energizing global trade talks. He also called on Congress to extend his authority to negotiate free-trade deals, a request likely to face an uphill battle in the Democratic-controlled Congress.

'This authority is essential to completing good trade agreements,' Bush wrote in the introduction to the report. 'The Congress must renew it if we are to improve our competitiveness in the global economy.'

With the United States racking up record trade deficits and facing intense competition from rapidly growing China and India, global trade tensions have intensified.

Democrats blame Bush's free-trade policies for contributing to the trade deficit, costing U.S. factories jobs and exposing U.S. workers to unfair competition from low-wage countries.

'We need to shift focus so that working Americans start to feel as good about our changing economy as those at the very top do,' said Sen. Charles Schumer, D-N.Y.

Against that backdrop, Bush faces a daunting challenge in getting Congress to renew the Trade Promotion Authority, also known as fast-track authority. It lets the president negotiate trade deals that Congress must approve without amendments. That authority expires on July 1.

'Further trade liberalization, particularly in services, could bring even larger gains to American consumers, firms and workers,' according to the report.

The Bush administration argues that the way to deal with the trade deficit is through free-trade policies that make it easier for U.S. companies to do business abroad. Getting China to move to a more flexible currency system, another administration goal, also would help U.S. exporters.

A technical chapter in the president's economic report dealt with currency markets and exchange rates. It mentioned that 'economic theory does not dictate a clear preference' between two different monetary policy tools countries may use to influence economic activity. One way is for a country's central bank to set short-term interest rates; another way is to rely on linking the value of the country's exchange rate to another currency.

Asked how this squares with the administration's policy regarding China's currency practices, Edward Lazear, chairman of the White House's Council of Economic Advisers, said the chapter aimed to be an academic discussion on how currency markets function, not a message about appropriate exchange rate policy, which is left to the president and Treasury Secretary Henry Paulson, he said.

Critics contend that China is keeping its currency artificially low, giving Chinese companies a big trade advantage over U.S. companies. The United States has a record $202 billion trade deficit with China alone, the greatest ever with a single country.

Irked by China's currency and trade policies, some Democrats and Republicans in Congress want to impose hefty tariffs on Chinese made goods flowing into the United States.

On other matters, Bush also talked about restraining growth in Medicare and Medicaid and the need to financially shore up Social Security as a wave of retiring baby boomers will place massive strains on the government's resources. And, he promoted his plan to balance the budget while not raising taxes.

Bush, in a budget plan sent to Congress last week, proposed balancing the budget by 2012, three years after he has left office. That would be done by spending restraints. Bush's plan would make his first-term tax cuts permanent, which the administration says is key to maintaining economic growth.

Democrats charged that the president's budget plan works only on paper and that it is based on overly optimistic assumptions about how much revenue the economy will generate and leaves out expensive items, such as further war costs after 2009.

On immigration, the report said that 'effective immigration policy can curtail illegal immigration and at the same time promote America's national and economic interests.'

Looking back on last year, Bush said the economy turned in a solid performance despite the ill effects of the residential real estate bust.

The economy grew by 3.4% last year, as measured by gross domestic product from the fourth quarter of 2005 to the fourth quarter of 2006.

The president's report projects that economic growth will slow to 2.9% this year, reflecting lingering fallout from the housing slump. Next year growth will pick up, with the economy expanding by 3.1%.

The nation's unemployment rate, which averaged a six-year low of 4.6% in 2006, should hold steady at that rate this year and then edge up to 4.8% in 2008, the White House estimates.

Inflation, as measured by the Consumer Price Index, is expected to edge up 2.6% both this year and next. Last year, consumer prices rose by 2.5%, the smallest increase in three years. The improvement came as once-surging energy prices calmed down.

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