Industry on Bush: Free Trade, Tax Reductions to Top Agenda

Presidents Bush’s second-term agenda should feature more free trade, further tax cuts and assistance for rising health care costs.

WASHINGTON — President Bush’s second-term agenda is likely to focus on boosting free trade, more tax cuts and providing government assistance to alleviate rising health care costs, industry executives said Wednesday.

As Bush formally claimed victory after John Kerry conceded the election, representatives of the troubled textile sector said they would push the administration to seek limits on surging Chinese imports, which are expected to soar even higher when global quotas are lifted on Jan. 1.

Retailers and other importers of apparel and textiles said they are counting on four more years of the U.S. aggressively pursuing international trade pacts that lower or eliminate tariffs. In addition, they said sending the Central American Free Trade Agreement to Congress for a vote could be among the president’s first trade initiatives in his second term.

“He’s not running for reelection again and he doesn’t have to please his [political] base,’’ said Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association. “I’m very hopeful we’ll have an administration that is completely free trade.”

During a speech to the nation from the Ronald Reagan Building in Washington, Bush said, “We will continue our economic progress. We’ll reform our outdated tax code. We’ll strengthen Social Security for the next generation.”

The President and Kerry, who will return to the U.S. Senate, also sounded themes of national unity after a long, expensive and rancorous campaign.

“We have one country, one Constitution and one future binds us,’’ Bush said.

Kerry, speaking outside historic Faneuil Hall in Boston, said: “In the days ahead, we must find common cause. We must join in common effort, without remorse or recrimination, without anger or rancor.”

Bush’s election to a second term, with his Republican Party increasing its majority in the House and Senate, suggests some policy certainties, industry executives said.

The president, in concert with GOP lawmakers in Congress, can press for a simplified federal tax code and push to make permanent his earlier tax cuts, such as the reduction of inheritance taxes. Likewise, there is a shared agenda between GOP leadership in Congress and the White House to lower health care costs, particularly for businesses shouldering double-digit increases to pay for employee policies.

This story first appeared in the November 4, 2004 issue of WWD.  Subscribe Today.

The President still faces some familiar roadblocks and adversaries.

On trade, the U.S. is being pressured at the World Trade Organization and in the negotiations for the Free Trade Area of the Americas to eliminate cash subsidies for U.S. farmers before other countries agree to lower their tariffs on imports. Eliminating farm subsidies, like those enjoyed by cotton farmers and cotton textile producers, would require Bush to face down GOP and Democratic backers of the payouts.

Also in Congress, Republican lawmakers from manufacturing states such as Ohio and North Carolina are wary of expanding international trade without checks to ensure fair competition for American producers. Such opposition, coupled with that of Democrats, could threaten congressional renewal this summer of the President’s Trade Promotion Authority, which is seen as crucial to getting foreign countries to negotiate trade deals. Having TPA means that Congress can’t amend trade pacts after they are negotiated and only vote to approve or disapprove them. TPA passed the House by one vote in 2001.

While the election swept at least five more trade-friendly GOP members into the House and four into the Senate, “President Bush still has to contend with some members of his own party having free-trade willies,” said Bob Litan, a senior fellow in economic studies at the Brookings Institution.

Litan said the falling value of the U.S. dollar should help Bush sell his trade agenda. A cheaper dollar means export prices decline and boosts their volume, while increasing import prices and decreasing their volume.

Nevertheless, Litan said progress on Bush’s ambitious trade-expanding agenda — it includes plans for at least a dozen free trade pacts — may be limited.

“Instead of grand leaps forward, it will inch forward,’’ he said. “The whole trade train has slowed down from an express to a local.”

The U.S. textile industry, which seems more limited by the election results, will continue to pressure the administration. Textile executives were disappointed by the election of Republican Jim DeMint as a senator from South Carolina to replace long-time Democrat Ernest “Fritz’’ Hollings, a proponent of limiting apparel and textile imports. In contrast, DeMint supports Bush’s free-trade agenda and has snubbed the textile industry’s calls for more caution in expanding trade.

Augustine Tantillo, executive director of the American Manufacturing Trade Action Coalition, with textile mills as members, said Bush officials have so far been open to considering petitions to limit mounting Chinese imports of certain apparel and textiles. However, in a second term, a president isn’t “beholden to anyone in any constituency,” he said. “There is a higher degree of insulation.”

Keith Hull, president of marketing and sales at Avondale Mills Inc., said he expected to see a second Bush administration continue to pursue its trade-liberalization ideals.

“The Bush agenda has been more proactively free trade,” he said. “It looks like here recently, they’re offering some help to our industry in looking at the safeguards built into the WTO, which we appreciate and recognize. But overall, they haven’t been as interested in our interest as we’d hoped they’d be.”

The Graniteville, S.C.-based executive noted that the retirement of Hollings was also a blow. DeMint defeated Inez Tenenbaum, the state’s school superintendent, who had been backed by several textile concerns.

At the top of Bush’s agenda are tax reform and tax cuts. He pressed Congress in his first term to pass almost $3 trillion in tax reductions as a means to boost a slowing economy. Now Bush wants to make permanent $1.9 million of the trims, which are set to expire at the end of 2010 and include eliminating inheritance taxes. The 10-year cost would be $1 trillion.

But Republicans and Democratic skeptics on Capitol Hill who oppose more cuts have said the federal budget can’t sustain additional loss of revenue, given the $400 billion deficit and continued cost of the war in Iraq.

Another argument being made against the need for tax cuts is the growing economy, which perked up in the last year and saw Gross Domestic Product in the third quarter grow at 3.3 percent. In addition, retail sales last month increased 1.5 percent overall, including an 0.8 percent boost for sales at apparel and accessories stores, which is 4 percent higher than the previous year.

Plans to streamline the tax code are being closely watched by retailers who fear a national sales tax, which the President has talked about informally, might figure prominently. Retailers see a national sales tax replacing the entire tax system would amount to a levy of more than 30 percent on all goods and services, in addition to sales taxes, and hamper consumer spending.

“There has to be a careful vetting as to how the administration moves in respect to tax reform,” said Steve Pfister, senior vice president with government relations at the National Retail Federation.

Bush also will have to tackle soaring health care costs. The financial drag on business and the economy from employee health care, as well as the uninsured, is a key issue cited by executives affecting bottom lines. Some 44 million Americans are uninsured and are expected this year to generate an estimated $41 billion in uncompensated treatment — 85 percent paid by federal, state and local governments — and accounting for about one-third of the total $125 billion in total U.S. health care costs, according to the Kaiser Family Foundation.

Bush plans to ask Congress to create tax-free health care savings accounts. Under the plan, consumers would have lower health care premiums because of lower deductibles. The accounts would be used to pick up health expenses not covered by insurance, which Bush argues would stimulate wiser health care decisions and reduce unneeded treatments.

Bush’s health plan would cover 8.2 million new people, a 17 percent reduction of the uninsured, and increase federal costs by $277.5 billion, according to The Lewin Group, a nonpartisan health care consulting firm. States would pay less health care under the plan, a reduction of $20 billion under Bush.

Another proposal, from Senate majority leader Bill Frist (R., Tenn.), would expand on Bush’s plans by giving tax incentives to individuals who buy their own health care insurance and create association health plans to help small businesses afford coverage.

Paul Kelly, senior vice president for federal and state government affairs at the Retail Industry Leaders Association, said increased GOP majorities in the Senate and House will result in Republicans achieving, at least in part, their health care agenda. Republicans gained four seats in the Senate to 55 against 44 Democrats and one Independent. In the House, with some results still outstanding, the party gained at least four seats for a 233-seat majority against 200 Democrats.

“You will have a president who can legitimately claim a mandate even though it was a close election because he clearly won the popular vote,” Kelly said.

For organized labor, Bush’s second term means another uphill battle over increasing the $5.15 hourly federal minimum wage, ensuring strong labor and environmental provisions in free-trade agreements and immigration reform. In his first term, Bush sought repeal in Congress of ergonomic repetitive motion injury safety rules enacted by President Bill Clinton and overhauled Depression-era rules deciding what type of work qualifies employees for overtime pay.

The friction between a business-friendly Bush administration and organized labor reached a crescendo last June when James Hoffa, president of the International Brotherhood of Teamsters, resigned from his post on the President’s Advisory Committee on Trade Policy and Negotiations. The committee gives advice on trade policy to the administration and Hoffa quit after Bush signed CAFTA, accusing the President of ignoring labor’s advice.

Bush has said he would consider a proposal to increase the minimum wage that’s spread out over several years, but organized labor said that would make its effect meaningless.

Bruce Raynor, president of UNITE HERE, said: “This is just one election and we are extremely disappointed in the results. On the one hand, we will continue to have an administration that is antiworker and antiunion and that is very bad for working people. On the other hand, the administration will continue to destroy the social safety net in society and that creates two things: more employers will feel emboldened to treat workers poorly, which clearly makes our recruitment organizing efforts bear some fruit.”

Many Seventh Avenue designers were behind Kerry and supported him with contributions, some even hosting benefits on his behalf. Bush’s victory was disappointing to them, although several chose their words carefully or declined to comment. The winning party still requires an inaugural wardrobe, after all.

“My biggest disappointment is that Teresa Heinz Kerry is not going to need a dress,” said eveningwear designer B. Michael, who pointed to a recent press clipping that singled out one of his designs as an appropriate choice for Heinz Kerry if her husband had won. “But I think that for years, there has been little impact of politics on the fashion industry. Fashion hasn’t been on anyone’s political agenda, whereas in other countries, such as France, fashion is supported and sponsored by the government.”

Alvin Valley, who was among a group of designers — along with Michael Kors, Kenneth Cole, Diane von Furstenberg and Nanette Lepore — who chaired a Kerry-Edwards benefit last month, said, “I was surprised by the results and I was disappointed, but I’m back at work and either way I’m still dealing with my business. As far as social issues, whether it’s gay rights or whatever, I haven’t been focusing on that as much as the economy. It’s important to get the U.S. on a strong economic base right now.”

One of the few New York designers backing Bush was Michael Vollbracht of Bill Blass, who said, “I’m not a politician, I’m a designer. But I believe this is good for the country. As long as it helps the fashion business, and it helps people who are rich and who help people within their companies, I’m for it. I’m for money filtering down so that everyone has a job.”

Bud Konheim, president and ceo of Nicole Miller, isn’t expecting any major transformations during the President’s second term. “No change in the administration, no change in the economy,” he said. “The country had a chance to make a change and didn’t. I think it will be business as usual.”

He said fourth-quarter sales will be a better indicator of the President’s impact on the economy than the stock market’s post-election surge. All in all, “the economy will come around because the cycle brings it around — not because of policy,” Konheim said.

Hal Upbin, chairman and ceo of Kellwood Co., who supported Bush, said, “Since he’s come in with the tax cuts, the economy has been positive.”

However, Upbin added, “No one can be supportive on the way he’s handled the war.”

Chet Hazzard, vice chairman and chief operating officer of Vera Wang, said, “Wall Street likes stability, so I think Bush staying on will cause it to react positively, certainly on a short-term basis. It’s good for the economy, especially with fourth-quarter retailing. Luxury is in very good shape. We’re expecting very strong fourth-quarter sales.”

Wall Street reacted well to the outcome. The Standard & Poor’s 500 Index reached its highest point since June 23, increasing 12.66, or 1.1 percent, to close at 1143.20. The Dow Jones Industrial Average rose 101.32, or 1 percent, to 10,137.05 and the Nasdaq Composite Index went up 19.54, or 1 percent, to 2004.33, its highest level since July 2.

— With contributions from Eric Wilson, Rosemary Feitelberg, Scott Malone and Evan Clark, New York

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