Bush to Pursue Free-Trade Agreements

Contending that Americans benefit from free trade (search), President Bush said Thursday he would keep pursuing liberalization agreements around the world, even as critics say his policies have resulted in record trade deficits (search) and millions of lost jobs.

Bush's pledge came in his annual economic report to Congress, a 438-page document that argued that his economic policies, ranging from making his first-term tax cuts permanent to overhauling Social Security (search), will lead to greater prosperity.

"I believe that Americans benefit from open markets and free and fair trade and I am working to open up markets around the world and make sure that the playing field is level for our workers, farmers, manufacturers and other job creators," Bush said in his message to Congress.

The administration devoted an entire chapter to extolling the benefits of free trade and seeking to answer critics who contend the country's soaring trade deficits, which last year hit a record of $617.7 billion, were costing millions of jobs.

However, the report did not repeat an argument made last year that critics viewed as endorsing the idea that the "outsourcing" of American jobs to lower-wage countries represented a benefit to the U.S. economy.

This year's report contended that increased trade can affect the composition of jobs in the United States but not the overall total of jobs. It argued for increased retraining assistance for workers in industries that can't compete with overseas factories.

Gregory Mankiw (search), the head of the president's Council of Economic Advisers, became a target for Democratic critics last year after he defended the handling of trade in the 2004 economic report. He later apologized and said his remarks had been misunderstood.

The White House announced Wednesday that Mankiw was stepping down as the president's top economic adviser to return to his former career as an economics professor at Harvard University, where he gained renown as the author of two widely used college textbooks.

A leading contender to replace Mankiw is Ben Bernanke, a former Princeton economics professor who is currently on the Federal Reserve Board. Bernanke is also viewed as a top candidate to replace Alan Greenspan, who will step down as chairman of the Federal Reserve next Jan. 31.

In December, the administration released the forecast portion of the economic report, which also provides the economic assumptions the administration used in preparing the budget plan Bush submitted to Congress earlier this month.

The administration is forecasting that the overall economy, as measured by the gross domestic product, will grow by 3.5 percent this year and 3.4 percent in 2006, as measured from fourth quarter to fourth quarter. Last year, the economy grew by 3.7 percent.

In addition to trade and the economic outlook, the administration devoted other chapters of the book to such subjects as tax reform, immigration, the global AIDS epidemic and information technology.

In the chapter on taxes, the administration did not endorse any particular changes, but it spent time explaining various consumption taxes, such as a national sales tax and a value added tax, proposals that are attracting support among some conservatives as a way to move from the current income tax to a tax that would not penalize investment as heavily.

Mankiw said no conclusions should be drawn from the report's extended discussion of consumption taxes, saying that the president was looking to an advisory panel he appointed to present a range of options by July.

"Our job was not to say the president is leaning one way or the other because the president is being open-minded," Mankiw told reporters at a briefing on the economic report.

The report did suggest that the need to deal with the alternative minimum tax, which is ensnaring more and more of the middle class, could be a catalyst to overhauling the entire tax system.

"Increasing numbers of taxpayers will be affected by the alternative minimum tax (search), which will be a major source of frustration and complexity," the report said.