WASHINGTON - The Democrat-led Congress won't give President Bush the authority he needs to negotiate future free-trade deals. The Senate is moving on retaliatory trade legislation against China. The House of Representatives won't approve deals with three small neighboring Latin American countries. Global trade talks are near collapse.

Washington's mood on free trade hasn't been this negative in at least two decades, and a pullback is evident.

Whether this becomes a full-blown return to protectionism remains to be seen. But for now Americans, and the politicians they elect to represent them, are in no mood to expand international trade.

"For decades, we took for granted that everyone agreed with us economists that free trade is good, protectionism is bad. Somewhere along the way, that stopped being the conventional wisdom," said U.S. Trade Representative Susan Schwab. "And whereas the default vote on a trade bill in Congress used to be a 'yes' vote, the default vote on a trade bill now in Congress is a 'no' vote."

Why? Because lots of people are no longer convinced that a rising tide of trade lifts all boats. And there's evidence to back them up.

Blaming globalization

For three decades, the richest 10 percent of Americans have been growing even richer much faster than everyone else. Over the past five years, real wages for the rest of America's workers have been almost flat. Many blame globalization.

During a mid-July congressional hearing, Federal Reserve Chairman Ben Bernanke contended that education levels largely determine income inequality. But he was angrily interrupted by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who declared, "Mr. Bernanke, that's simply not true."

Frank said the 29 percent of Americans who have bachelor's degrees and even master's degrees haven't seen real income growth, on average, over the past five years. That's what Democrats in Congress are focused on, he said.

"As long as we have the current situation ... you are going to see the kind of gridlock where trade promotion (authority), immigration and other issues don't go anywhere," he said. "And I just urge people ... help us diminish inequality or you will have continued economic gridlock."

Frank quoted repeatedly from a new report published by the Financial Services Forum, a think tank run by President Bush's close friend, former Commerce Secretary Donald Evans. The report was co-written by Matthew Slaughter, a former member of Bush's Council of Economic Advisers.

The report concluded that "over time, the pressures of global engagement spread economy-wide to alter the earnings of even those not directly exposed to international competition."

Since 2000, the report said, most American workers have seen meager income growth. Only "a small share of workers at the very high end has enjoyed strong growth in incomes." This occurred despite strong productivity growth, which in the past raised wages and salaries.

"Real income growth for workers has not been evenly distributed across all workers. That economic reality has an important political" consequence, Slaughter said in an interview.

Small, already negotiated trade deals with Panama, Colombia and Peru are being held up. Though those deals wouldn't affect the U.S. economy greatly, given how small their economies are, they're important to those countries, and their blockage sends signals worldwide about changing U.S. attitudes.

Meanwhile, Asian nations continue to integrate into the fast-growing Chinese economy's sphere of influence.

Protecting U.S. market

For now, the only trade-related legislation moving on Capitol Hill tends toward protecting U.S. domestic interests at the expense of opening markets more to competition from overseas.

Last week, the Senate Finance Committee passed, by a 20-1 vote, bipartisan legislation to force the Commerce Department -- when considering whether to impose unfair-trade penalties against foreign goods -- to weigh whether another country is deliberately undervaluing its currency. The target was China, but that standard could be applied to other Asian nations too.

By the end of September, Congress is expected to pass bills that would expand federal trade-adjustment assistance to a wider range of U.S. workers whose jobs have been lost to overseas competition. These could include engineers, software designers, accountants, call-center agents, even computer-aided architectural designers.

This shift in opinion against a long-dominant presumption -- that free trade provides broad net benefits to the U.S. economy -- is rooted in the experience of stagnant incomes, and it's gaining intellectual respectability as economic theory. Alan Blinder, a Princeton economist and former vice chairman of the Federal Reserve, was a lifelong free-trader, like most economists, until he began looking hard at how globalization is evolving.

Recently, he shocked free-trade orthodoxy by warning that modern technology and trade practices will put at risk as many as 40 million American jobs within a decade or two.

Blinder doesn't champion a return to protectionism in the form of tariffs and trade barriers. Instead, he thinks that government must do far more to help workers displaced by trade, that the U.S. education system must aim to train people for jobs that can't be performed abroad and that the tax code should give incentives to company to produce in the U.S.

The Financial Services Forum report backs similar solutions as necessary to head off a turn toward outright protectionism, which helped prolong the Great Depression in the 1930s.

Ironically, all of the anguish about trade is occurring as U.S.-made exports are booming. The strong global economy and the dollar's slumping value helped U.S. exports to grow by 6.4 percent from April through June, which is definitely good for U.S. business.

Commerce Secretary Carlos Gutierrez said last week that U.S. exports have grown since 2004 at about an 8.3 percent annual rate, in no small part because of the Bush administration's free-trade policies.

But Democrats are focused more on the lack of income growth among ordinary Americans, and therein lies the rub when Republicans and Democrats seek to set economic policy.

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