Wednesday, October 31, 2012

How Politics Crippled US Trade Policy (and Why That Matters Right Now) [UPDATED]

On Monday night, I had the privilege of speaking to a great group in Sarasota, Florida as part of the National Committee for US-China Relations' annual China Town Hall 2012.  My kind NCUSCR hosts recorded my presentation (on "Three Myths About the US-China Trade and Economic Relationship"), and I'll be sure to post that video here when I get it.  In the meantime, I'd like to comment on what was, in my humble opinion, one of the most interesting aspects of the Town Hall: how the unscripted remarks of US Ambassador to China (and former Secretary of Commerce) Gary Locke revealed the political cynicism that has driven the last four years of American trade policy and hobbled US leadership in the global trading system.

Locke's opening speech (via live webcast) was uneventful - a basic, scripted recitation of Obama campaign talking points about ensuring a stable US-China relationship, while focusing on "leveling the playing field," increasing US exports, and lauding the administration's trade "enforcement" actions against "unfair" Chinese trade, particularly through the WTO.  However, Locke veered from these talking points in the impromptu Q&A, and in doing so revealed surprisingly deep, nuanced and - dare I say - impressive views of US-China trade policy.  Most notably, Locke lauded the benefits of not only US exports, but also Chinese imports and investment, and he discussed the complementary, rather than antagonistic, aspects of bilateral trade relationship.  It was by no means perfect: the campaign talking points did creep into Locke's responses (especially on "leveling the playing field" and the administration's hypocritical subsidy finger-pointing) and, like any diplomat, he avoided some of the touchier foreign policy questions.  But after those points were exhausted, Locke repeatedly spoke of US-China trade and investment in terms that revealed a strong understanding of how the global economy actually works and why both nations must work to expand bilateral (and global) trade and avoid mutually-destructive protectionism.

This, of course, is a far cry from the angry campaign rhetoric spouted by President Obama and his surrogates, as well as the mercantilist trade and subsidy policies that they have pursued over the last few years.  And the contrast between this depressing rhetoric/policy and Locke's "improved" China understanding makes two things very clear: (1) the Obama administration isn't ignorant about China trade or free trade more broadly - they know the "truth"; but (2) politics has severely limited their willingness - or ability - to push good trade rhetoric and policy inside our borders.

This serious limitation, of course, is not confined to China trade: over the last 40-something months, the Obama administration has viewed trade policy through an almost-entirely political lens and has consistently put cheap politics before good policy.  This started in early 2009 when the President shelved his surprising pro-trade rhetoric and the pending FTAs with Korea, Colombia and Panama in order to shore-up partisan support for Obamacare and then Dodd-Frank.  And this approach continued for the next several years, leading to less-than-surprising results:
The WTO's Doha Round is dead, despite a pretty good opportunity to force the issue back in late 2010.  The Obama administration took three years to implement already-dusty FTAs with Korea, Panama and Colombia and actually insisted on watering the deals down with new protectionist provisions in order to finally agree to move them.  And while countries around the world are signing new trade agreements left and right, we've signed exactly zero and have eschewed important new participants and demanded absurd domestic protectionism in the one agreement that we are negotiating (the TPP).  Meanwhile, on the home front the President has publicly championed mercantilism, as his minions quietly pursued myriad efforts to restrict import competition and consumer freedom, embraced competitive devaluation and maintained WTO-illegal policies (while publicly denouncing protectionism, of course).
Amazingly enough, the Obama administration's China trade policy is probably the brightest spot of the last few years, as the President has for the most part ignored the increasingly-large protectionist wing of his party (e.g., avoiding labeling China a currency manipulator or lobbying for currency-based countervailing duties on Chinese imports) and pursued much of his China-related enforcement through the impartial WTO dispute settlement system.  And although his China trade remedies policies - particularly countervailing duties on green energy and non-market economy imports - have stunk, support for these economically- and legally-dubious taxes on US consumers is a bipartisan affliction.

Nevertheless, it's quite telling that the President's most impressive trade policy achievement has very likely been the avoidance of an economy-crippling trade war with China, one of the United States' largest trading partners.  (No, implementing three moldy Bush-era FTAs after making them worse and attaching a costly, union-appeasing worker subsidy is not a trade policy achievement.  It just isn't.)  Indeed, aside from the instances of protectionism mentioned above (and a few others), the last few years more aptly reflect not a devolution into Smoot-Hawley-style protectionism, but instead a complete lack of trade liberalization here - no unilateral reduction of domestic trade barriers, no new FTAs, no completed WTO negotiations, etc etc.  As I've often discussed here, this stagnation (and discrete regression) is almost entirely due to the Obama administration's political decision that it is unable or unwilling to take on its base of unions, environmentalists and other anti-trade groups.

So, yes, the United States hasn't become an overtly protectionist country during the Obama years, but stagnation and "not totally destroying the economy" is hardly a good US trade policy.  It's also not harmless: not only is the United States hurting its consumers and exporters by failing to keep up with rapidly trade-liberalizing countries like Canada, but our politics-driven stagnation also has led to a depressing lack of American leadership in the global economy.  This latter point has serious implications for the multilateral trading system - something that I've often lamented here and that Bloomberg discusses in a new editorial on US-China trade:
The global trading system suffers from a lack of leadership. The U.S.’s narrow focus on China’s bad behavior and its own agenda of preferential trade deals underscores the point. Although the multilateral system has survived the global economic slump better than many expected, it’s no thanks to the efforts of governments to strengthen it.

The U.S., as the architect of the WTO system, should reaffirm its commitment to the larger idea. So should China. Theirs is already the most important bilateral relationship in the world. They can benefit themselves and everybody else by forming a partnership to strengthen the multilateral trading system. More goodwill and a lot more ambition on both sides will be needed to make it happen.
Bloomberg's proposal is a good one, I think - US trade leadership at the WTO and elsewhere is desperately needed - and it brings me back to Ambassador Locke.  As noted above, his unscripted statements away from Washington reveal an Obama administration that fully understands the major problems facing the global economy and US trade policy, yet willingly ignores them for political gain.  In other words, there is simply no chance that the President and his underlings will just wake up in a few months and think "Gee, we were, like, totally wrong about free trade; we have to ditch the mercantilism and kick-start the global trading system ASAP!"  They instead would have to voluntarily change a cynical political calculus that has secured Obamacare, Dodd-Frank and, of course, the President's re-election.  Given these facts, ask yourself this: what are the chances that an Obama White House will restart America's trade leadership and lower US trade barriers in 2013?

Unless you think that the President's team will abandon their consistent and long-held political strategy upon re-election, or that the Democratic Party's base will suddenly embrace broad-based trade liberalization (stop laughing), this doesn't seem very likely, does it?

On the other hand, I think Mitt Romney's politics actually give him, if elected, a decent chance to reassert the United States' global leadership on trade.  It's no secret that I seriously dislike Romney's aggressive China trade policy - an economically and legally-ignorant position that, like President Obama's actual policies, seems entirely driven by political cynicism.  Yet Romney's previous actions and statements have, like Ambassador Locke's, revealed that he does actually understand free trade and the global economy, and he, unlike President Obama, would have almost none of the President's political impediments to pursuing "big" free trade policies.  In short, he won't be kowtowing to the unions/greens or the Michaud/Brown anti-trade coalition in Congress, but could still be looking to (supposedly) trade-skeptical Ohio for 2016.

Thus, while I think that Romney's China bashing politics could hinder his ability as President to quickly pursue freer bilateral trade with China, I'm confident that he'd have an easier time than President Obama advocating policies that could put the United States back at the forefront of the global economy: WTO and FTA negotiations (even with China, eventually), unilateral liberalization, subsidy reforms, etc.  No, I don't think that outcome is guaranteed - Romney's closest advisers clearly share some of the Obama administration's political cynicism on trade.  However, the contrast between Locke's free trade statements and the last several years of problematic trade protectionism and stagnation make clear that things can't get much worse and probably won't get any better during Obama's second term.

Romney at least has a shot at making US trade policy better, and, unfortunately, I think that's just about the best we can hope for these days.

UPDATE: Steve Craven adds an excellent point via Facebook that I totally forgot about:
I had pretty much the same reaction, Scott, listening to Locke in Honolulu. And Obama has already answered your question about how likely he is to pursue trade liberalization in a second term - by not asking Congress for trade promotion authority. TPA, curiously, is in the Republican platform, but no Democrat is pushing for it. That tells me Obama isn't even serious about the TPP negotiation.
Indeed.  (Now if only I can figure out how to do trade work from Hawaii.)

1 comment:

Anonymous said...

Let's see if the blogger will post some honest opinion CONTRARY to his own... fat chance.

This lifetime entrepreneur wants to see corporations who off shore, pay a price for importing their cheaper goods.

Blue Jeans made in Mexico, still cost a hundred bucks a pop - but all the streams run blue for miles around the NEW IMPROVED off shore location. The Mexicans still make pennies, and management makes much more.

The only losers are the American consumers, AND those who could be making jeans here.

Repeat in every industry - and then wonder why the economy is in the dumps.

I want import taxes on every product made overseas. Period.

And I don't want O [the lawn jockey for Wall St] to offer tax 'breaks' for bringing jobs home.

I want him to implement penalties for companies who leave and try to game the system.

I know I'm not alone in this free trade heresy. I voted O and considered it date rape.

But I could never bring myself to vote for a Corporate Raider in plaid golf pants. So I stayed home.

Which ever party saves American jobs and punishes offshoring... will get my vote. Nobody else.