The Financial Times' Alan Beattie is in a grumpy mood about the 2012 campaign, which leads to a wonderfully cranky column about the appalling campaign rhetoric on the global economy: 

Hypocrisy and exaggeration may be an inevitable part of any election campaign, but the discussions on international economics and trade have had experts in the field longing for next Tuesday’s vote to be over.

Herds of peaceably grazing policy wonks have been left shaking their heads in dismay as the marauding presidential campaigns have rampaged through their turf, leaving a trail of wrong-headed assumptions, non sequiturs and outright falsehoods strewn behind them....

Unfortunately, a realistic debate would involve admitting that some of the biggest international economic threats to the US are outside any administration’s influence, and thus destroy an implicit pact to maintain the myth of presidential omnipotence....

And, most likely, we’ll be back here again in four years’ time, with the challenger accusing the incumbent of selling out to China and letting jobs be shipped overseas and the incumbent, by accepting the premise of the attack, ensuring another debate about the global economy that takes place at an oblique angle to reality.

I'm moderately more optimistic than Beattie on what will happen next year on the foreign economic policy front regardless of who wins on Tuesday, but he's not wrong about the ridiculously stupid four-year political cycle. 

Unfortunately, if foreign economic policy wonks were honest with ourselves, we'd have to acknowledge that the truth would not really be a big political winner, unless you think the following speech would really bring out the undecideds:

I strongly favor inking more trade and investment agreements on behalf of the United States.  Yes, it's likely true that greater globalization is one of the lesser drivers for increased inequality in the United States.  Oh, and no trade deal is going to be a jobs bonanza -- the sectors that trade extensively are becoming so productive that they don't lead to a lot of direct job creation.  Will some jobs be lost from these deals?  Probably a few, but not a lot.  But on average, greater globalization will boost our productivity a bit, which will in turn cause the economy to grow just a bit faster, which will indirectly create some jobs.  Goods will be cheaper, which benefits consumers.  Oh, and by the way, there are some decent security benefits that come with signing trade agreements.  

Finally, the rest of the world is going to keep signing free trade agreeements and bilateral invesment treaties whether we play this game or not.  So we can choose to stand pat and have our firms and consumers lose out on the benefits of additional gains from globalization, or we can actually, you know, lead or something.  Your call.   Greater integration with the rest of the globe is no economic panacea, but the one thing we're pretty sure about is that most of the policy alternatives stink on ice.

Here's a challenge to foreign economic policy wonks -- can the above message be sexed up at all without overpromising?  In other words, what would be the best possible campaign rhetoric about foreign economic policy that would have the benefit of also being true? 

Eight months ago, the German Marshall Fund asked your humble blogger to be part of an "eminent persons group " to examine the future of the transatlantic economic relationship. 

Now, I'm not gonna lie, I've always coveted the title of "eminent person."  If I'm required to age, there should be some perks, and I thought this would be a big one: 

SNOOTY MAN WITH CLIPBOARD:  I'm sorry, this dance club is full

ME:  You don't understand, I'm an.... Eminent Person!!  (flashed secret Eminent Person card)

SNOOTY MAN:  An Eminent Person?!  Oh my... take that velvet rope down NOW!!

As it turns out, being on an eminent person task force mostly means dialing into conference calls.  Still, the results are now out.  Here's the GMFUS press release: 

The U.S. and the EU should remove all barriers in the transatlantic market for goods, services and investment. As a first step, custom duties should be eliminated on trade in goods. Services trade should be substantially liberalized. Regulatory divergences that impede trade and investment should be reduced through strengthened regulatory cooperation. Such reforms would not only boost economic growth and jobs; they would also create new positive tensions in global trade negotiations, encouraging other countries to agree on new liberalisation of trade and investment.

In light of experience in the Doha Round of multilateral trade negotiations, future deliberations should be decentralised, both in geographic and substantial terms. New agreements should be based on “coalitions of the willing”. The market access openings in such plurilateral agreements should initially be confined to the participating countries, in order to avoid free-riding. The agreements should, however, remain open for other countries to join, thus extending the benefits from trade liberalization. Strategic sectors, notably services and the digital economy, should be the focus of these negotiations.

Bilateral trade agreements are now the centerpiece of European and American trade strategy. To maximize the benefits from such efforts, the EU and the U.S. should integrate, harmonise and modernise their preferential trade agreements (PTAs) with third countries. In this way, the broadest benefits of such trade liberalization can be extended to more countries by reducing the bureaucratic differences between these agreements.

There is a need for a modern narrative about trade. Traditional perceptions of trade as a zero-sum game involving only im­ports and exports of goods no longer reflect the growing importance of investment and trade in services, the rise of multilateral firms, the globalization of supply chains, and the expansion of the digital economy.

Read the whole thing -- needless to say, there's not a ton of enthusiasm for another multilateral round via the WTO. 

A few months ago I was at a panel on the April G-20 summit, when someone asked why there was a pledge to complete the Doha round when no one expected that to happen? 

The answer given by the trade experts in the room was that, as toothless as such a statement might sound, it was worse not to say anything.  The signal of not mentioning Doha was ostensibly worse than the cynicism of claiming that two plus two equals five. 

Bear this in mind when reading the following: 

The world’s biggest economies agreed on Thursday to conclude a comprehensive trade deal in 2010, in the latest attempt to revive the stalled Doha round and give a shot in the arm to the world economy.

Rich countries gathered for the G8 summit agreed with ten other large economies – including India, China and Brazil – that trade talks must resume urgently, with a deadline set for completion next year.

The agreement in the Italian town of L’Aquila will be hailed by world leaders as a decisive moment in reviving the global economy and a statement of intent to conclude a trade round which began in Doha in 2001.

But there will be widespread cynicism over whether such commitments are credible. Every G8 summit – not to mention other international summits – ends with leaders paying lip service to finalising a trade round.

If Obama actually tries a "Nixon goes to China" moment on trade, I might be more optimistic.  But with global warming and health care on the horizon, I have zero confidence that Doha will be completed within the next eighteen months. 

Susan Aaronson has an op-ed in today's Financial Times in which she tries to argue that, of the two major party candidates, Barack Obama "has the more optimistic vision of trade."  Here's the guts of her argument: 

Mr McCain sees trade as a means to the end of economic growth and trade agreements as simply economic instruments. He has said very little about how he would use trade agreements to address negative side effects of globalisation, such as pollution. Nor has he articulated how the US can ensure that the economic growth stimulated by trade is equitable. Beyond suggesting tax breaks for business, he has not explained how the US can ensure that companies remain in the US and continue to hire US workers, rather than rely on technologies to remain productive. To bolster his freer trade bona fides, he has stated: “Only risks to the security of our vital interests or egregious offences to our most cherished political values should disqualify a nation from entering into a free trade agreement with us.” But Mr McCain’s support for freer trade has limits – especially when important constituents are adamant about trade bans. As an example, he supports continued trade sanctions against Cuba and Iran and enhanced targeted sanctions against human rights abusing nations Zimbabwe and Burma. Mr Obama, in contrast, is a trade enthusiast as well as a trade agreements reformer. He sees trade as a means to the end of enhancing human welfare. Thus, he has stated: “From financiers to factory workers, we all have a stake in each other’s success.” He recognises that Americans cannot succeed unless globalisation promotes greater access to resources and opportunities for more of the world’s people (our future growth markets). Mr Obama also believes that trade agreements are essential tools of global governance. He recognises that public concerns about trade are really concerns about inadequate governance – instances where our trade partners are unwilling or unable to adopt and enforce rules to protect workers, consumers and the environment. Demanding such standards in bilateral agreements will not alter global market conditions or empower all workers. Nonetheless, trade agreements can, if properly written, improve both the supply and demand for good governance at the national and international level. Mr Obama also has put forth a consistently positive vision of the potential of trade to promote human rights. Many human rights activists think trade with human rights abusing regimes is a form of complicity that can indirectly perpetuate wrongdoing in countries such as Sudan. But Mr Obama has openly questioned this view, asking whether the US has more or less leverage with less commerce. He has argued that cutting off trade may not be the best (or only) strategy to bring democracy to Cuba or Iran.

I'll give this effort a B- because of the difficulty of the assignment.  Quoting Obama boilerplate on globalization doesn't make him a enthusiast of freer trade.  And Obama's reluctance to deploy economic sanctions is not really connected to his trade policy, since with the exception of Cuba the United States wouldn't be trading a lot with these countries anyway.  Aaronson also elides Obama's insistence on linking trade to employment when the link is weak to nonexistent.  Now, all that said, Aaronson is correct when she says Obama does not intend to be a protectionist.  I think that's true.  My question is whether his trade policies would be protectionist in their effect.  Given that:

• Opening up NAFTA for renegotiation contains a 5% chance of a better agreement and a 95% chance of failure;
• Our trading partners are going to be, at best, reluctant to accept all of Obama's proposed governance improvements;

I just don't see his trade policies going anywhere.  Obama has a perfect vision of where he wants trade politics to go -- whether this vision falls within the set of feasible politics is another question entirely.  One last point, which I've probably made before.  Free traders like myself are not averse to seeing improvements in labor standards, environmental protection, and the like.  We just think that these policies are much more likely to occur when a country gets richer -- and, hey, what do you know, trade can facilitate that enrichment.  UPDATE:  Aaronson responds (cogently as always) in the comments; see also Donald Coffin's comment.  ANOTHER UPDATE:  Secretary of Defense Robert Gates and Colombian Secretary of Defense Juan Manuel Santos have an op-ed in the New York Times that raises an awkward question for Obama's trade enthusiasm.  After recounting Colombia's success in battling FARC, they close: 

Finally, to achieve lasting peace and stability, Colombia must have more foreign investment and free trade. Congress’s approval of the trade promotion agreement would establish a commitment to open markets that would increase growth and investment. Moreover, it would allow American products to enter Colombia duty-free. Colombia’s hard-won freedom from violence can be sustained only through economic prosperity. Together, as partners, we must see Colombia’s transformation to completion. In winning the war, we must also consolidate the peace.

Question to Barack Obama:  in what way does opposing the U.S.-Colombia free trade agreement enhance the dignity of ordinary Colombians? 

Kevin Drum and Matthew Yglesias have posts up on the free trade agreement with Colombia and wonder whether it's worth all the trouble it's going to create. Let's respond! Kevin's post boils down to the following facts: a) Trade contributes somewhat to rising inequality and stagnant wage growth at the lower end of the wage spectrum; b) There's little appetite among the American people for freer trade; and c) Trade is pretty free anyway, so why worry about piddling deals like the one with Colombia. In conclusion, Kevin paraphrases Senator Clinton: "Taking a breather to rethink how we approach trade seems pretty reasonable at the moment." Matt's post helps to rebut the first charge. As he observes:

[The FTA] actually involves very little changes on the US side at all. In essence, Colombian goods already flow very freely into the United States except for in our more famously protected sectors (agriculture, etc.) and what we're offering Colombia here is a very solemn promise to keep it that way.

The Colombia FTA is hardly unique in this regard -- this is pretty much what the state of play was prior to NAFTA as well. So the effect of these kind of FTAs on U.S. wages is less than minimal. It also explains why ratifying this FTA is a good idea -- it locks in U.S. policy. As I've posted previously, the reason these agreements are a good idea is precisely because they prevent the drift towards protectionism that is otherwise inevitable in a pluralist political system. As for Kevin's desired "pause," let's face it, there is going to be zero momentum towards further liberalization beginning in 2009 regardless of whether this FTA is passed. Kevin's pause is happening whether anyone likes it or not. After analyzing the content of the deal, Yglesias concludes the following:

All things considered, this seems to have almost no implications for American well-being, and if I were a member of congress I think I would consider this an excellent moment to let me vote be dictated by pure partisan politics or possibly corruption. If I were a blogger, I would say that lowering barriers to the importation of foreign goods on a unilateral basis would be good policy for the United States and that using bi- or multi-lateral trade negotiations to try to get other countries to adopt "pro-business" policies is a pretty dubious undertaking.

The first point is incomplete and the second point is factually incorrect. The biggest benefit of the FTA with Colombia has little to do with economics and everything to do with our bilateral and regional relationships. Go back to NAFTA. Kevin is right to point out that the agreement's economic effects were not terribly large. On the other hand, even skeptics of trade liberalization -- Dani Rodrik, Paul Krugman, and Joseph Stiglitz -- supported NAFTA because it locked Mexican economic reforms, promoted political reforms, and cemented a stronger bilateral relaionship. There's no reason to believe that the same effects would not take place with Colombia. Matt has been stressing the killings of labor activists in Colombia. However, the EPI graph he highlights shows a pretty dramatic reduction in these killings since 2003. Question to Matt: what's the best way for the United States to help reduce those killings even further -- ratifying or rejecting the FTA? I'd argue the former. FTAs matter more than unilateral reductions of trade barriers because they decrease the likelihood of policy reversals (which, again, is why Hillary Clinton's proposals to renegotiate FTAs every five years or so is such a God-awful idea). Ratifying the FTA with Colombia increases the likelihood that labor killings will continue to decline. A final point: for freer trade to be politically sustainable, there needs to be some kind of reciprocity, which can't happen via unilateral reductions in trade barriers. Historically, unilateral reductions have had a minimal impact on the openness of the global economy. In the 19th century, the repeal of the Corn Laws mattered a hell of a lot less than the Cobden-Chevalier treaty in opening up European economies to each other. In the 20th century, GATT mattered a hell of a lot more than any unilateral U.S. policy in leaving the misbegotten trade policies of the Depression behind. UPDATE: On the other hand, I should point out that Drum is 100% correct on this point he makes in a follow-up post:

Question: which is more important to the cause of free trade: (a) passage of the Colombian trade pact or (b) reining in the monstrosity that is U.S. farm policy? The answer is (b) by several light years. So why do we hear so much about the dire consequences of failing to pass a piddling bilateral trade deal... but almost nothing about the dire consequences of the hideous $300 billion distortion caused by the latest round of farm subsidies ? most of which goes to big agribusiness, not struggling family farms? How about a little more noise on the farm front?

The problem is even bigger than Drum realizes, since cutting back agricultural subsidies are also the key to completing the Doha round. ANOTHER UPDATE: I just want to point out that the initial version of this set a new personal record for number of typos in a single blog post.

One of pieces of accepted wisdom among policy cognoscenti is that while the United States is not terribly generous in terms of foreign aid, it does excel in niche areas, like providing providing relief for humanitarian disasters. The Financial Times' Quentin Peel reports on a new ranking exercise that suggests this perception might not match.... other people's perception:

Sweden, Norway, Denmark and the Netherlands have been ranked as the top four aid donors in providing relief for humanitarian disasters, according to a new index published on Thursday. The study, launched by Kofi Annan, the former United Nations secretary-general, ranks 23 aid donors from the Organisation of Economic Co-operation and Development according to the effectiveness and impartiality of their relief efforts in eight crisis-hit countries. In contrast to the Scandinavian nations, major donors such as the US, Japan and France rank in the bottom half of the index, with low scores for tests such as impartiality and implementing international humanitarian laws. France is criticised for its failure to work effectively with other aid agencies. The humanitarian response index, drawn up by Dara International, a Madrid-based evaluation agency, ranks the European Commission in fifth place, in spite of frequent criticism of its bureaucratic procedures. The UK ranks ninth, Germany 13th, and the US 16th out of the 23. The bottom two countries are Italy and Greece. The purpose of the index, based on the responses of more than 800 aid agencies in the eight disaster zones [Democratic Republic of Congo, Colombia, East Timor, Haiti, Lebanon, Niger, Pakistan and Sudan--DD.], is not to be ?a name-and-shame exercise?, according to Silvia Hidalgo, director-general of Dara, but rather to be ?a vehicle...to improve the quality of humanitarian aid?. Mr Annan, who launched the report in London, said it would serve as ?a crucial tool to help ensure that no disaster is ignored, and that every dollar spent helps those most in need?.

I tried to access the actual report, but Dara's web site, while quite fancy, is also maddeningly short on detail or methodology. Still, two quick thoughts:

1) Are the evaluations of aid agencies really the only metric being used here? Surely some of these agencies were on the losing end of various funding decisions by major power donors. Might that not affect their responses? 2) Is impartiality always a good thing during humanitarian crises? I'm not saying it's necessarily a bad thing, but as a "guiding principle" I'm not sure it's a great idea for every aid donor to act according to these principles either.

Policy Innovations -- "The central address for a fairer globalization" asked three trade experts what they see for the future of U.S. trade policy. It appears that Mac Destler and Gary Hufbauer were too busy, so unfortunately for their readers I'm one of the experts, along with Susan Aaronson and Kevin Gallagher. Go check it out -- you can guess my mood about the future. My basic point:

In a jittery economy, neither Americans nor members of Congress care about how globalization affects the rest of the world. Their primary concern is how imports are destabilizing their jobs and depressing their wages.

I should have put "allegedly" somewhere in that sentence, but you get the basic idea.

I didn't see the GOP debate yesterday, but looking through the transcipt, I was surprised to see trade came up as an issue. According to the Wall Street Journal's Jackie Calmes and Amy Shatz:

{S]everal [candidates] reflected skepticism about free trade that is gaining hold in both political parties. The others, while professedly free-traders, acknowledged widespread job losses as a consequence of globalism and a public sense that trading partners, particularly China, are taking advantage of the U.S.

Looking at the transcript, I think Calmes and Shatz are overinterpreting what was said. The fringe candidates (Hunter, Tancredo) were perfectly happy to sound protectionist. But they're not going to win, so let's skip them. Some of the mainstream candidates (Romney, Giuliani, Huckabee) had some caveats:

Romney: "We need to make sure that the Chinese begin to float their currency and they protect our designs and our patents and our technology." Giuliani: "I think you've got to almost separate them into two different categories. There's economic protection and then there's protection for safety, security, and legal rights. And I don't think we've done a particularly good job on the second, and we have to improve those agreements. But we can't throw out the baby with the bathwater. We can't say, because these agreements weren't perfect, because they have problems, because they have issues, we're going to turn our back on free trade." Huckabee: "the fact is, we don't have fair trade. And that's the issue we've got to address."

The other candidates (Paul, McCain, Thompson) didn't pander at all on this question. Which, of course, means they're doomed. So, on the whole, the only possible nominee who scared me was Huckabee. The rest of the field sounded relatively sane on the topic. And, credit where it's due, Giuliani scored the best combination of sound policy and sound politics on the issue. Oh, one last thing -- no one let Ron Paul anywhere near the Federal Reserve.

If you believe that trade liberalization benefits both the U.S. and global economy, which party is the party for you? When I came of voting age, the answer was pretty obvious -- the GOP. Now we live in a world where Obama's chief economic advisor is making more sense on the trade issue than rank-and-file Republicans. (both links courtesy of Greg Mankiw) Obviously, it is slightly unfair to compare advisors with voters -- and the WSJ article linked above points out that the GOP frontrunners are still talking the talk on trade. I'm beginning to wonder, however, whether either party will walk the walk. Question to free traders -- which party do you think is likelier to promote trade liberalization?

The New York Times' David Herszenhorn explains in depressing detail why farm subsidies will not be cut back anytime soon -- despite the fact that market conditions are at an ideal point for doing so:

For the many critics of farm subsidies, including President Bush and Speaker Nancy Pelosi, this seemed like the ideal year for Congress to tackle the federal payments long criticized as enriching big farm interests, violating trade agreements and neglecting small family farms. Many crop prices are at or near record highs. Concern over the country?s dependence on foreign oil has sent demand for corn-based ethanol soaring. European wheat fields have been battered by too much rain. And market analysts are projecting continued boom years for American farmers into the foreseeable future. But as the latest farm bill heads to the House floor on Thursday, farm-state lawmakers seem likely to prevail in keeping the old subsidies largely in place, drawing a veto threat on Wednesday from the White House. ?The bill put forth by the committee misses a major opportunity,? Agriculture Secretary Mike Johanns said Wednesday. ?The time really is right for reform in farm policy.? Faced with fierce opposition from the House Agriculture Committee, Ms. Pelosi and other Democratic leaders lowered their sights and are now backing the committee?s bill, in part to protect freshman lawmakers from rural areas who may be vulnerable in the 2008 elections.... A group of dissident lawmakers led by Representatives Ron Kind, Democrat of Wisconsin, and Jeff Flake, Republican of Arizona, is still pushing a plan to curtail the subsidies sharply. But they have been largely outmuscled by the Agriculture Committee. It 46 members are slightly more than 10 percent of the House but their districts received more than 40 percent of all farm subsidies from 2003 to 2005, according to a database compiled by the Environmental Working Group, which opposes the subsidies. Critics in Congress include fiscal conservatives who deride the payments as wasteful government spending and liberals who call them corporate welfare for agribusiness. All say the measure will simply perpetuate the overly generous subsidy system, at a point when American farmers are well-positioned to weather changes. ?When farm prosperity is as good as it is right now, this is the time to reform,? said Representative Paul D. Ryan, Republican of Wisconsin and a member of the dissident group. ?If we can?t reform these farm programs at this moment in our history, we will never be able to do it.? The group has proposed an amendment to the farm bill that would cut subsidies and increase spending on environmental conservation, rural development and nutrition programs, including food banks. It would end subsidies to farmers earning more than $250,000 a year, similar to the $200,000 cap proposed by the Bush administration. It would also substantially limit payments that farmers receive under guaranteed loan programs. The effort by Mr. Kind has exposed divisions among House Democrats, some of whom argue that he could cost the party its new majority. The fear is that freshmen Democrats from rural swing districts could lose their seats if voters blamed them for lower farm subsidies. Mr. Kind rejected such assertions. ?The vast majority of our new members benefit from our proposal,? he said.... The strategic maneuvering by the administration, and some unusual alliances on Capitol Hill, reflect the curious politics of farm policies, cutting across party lines and mirroring regional interests more than partisan loyalties. The keen interest in the bill, even among urban lawmakers from districts without a corn or barley field, underscores the vast scope of the farm bill, which includes not just agriculture policies but nutrition programs like food stamps, and an array of energy, land conservation and other programs.

George W. Bush will put forward former US Trade Representative and Deputy Secretary of State Robert Zoellick to become the next president of the World Bank. The FT's Krishna Guha and Eoin Callan report on the reactions:

Hank Paulson, the US treas?ury secretary, said he rec?ommended Mr Zoellick to the White House following consultations with the bank?s other shareholder governments. Mr Paulson told the Financial Times: ?Bob Zoellick is someone who has a passion for development. He has trust, respect and support from all the regions of the world.? Mr Paulson said Mr Zoellick would be able to build international consensus and get results. ?He has got great energy and enthusiasm ? he gets things done.? Mr Zoellick, 53, a former US trade representative who is a senior official at Goldman Sachs, is a respected internationalist with extensive contacts in Europe, China, Latin America and Africa. He played a prominent role in the peaceful reunification of Germany and led efforts to revive the Doha trade talks round.... Mr Paulson said he did not come under serious pressure to open up the search process during talks with finance and development ministers. ?Even people who said that in theory they favour an open global search said, given the turmoil at the bank, ?Please find someone who will have global support and can get appointed quickly so we can get the bank focused on its mission again?,? he said A senior World Bank manager said there would be mixed feelings about Mr Zoellick?s nomination, with respect for his diplomatic skills offset by concern about his hard-driving management style. The manager said Mr Zoellick was ?highly regarded? but seen as a ?bit abrasive? with his staff. ?I think there is scepticism about Zoellick?s management skills,? he said.

I've heard this last concern voiced by others in the know. To wich I'd say the following:

1) Having seen and interacted with Zoellick in the past month, he strikes me as being on the calmer side of the DC heavyweight spectrum. He's smart, he knows he's smart, and he does not suffer fools gladly. By beltway standards, however, abrasive does not spring to mind. 2) A mix of diplomatic skills and hard-driving management is pretty much the recipe for the World Bank. Although Paul Wolfowitz did not cover himself in glory during his tenure, the Bank staff also acted in a manner that raised a number of red flags about inmates running the asylum. We'll see where the Bank goes from here.

Brad DeLong is pessimistic:

If Robert Zoellick had not served the Bush administration without distinction as Special Trade Representative and as Deputy Secretary of State, I would be enthusiastic about his World Bank President candidacy. But the fact that he has done nothing in his last two government jobs makes me wonder whether an alternative candidate should be found.

In the past, I've disagreed with DeLong about Zoellick on precisely this point. He's a thoroughly competent man who has served a thoroughly incompetent administration. When Zoellick served in a competent administration, he accomplished only some minor things -- like helping to reunify Germany. Actually, by moving to the bank, Zoellick will provide an ideal "natural experiment" to test out Brad and my takes on him. So I extend the following challenge to DeLong: if, in three years time, Zoellick is judged as having been successful by, say, Ken Rogoff, William Easterly, and Dani Rodrik, DeLong will owe me 100 units of Special Drawing Rights. If they judge him a failure, I'll pay DeLong. UPDATE: Philip Levy makes the case for Zoellick over at America.com.

I still haven't seen any specifics on the trade deal between Bush and congressional Democrats. I have, however, seen a lot of criticism from across the board -- which either suggests its a really bad deal or it's the optimal outcome given the tight bargaining constraints involved. In the Wall Street Journal, John D. McKinnon and Greg Hitt look at the usual suspects to see who's upset:

[A]s details of the agreement emerged, some labor and environmental groups pointed to what they viewed as some significant limitations. Many businesses had worried the deal would make international labor provisions enforceable against American employers. On Friday, U.S. Chamber of Commerce President Tom Donohue said in a statement that the chamber is "encouraged by assurances that the labor provisions cannot be read to require compliance." That doesn't sit well with AFL-CIO President John Sweeney, who said the agreement doesn't give enough "ability...to challenge U.S. laws." He also complained that in the event of violations, "there is no guarantee the executive branch will enforce any new rights workers may gain through these negotiations." He said his organization would reserve judgment on the deal for the time being. Some environmentalists raised concerns that big potential loopholes remain for foreign investors -- particularly oil and gas companies that have made large investments in South America. In addition to worker and environmental protections, the deal calls for quicker access to generic drugs for developing countries. Democrats had made inclusion of such a measure a priority, but brand-name drug makers had fought it. Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America, said his group has been "extremely concerned during this process that core American intellectual-property rights remain protected." Drug makers said they will try to win back lost ground in other coming trade battles in Congress this summer. Manufacturers, meanwhile, complained that many of the new worker and environmental protections will be hard, if not impossible, to enforce. They urged the U.S. to focus more on currency manipulation, theft of intellectual property and other unfair trade practices.

Free trade promoters? They're not too thrilled either. The Cato Institute's Center for Trade Policy Studies issued the following press release:

The deal constitutes a political victory for Democrats in Congress, who compelled the administration to swallow U.S. union demands, but is unlikely to lead to any new trade liberalization (another union wish). Forging trade policy is a balancing act: the more an agreement is limited to reflect domestic political demands, the less likely prospective trade partners are to see the benefit of agreeing. With respect to the three Latin American agreements, those countries will now have to reopen debate in their legislatures, which might reject the terms.

Maybe, maybe not. As James Surowiecki points out in The New Yorker, the U.S. can get countries to swallow an awful lot of domestic political demands:

Free trade is supposed to be a win-win situation. You sell me your televisions, I sell you my software, and we both prosper. In practice, free-trade agreements are messier than that. Since all industries crave foreign markets to expand into but fear foreign competitors encroaching on their home turf, they lobby their governments to tilt the rules in their favor. Usually, this involves manipulating tariffs and quotas. But, of late, a troubling twist in the game has become more common, as countries use free-trade agreements to rewrite the laws of their trading partners. And the country that is doing this most aggressively is the United States. Our recent free-trade agreement with South Korea is a good example. Most of the deal is concerned with lowering tariffs, opening markets to competition, and the like, but an important chunk has nothing to do with free trade at all. Instead, it requires South Korea to rewrite its rules on intellectual property, or I.P.?the rules that deal with patents, copyright, and so on. South Korea will now have to adopt the U.S. and E.U. definition of copyright?extending it to seventy years after the death of the author. South Korea will also have to change its rules on patents, and may have to change its national-health-care policy of reimbursing patients only for certain drugs. All these changes will give current patent and copyright holders stronger protection for longer. Recent free-trade agreements with Peru and Colombia insisted on much the same terms. And CAFTA?a free-trade agreement with countries in Central America and the Caribbean?included not just longer copyright and trademark protection but also a dramatic revision in those countries? patent policies.

The power asymmetries are such that the U.S. can muscle its domestic preferences into an FTA when it can't do the same thing in the WTO. Is ability this a good thing? Dani Rodrik doubts it:

[T]his new direction is full of pitfalls--not just disguised protectionism as free-trade fundamentalists fear, but also an inevitable tendency to want to impose our own ways of organizing society on our trade partners. The principle of the right to organize is fine, but different democratic societies have different labor laws, all arguably equally "democratic." If we start judging the adequacy of other countries' laws from the perspective of what WE think is the right set of requirements, we will soon be in trouble. Which is why I don't think the attempt to enlarge trade agreements to incorporate social and other considerations can go really far (unless you are really serious about it and want to create legal and political integration along with economic integration, as in the case of the EU).

I was originally opposed to these provisions, but have become more agnostic about them over time. On the one hand, there's decent evidence that the best way to eliminate labor and environmental abuses is to have countries grow more quickly, thus causing them to treat their workers and their environment better. On the other hand, there's also decent evidence that including these provisions has an actual effect on trading partners. In a perfect world, I wouldn't clutter trade agreements with these provisions. In the world in which we live, I'll take these provisions as politically necessary -- so long as they are not so onerous that the proposed FTA partner nixes the deal. UPDATE: My inside-the-beltway source on trade policy e-mailed me the following reaction:

The typical reactions around town last week... were highly skeptical about applicability, implementation, reaction of countries with recently "closed" FTAs, reaction of countries with ratified FTAs who now want might better deal (specifically with regard to pharmaceuticals), and about the methods by which the new dispute settlement mechanisms for labor and environment might actually work. You could probably sum the reaction of many trade pros as follows: "they're making it up as they go along."

Over the weekend, Alan Blinder once again vented his concerns about the future of offshoring, this time in the Washington Post:

[T]wo powerful, historical forces are driving these changes, and both are virtually certain to grow stronger over time. The first is technology, especially information and communications technology, which has been improving at an astonishing pace in recent decades. As the technology advances, the quality of now-familiar modes of communication (such as telephones, videoconferencing and the Internet) will improve, and entirely new forms of communication may be invented. One clear implication of the upward march of technology is that a widening array of services will become deliverable electronically from afar. And it's not just low-skill services such as key punching, transcription and telemarketing. It's also high-skill services such as radiology, architecture and engineering -- maybe even college teaching. The second driver is the entry of about 1.5 billion "new" workers into the world economy. These folks aren't new to the world, of course. But they live in places such as China, India and the former Soviet bloc -- countries that used to stand outside the world economy. For those who say, "Sure, but most of them are low-skilled workers," I have two answers. First, even a small percentage of 1.5 billion people is a lot of folks. And second, India and China will certainly educate hundreds of millions more in the coming decades. So there will be a lot of willing and able people available to do the jobs that technology will move offshore. Looking at these two historic forces from the perspective of the world as a whole, one can only get a warm feeling. Improvements in technology will raise living standards, just as they have since the dawn of the Industrial Revolution. And the availability of millions of new electronically deliverable service jobs in, say, India and China will help alleviate poverty on a mass scale. Offshoring will also reduce costs and boost productivity in the United States. So repeat after me: Globalization is good for the world. Which is where economists usually stop. And where my alleged apostasy starts. For these same forces don't look so benign from the viewpoint of an American computer programmer or accountant. They've done what they were told to do: They went to college and prepared for well-paid careers with bountiful employment opportunities. But now their bosses are eyeing legions of well-qualified, English-speaking programmers and accountants in India, for example, who will happily work for a fraction of what Americans earn. Such prospective competition puts a damper on wage increases. And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization. We economists assure folks that things will be all right in the end. Both Americans and Indians will be better off. I think that's right. The basic principles of free trade that Adam Smith and David Ricardo taught us two centuries ago remain valid today: Just like people, nations benefit by specializing in the tasks they do best and trading with other nations for the rest. There's nothing new here theoretically. But I would argue that there's something new about the coming transition to service offshoring. Those two powerful forces mentioned earlier -- technological advancement and the rise of China and India -- suggest that this particular transition will be large, lengthy and painful.

I've read Blinder's longer paper on this topic, and I must confess -- again -- that I don't see how he's coming to this "large, lengthy and painful" conclusion. As Greg Mankiw points out:

Alan says the transition to the new equilibrium will be "large, lengthy and painful." When he spoke at Harvard last week, he said the transition would take about 30 years. But the very length of the transition will make it less painful. Over the course of a generation, workers can gradually retire from shrinking industries, and new workers can be trained for the growing industries that take their place. Of course, some individuals will experience painful transitions, but that is always the case in a dynamic market economy. I don't expect future transitions to be macroeconomically different than past transitions. Even if imports as a percentage of GDP continue to rise as Alan predicts, I would nonetheless expect the average rate of unemployment for the U.S. economy to be about the same over the next thirty years as it has been over the past thirty. After the Blinder-Bhagwati debate last week, there was a dinner at the Harvard Faculty Club at which Ben Friedman asked Alan a good question: Now that Alan has had this epiphany about offshoring, does he favor economic policies any different than he favored a decade ago? Alan thought about the question for a moment and then said no. I found that answer reassuring. My fear is that many politicians reading Alan's work on offshore outsourcing will not come to the same conclusion.

This brings us to a point that Dani Rodrik raised earlier in the week about what happens when economists start debating public policy:

Finally, let me note the irony in how a discussion on free trade among economists quickly ends up being a debate on its politics?that is, a debate on whether this or that trade policy which on economic grounds is actually desirable can also be politically feasible. We are way beyond our area of expertise. Your hand-waving is as good as mine. Scratch any strongly-held view about free trade, and you will find (typically) unexamined political assumptions underneath. Even if we do not end up agreeing, the value of the present exchange is that it is getting us to reveal what those assumptions are.

If you eliminate the word "free" from both paragraphs, then I agree 100 percent with Rodrik. By economist standards, Alan Blinder is remarkably sophisticated about the ways in which politics and economics intersect. What puzzles me, therefore, is why he is making Cassandra-like noises about a phenomenon that does not justify such warnings if it takes place over several decades (and there's decent evidence that this is the case). As a political scientist, I have two hypotheses:

1) Blinder believes that the political effects of increased offshoring will be substantial enough to make the current tide of protectionist sentiment seem like a baby wave. To prevent a stronger backlash, he feels it necessary to warn people with Very Scary Numbers to prompt action. 2) Blinder believes that the United States should more closely resemble the Scandanavian countries in being both economically open and more socially democratic. Since a direct political campaign for a European-style social welfare state will not fly in the U.S., he feels it necessary to use Very Scary Numbers about trade as a backdoor tactic.

My concern is that however well-intentioned Blinder's tactics might be, he's overlooking another possible outcome of his self-proclaimed apostasy, which is that it empowers economic populists with the mantle of intellectual respectability. Saying that upwards of 40 million jobs will be threatened by offshoring sounds scary, even if the data as of yet doesn't show those jobs have actually been offshored. As some other economists have observed, entrenched interests will always exploit these kind of economic fears to implement policies that serve their own interests. Furthermore, some political scientists have pointed out that these protectionist policies will also be far from transparent. Maybe Blinder is speaking truth to power and I am simply adopting too static a view of trade policy. But I can't shake the feeling that Blinder has adopted the Jeffrey Sachs theory of political change. UPDATE: Robin Toner has an excellent front-pager in the New York Times today that gets at how these political questions are playing out among House Democrats. Some of them clearly share the Blinder view of what to do. What disturbs me, however, are passages like this:

Since the Democrats took control of the committee in January, the 75-year-old Mr. [Sander] Levin has met with restless Democratic freshmen who helped their party regain the majority by promising to ?do something? about the job losses caused by a globalized economy ? and who now want to deliver.... Mr. Levin and his fellow Democrats face a political backlash on trade and globalization as intense as it has been in years, a point underscored by the freshman class of 2006. Across the industrial heartland and the Northeast, those freshman campaigned on a scathing critique of American trade policies. How could Americans compete against workers in developing countries, they asked, while maintaining decent wages, health benefits and pensions? ?It?s an issue near and dear to our hearts, and one we feel we need to deliver change on,? said Representative Betty Sutton, a Democrat from northeast Ohio.

Whenever a politician presents a demand or proffers a promise to "do something" about trade, I get hives.

The Financial Times' Eoin Callan reports that with deadlines on the horizon, suddenly Congress and the President are getting serious about trade policy:

Hank Paulson, Treasury secretary, on Tuesday intervened in negotiations with Congress over US trade policy in a bid to save President George W. Bush?s economic agenda for his last two years in office. The direct involvement of the Treasury secretary is a sign that the White House is escalating its efforts to broker a consensus on trade with Democrats. The Bush administration has until Saturday under the president?s fast-track trade promotion authority to notify Congress that it has finalised outstanding Latin American trade deals and completed negotiations with South Korea. Democratic leaders on Tuesday unveiled a set of proposals on reforming US policy that they said brought them to the ?brink? of an agreement to advance new trade agreements.... Charles Rangel, chairman of the ways and means committee in the House of Representatives, said the personal involvement of Mr Paulson was instrumental in creating a last-minute opening for a consensus on trade. ?We could not have got here without him,? Mr Rangel said. The former head of Goldman Sachs joined the administration with a mandate from the president to lead economic policy. His involvement will put pressure on Susan Schwab, the US trade representative, to concede Democrats? demands. Ms Schwab on Tuesday welcomed the Democratic proposals as ?a good faith effort in a continuing dialogue? but did not endorse them. The reforms are intended to act as a ?basic boiler template? for pending and future trade deals and call for ?a fair balance between promoting access to medicines and protecting pharmaceutical innovation in developing countries?.

You can access the Democrat talking points here (link courtesy of Salon's Andrew Leonard). Most of it screams "boilerplate" -- the question is how much of it will come to fruition and whether it represents a shift in the Democrats' bargaining position. Leonard believes that,"most of it is a restatement of the American labor agenda." but Chris Nelson takes a dissenting view his latest Nelson Report:

Notice that this very clearly does not call for ?passage into law all of the basic ILO conventions?...something which has been a standard part of Democratic and Labor rhetoric for years.

If Nelson's read of the language is correct, I suspect a deal will be done. This is now less about trade and a lot about politics. With the administration and Congress deadlocked on Iraq, the U.S. attorneys, and just about every other policy imaginable, the poll ratings for both branches of government are below 40%. Both the administration and the Congress need to look like they're actually governing. If they can sign a deal on something -- anything -- then they can counter this deadlock perception. Ordinarily, this desire to cut a deal just to get something done is anathema to me, because what usually gets done is some God-awful piece is legislation that everyone regrets a few months later. It also feeds the bias that action is always better than inaction in politics. Ironically, however, this could actually lead to something constructive accomplished on trade policy. Developing.....