I suspect that most of today's foreign policy post-mortems about last night's town hall debate will focus on the Libya question, in which, according to Taegan Goddard, "Obama acted like a president in the exchange while Romney was much less. It was Romney's Gerald Ford moment."  He's not the only one to make this assessment.  I'm not sure I would go that far, but Romney did manage to convert a pretty strong initial response to the question into a bad, bad moment for him. 

But let's be honest:  regardless of whether you think Romney exaggerated in his description of Obama's Libya response or Obama exaggerated in his rejoinder, those were not the biggest foreign policy whoppers told during this debate.  Not by a long shot. 

If we're going to engage in real-keeping, then let's acknowledge that both candidates fudged, exaggerated, or flat-out lied on just about everything pertaining to foreign economic policy during last night's debate.  It was a truly bipartisan fib-fest.  I could go through the debate transcript line by line, but let's just hit the highlights.  At varous points, one or both of the candidates tried to convince undecided voters of the following: 

1)  Energy independence is the cure for what ails the U.S. economy;

2)  The U.S. loses from trade with China, and tougher trade enforcement will fix that;

3)  Free trade with Latin America will create millions and millions of jobs;

4)  The only reason China is doing well comparatively is that it's keeping its currency undervalued; and finally

5)  Illegal immigration is threatening the American economy. 

Let's inject a little reality here, shall we?  Repeat after me: 

1)  Because most energy sources are traded in global markets, energy independence has zero effect on the economy (though there might be a few security dividends).

2)  The United States benefits a great deal from trade with China and the rest of the world.

3)  Perfect trade enforcement would have only a marginal impact on employment;

4)  China's currency interventions have been slowing down for much of 2012.  Literally.

5)  Illegal immigration into the United States "has been in reverse for several years."

If the foreign policy debate next week has as much mendacity as this one on the global economy, your humble blogger will be passed out in a drunken stupor by 9:30 PM. 

For the past few days I've been getting emails asking whether I'm gonna comment on one of the most offensive and brutally effective campaign ads I have ever seen: 

It's brutal because... well, let's face it, that Romney tic was always the most cringe-worthy aspect of the campaign.  Anything negative that Romney did, contrasted with that song, would be powerful. 

It's ridiculously offensive, however, because it baldly asserts that doing business with Mexico, China or Switzerland is un-American.  Other idiocies like the Olympic-uniform controversy feed into the public perception that having the other countries make stuff is an abomination of the first degree. 

So, does it matter for policy?  Well.... no.

Mario Cuomo once said "You campaign in poetry.  You govern in prose."  Now, Mario Cuomo was clearly the world's worst poetry connoisseur.  Still, to update his observation for our current needs, we can say, "You campaign as a mercantilist; you govern as a free-trader."  The reason that Romney has seemed so discombobulated by the Bain attacks is that he's been China-bashing since Day One ofhis campaign, so it's tough to then flip-flop pivot to a free trade stance.  As for Obama, Matthew Yglesias noted the following last week:

[A]ll indications are that Barack Obama also doesn't think Bain was doing anything wrong. As president he's made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who've done just that to varying extents. And we all remember what happened to Obama's promise to renegotiate NAFTA after taking office, right?

Or, David Brooks today:

Over the years of his presidency, Obama has not been a critic of globalization. There’s no real evidence that, when he’s off the campaign trail, he has any problem with outsourcing and offshoring. He has lavishly praised people like Steve Jobs who were prominent practitioners. He has hired people like Jeffrey Immelt, the chief executive of General Electric, whose company embodies the upsides of globalization. His economic advisers have generally touted the benefits of globalization even as they worked to help those who are hurt by its downsides.

But, politically, this aggressive tactic has worked. 

Brooks' colleague Nate Silver might quibble a bit with the "politically working" point, but that's a small quibble.  Americans loooooooove mercantilism, so this kind of rhetoric makes tactical sense during a campaign. As stomach-churning as I find this kind of ad, I must reluctantly agree with Yglesias and Brooks that it doesn't matter all that much for governing.  Even this Washington Post story that talks about Obama's "rethinking" of free trade doesn't really deliver the goods on significant policy shifts.  And it appears that even the Chinese government recognize campaign bluster for what it is. 

So -- to repeat a theme -- I don't think the mercantilist campaign rhetoric will amount to much. 

Still, as someone who thinks offshore outsourcing is an unobjectionable practice, this is going to be a nauseating campaign. 

Mitt Romney's op-ed in today's Wall Street Journal is devoted to China policy.  Let's take a read, shall we? 

Barack Obama is moving in precisely the wrong direction [on responding to China's rise]. The shining accomplishment of the meetings in Washington this week with Xi Jinping—China's vice president and likely future leader—was empty pomp and ceremony.

President Obama came into office as a near supplicant to Beijing, almost begging it to continue buying American debt so as to finance his profligate spending here at home. His administration demurred from raising issues of human rights for fear it would compromise agreement on the global economic crisis or even "the global climate-change crisis." Such weakness has only encouraged Chinese assertiveness and made our allies question our staying power in East Asia.

Now, three years into his term, the president has belatedly responded with a much-ballyhooed "pivot" to Asia, a phrase that may prove to be as gimmicky and vacuous as his "reset" with Russia. The supposed pivot has been oversold and carries with it an unintended consequence: It has left our allies with the worrying impression that we left the region and might do so again.

The pivot is also vastly under-resourced. Despite his big talk about bolstering our military position in Asia, President Obama's actions will inevitably weaken it. He plans to cut back on naval shipbuilding, shrink our Air Force, and slash our ground forces. Because of his policies and failed leadership, our military is facing nearly $1 trillion in cuts over the next decade.

This is interesting because it's the first time I've seen a GOP candidate try to respond substantively to the "pivot".  And, in my book, the criticism that Obama was too much of a supplicant to China in the first part of his term is actually a fair one.  Unfortunately, things fall apart after that. 

First, Asian allies were worried about the U.S. presence in the region because of the priority the Bush administration placed on the global war on terror, followed by the 2008 financial crisis.  Obama had little or nothing to do with it.

Second, it's important and revealing that Romney only talked about the narrow, military part of the pivot.  Left unmentioned were the diplomatic components (joining the East Asia Summit, interceding on the South China Sea, warming relations with Myanmar, tripartite between the U.S., Australia and India) as well as the economic components (ratifying the FTA with South Korea, signing the framework agreement for the Trans-Pacific Partnership).  This is important, because any U.S. strategy in the Asia-Pacific region has to be a full-spectrum approach, while Romney seems peculiarly obsessed with shipbuilding. 

Third, the primary message Obama has been sending to Xi has been saying that China "don't play by the rules."  Which, coincidentally enough, is exactly the same thing Romney says in the op-ed. 

In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers.

Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender.  (emphasis added)

The bolded section represents the only portion of the op-ed in which Romney even hints that he might cooperate with China.  The rest of it is pretty silly.  It's ludicrous for Romney to claim he doesn't want a trade war in the same breath that he promises "day one" action against China.  No wonder conservatives are labeling Romney's China policy as "blaringly anti-trade." 

To be blunt, this China policy reads like it was composed by the Hulk.  Maybe this will work in the GOP primary, but Romney and his China advisors should know better. 

Your humble blogger is in Brussels recovering from jet lag to discuss Very Important Questions about the future of global trade.  Since I'm thinking about this topic, it's worth noting that former U.S. Trade Representative Susan Schwab wrote, by trade policy standards, a rather provocative Foreign Affairs essay on the Doha round.  The first paragraph:

It is time for the international community to recognize that the Doha Round is doomed. Started in November 2001 as the ninth multilateral trade negotiation under the auspices of the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO), the talks have sought to promote economic growth and improve living standards across the globe -- especially in developing countries -- through trade liberalization and reforms. Yet after countless attempts to achieve a resolution, the talks have dragged on into their tenth year, with no end in sight.

Schwab suggests that negotiatiors admit defeat on Doha, agree on whatever has been agreed, and ditch the bargaining round template that's governed most GATT/WTO trade talks in favor of more plurilateral approaches. 

I confess to mixed feelings about this argument.  On the one haand, Schwab is correct that Doha is deader than a doornail, and the G-20 loses just a little credibility every time it pledges to finish the round in a communique.  That said, I'm dubious of what plurilateral measures can do on their own, and in the absence of forward momentum at the WTO, more and more trade action will take place outside WTO auspices. 

What do you think?  Should Doha just be declared dead? 

A few days ago Brazil's finance minister mentioned the phrase "international currency war." The Financial Times' Jonathan Wheatley and Peter Garnham are all over it. 

An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.

Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.

A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.

The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.

South Korea, the host of the upcoming G20 meeting in November, is reluctant to highlight the issue on the gathering’s agenda, also partly out of fear of offending China, its neighbour and main trading partner.

On the other hand, South Korea is putting together an awesome ice sculpture for the summit. Seriously. 

The FT's Alan Beattie details the abject lack of policy coordination and its implications in further detail: 

Aside from China, whose intervention is one of the main causes of the global currency battle, several big economies have been intervening for some time. Switzerland started unilateral intervention against the Swiss franc last year for the first time since 2002 and did not sterilise it by buying back in the domestic money markets what it had sold across the foreign exchanges.

In common with several east Asian countries, South Korea, host of the Group of 20 summit, has been intervening intermittently to hold down the won during the course of this year. Deliberately weakening a currency while running a strong current account surplus has raised eyebrows in Washington.

Recently it was revealed that Brazil itself, which has been expressing concern since last year about inflows of hot money pushing up the real and unbalancing the economy, had given authority to its sovereign wealth fund to sell the real on its behalf.

The resort to unilateralism bodes ill for US hopes of assembling an international coalition of countries at the forthcoming G20 meeting to put pressure on China over its interventions to prevent the renminbi rising. While most of the countries currently intervening would be likely to welcome a revaluation of the renminbi, few emerging market governments seem to want to stand up to China publicly – barring sporadic criticism such as that from Brazilian and Indian central bankers earlier this year.

Last week Celso Amorim, Brazil’s foreign minister, said that he did not want to become part of an organised campaign. Following a meeting of the Brics countries – Brazil, Russia, India and China – in New York, he told Reuters: “I believe that this idea of putting pressure on a country is not the right way for finding solutions.”

Mr Amorim added: “We have good co-ordination with China and we’ve been talking to them. We can’t forget that China is currently our main customer.” Brazil exports commodities to China. (emphasis added)

It's also possible that Brazil and others fear a security dilemma kind of response from China. Either way,  this demonstrates that, on the economic front, China's deterrent power is formidable (even if its compellence power has been exaggerated).

Now, there are some who argue that this kind of beggar-thy-neighbor policy could be a blessing in disguise, because it might amount to massive monetary easing. I tend to side with Michael Pettis, however:

[W]e know how that game ends. In 1930, following France’s very successful 1928 devaluation and Britain’s tightening of trade conditions within the Commonwealth, the world’s leading trade-surplus nation passed the Smoot-Hawley tariffs in a transparent attempt to gain a greater share of dwindling global demand. This would have been a great strategy for the US had no one noticed or retaliated, but of course the rest of world certainly noticed, and all Smoot-Hawley did was accelerate a collapse in global trade which, not surprisingly, hurt trade surplus countries like the US most.

We seem to be following the same path, and in a beggar-thy-neighbor world any country that does not participate in retaliatory policies will suffer. The only question is which retaliatory policy. I suspect that countries that can intervene in the currency and manipulate domestic interest rates will select those polices as the most efficient way of intervening in trade. Countries that cannot will almost certainly resort to trade tariffs. And it is probably too late for global policy coordination to make much of a difference.

To be fair, the demand for global policy coordination since 2008 has been much higher than normal. That said, it seems that on this issue, the G-20 has fallen flat on its face. 

Developing … in a very depressing way. Literally. 

The Financial Times has been working overtime to discussing an emergent trend: multinational CEOs in Europe and the United States ripping into China.

In some ways, this started earlier this year. There was Google's complaint, of course. And, as TNR's James Mann noted, "Both the American Chamber of Commerce in Beijing and the European Chamber of Commerce in China have issued reports in recent months conceding that the business climate for foreign companies there has steadily worsened."

Things have been heating up in July, however. First, as Guy Dinmore and Jamil Anderlini report, GE CEO Jeffrey Immelt ripped into China while in Europe:

He warned that the world’s largest manufacturing company was exploring better prospects elsewhere in resource-rich countries, which did not want to be “colonised” by Chinese investors. “I really worry about China,” Mr Immelt told an audience of top Italian executives in Rome, accusing the Chinese government of becoming increasingly protectionist. “I am not sure that in the end they want any of us to win, or any of us to be successful."....

“China and India remain important for GE but I am thinking about what is next,” he said, mentioning what he called “most interesting resource-rich countries” in the Middle East, Africa, Latin America plus Indonesia. “They don’t all want to be colonised by the Chinese. They want to develop themselves,” he said. The comments echo a rising chorus of complaints from foreign business groups in China about the regulatory environment they face.

Gideon Rachman notes that Immelt is hardly alone in his complaints:

[W]hen Google, Goldman Sachs, and GE all run into difficulties simultaneously, it seems clear that a bigger trend is at work. Privately, senior US officials have been worrying for some time that Chinese trade and economic policy is taking a more nationalist direction that is penalising US companies. They worry that, after 30 years of strong economic growth, China believes it can now afford to take a less welcoming attitude to foreign investment, and instead concentrate on promoting national champions.

What's interesting is that European firms are now joining in the chorus of complaints. Furthermore, as Jamil Anderlini notes, they're not doing it in private dinners -- they're blasting the Chinese leadership publicly and directly:

Two of Germany’s most prominent industrialists have attacked the business and investment climate in China during a meeting with Wen Jiabao, the Chinese premier.

The criticism from the businessmen, the chief executives of Siemens and BASF, came against a backdrop of rising discontent among foreign businesses operating in China.

The German executives’ comments were all the more striking as they were made directly to the Chinese premier, and in public, as part of Angela Merkel’s four-day state visit to the country.

Jürgen Hambrecht, chief executive of BASF, the chemical producer, hit out at restrictions on foreign business and complained of foreign companies being forced to transfer business and technological know-how to Chinese companies in exchange for market access.

“That does not exactly correspond to our views of a partnership,” Mr Hambrecht told Mr Wen at the weekend meeting in the western Chinese city of Xi’an.

Addressing government procurement practices, a recent area of complaint by foreign executives and governments, Peter Loescher, chief executive of Siemens, the industrial conglomerate, said foreign companies operating in China “expect to find equal conditions in the fields of public tenders”.

Mr Loescher, who is also chairman of the Asia-Pacific Committee of German Business, called on Beijing rapidly to remove trade and investment restrictions in sectors such as automobiles and financial services.

BASF and Siemens had combined sales in greater China of more than €9bn ($11.6bn) last year and employ more than 36,000 people in the area.

Mr Wen responded to the criticism by telling Mr Hambrecht to calm down, insisting that China remained open to foreign investment and did not discriminate against foreign companies. “Currently there is an allegation that China’s investment environment is worsening. I think it is untrue,” Mr Wen said.

Alan Beattie and the ubiquitous Mr. Anderlini provide some general context for the latest venting:

The risk-reward calculation between staying quiet and speaking up has shifted towards the latter. With China employing policies including ignoring intellectual property rights, forced technology transfer and government procurement skewed towards domestic companies, some foreign businesses feel they are being pushed out of the country. “We are feeling less and less welcome in China, which is why you are seeing more people speaking out and reconsidering their futures in China,” says John Neuffer of the US Information Technology Industry Council.

Business leaders say Beijing’s appetite for more liberalisation of foreign investment has waned after a rapid burst of reform around China’s accession to the World Trade Organisation in 2001. So even when current policies only represent a standstill, they feel like going backwards.

At best, current policies are moving very slowly towards liberalization. The good news is that China is seeking to join the WTO's Government Procurement Agreement, which liberalizes trade among participating countries for government-commissioned projects. The bad news is that China's latest offer is half-assed tokenism underwhelming in terms of what's on offer, and likely to be rejected by the US and EU.

So, why is China suddenly so hostile towards western multinationals? The simple realpolitik answer is that China is simply more powerful than it used to be, and its flexing its muscles now because it has them. In the Wall Street Journal, David Wessel offered a revealing anecdote that suggests President Obama shares this quasi-relative gains view:

Mr. Obama, who took office in an economy far worse and far more hostile to trade than the one Mr. Clinton inherited, appears less convinced of the virtues of free trade per se. He loves exports, easily sold as creating jobs. But he seems to view world trade like a basketball game: He wants to win, and doesn't like feeling that others are taking advantage of his team. He needles aides who worked in the Clinton administration that they let China into the WTO with a better hand than the one he has to play. Aides counter that China would be even more of a threat if not bound by WTO rules. He is unpersuaded....

Mr. Obama's trade strategy is becoming clearer. In international forums, as he did at the Copenhagen climate-change talks, he is arguing that China is posing as a developing country even though it has grown up and needs to be treated like the economic powerhouse it is. At home, he knows—no matter what his economists tell him—that neither voters nor Democrats in Congress will be convinced that free trade is good for them. So he is styling himself as a tough bargainer, who can beat other countries at their own game.

Obama could be right, but on one key dimension his bargaining hand will actually be stronger than those of past presidents. China, by continuing to alienate and frustrate western multinational corporations, is also effectively weakening the strongest pro-China lobbies in both Washington and Brussels. As Rachman notes:

Were it not for the power of big business, the relationship between the US and China might have gone sour years ago. There are forces on both sides of the Pacific – Chinese nationalists, American trade unionists, the military establishments of both countries – that would be happy with a more adversarial relationship. For the past generation it has been US multinationals that have made the counter-argument – that a stronger and more prosperous China could be good for America.

So it is ominous, not just for business but for international politics, that corporate America is showing increasing signs of disillusionment with China....

In the past, American business has acted as the single biggest constraint on an anti-Chinese backlash in the US. If companies such as GE, Google and Goldman Sachs qualify their support for China or refuse to speak up, the protectionist bandwagon will gather speed.

The Chinese government, of course, is not stupid. China’s growing confidence in dealing with the US, and the world in general, is still matched by a cautious desire to avoid conflict. At strategic moments, the Chinese government is likely to make tactical concessions – whether on Google or the currency – in an effort to head off a damaging conflict with the US. But with American business and the American public increasingly restive, the risks of miscalculation are growing.

And here I must dissent from Rachman. In some ways, I do think the Chinese government has been pretty stupid over the past year in executing its "Pissing Off As Many Countries As Possible" strategy. China rankled the Europeans over its climate change diplomacy at Copenhagen. For all of Beijing's bluster, it failed to alter U.S. policies on Tibet and Taiwan. It backed down on the Google controversy. It overestimated the power that comes with holding U.S. debt. It alienated South Korea and Japan over its handling of the Cheonan incident, leading to joint naval exercises with the United States -- exactly what China didn't want. It's growing more isolated within the G-20. And, increasingly, no one trusts its economic data.

This doesn't sound like a government that has executed a brilliant grand strategy. It sounds like a country that's benefiting from important structural trends, while frittering away its geopolitical advantages. Alienating key supporters in the country's primary export markets -- and even if Chinese consumption is rising, exports still matter an awful lot to the Chinese economy -- seems counterproductive to China's long-term strategic and economic interests.

Developing.... in a very interesting way.

So I see Paul Krugman has thrown his lot in with the neoconservatives who disdain multilateral institutions and prefer bellicose unilateralism when they confront a frustrating international situation. 

His op-ed today is about China's currency manipulation. ...  again. After explaining that China has less leverage than is commonly understood on the foreign economic policy front (gee, where have I heard that before), he closes with the following: 

In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent. 

Whoa there, big fella!!  That's a nice but very selective reading of international economic history you have there. 

It's certainly true that the dollar was overvalued back in 1971.  What Krugman forgets to mention -- and see if this sounds familiar -- is that the Johnson and Nixon administrations contributed to this problem via a guns-and-butter fiscal policy.  They pursued the Vietnam War, approved massive increases in social spending, and refused to raise taxes to pay for it.  This macroeconomic policy created inflationary expectations and a "dollar glut."  Foreign exchange markets to expect the dollar to depreciate over time. Other countries intervened to maintain the dollar's value -- not because they wanted to, but because they were complying with the Bretton Woods system of fixed exchange rates. Nixon only went off the dollar after the British Treasury came to the U.S. and wanted to convert all their dollar holdings into gold.  

In other words, the United States was the rogue economic actor in 1971 -- not Japan or Germany.   

So, how about acting multilaterally first before engaging in unilateral action that alienates America's friends and allies alike? 

To be fair to Krugman, many of the multilateral processes appear to be stymied, as Keith Bradsher explains in this NYT front-pager: 

Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions....

Last September, Presidennt Obama, President Hu Jintao of China and other leaders of the Group of 20 industrialized and developing countries agreed in Pittsburgh that all the G-20 countries would begin sharing their economic plans by November. The goal was to coordinate their exits from stimulus programs and prevent the world from lurching from recession straight into inflation.

The G-20 leaders agreed that the I.M.F. would act as intermediary.

But two people familiar with China’s response said that the Chinese government missed the November deadline and then submitted a vague document containing mostly historical data. These people said that China feared giving ammunition to critics of its currency policies at the monetary fund and beyond. Both people asked for anonymity because of China’s attitudes about its economic policies.

That last part oabout the G-20 process is particularly disturbing, given that this was supposed to be the venue through which macroeconomic imbalances were supposed to be addressed.  So maybe Krugman is right and unilateral is the way to go? 

I don't think so.  The big difference between the end of the Bretton Woods era and the current Bretton Woods II situation is the distribution of interests.  In 1971, everyone was opposed to a continuation of U.S. policies.  This time around, there appears to be a growing consensus that China is the rogue economic actor. 

If Krugman gets to repeat himself, then so do I:   

[T]he United States is not the country that's hurt the most by this tactic.  It's the rest of the world -- particularly Europe and the Pacific Rim -- that are getting royally screwed by China's policy.  These countries are seeing their currencies appreciating against both the dollar and the renminbi, which means their products are less competitive in the U.S. market compared to domestic production and Chinese exports. 

So why should the U.S. act unilaterally?  Why not activate an international regime that does not include China but does include a lot of other actors hurt by China's currency policy?    

Am I missing anything? 

UPDATE:  Well, Brad DeLong clearly thinks I've missed a great deal.  Response to him -- and Krugman -- here. 

Throughout the course of the Bush administration, a constant irritant in the Asia/Pacific region was Bush's tendency to place antiterrorism at the top of the queue in Asia/Pacific Economic Cooperation (APEC) discussions.  Not that anti-terrorism wasn't important, but APEC was not the proper forum for that -- APEC is all about regional economic integration.  China, by wanting to talk about trade, made a lot of diplomatic headway by distinguishing itself from the United States.

I bring this up because, according to the FT's Edward Luce, it looks like the Obama administration's policy malaise on trade is not winning it any allies in East Asia: 

In a meeting with President Barack Obama last week, Lee Kuan Yew, the veteran former prime minister of Singapore, said he felt privileged to meet the US leader at a “time of renewal and change in America and during a period of transition where the world order is changing”.

At private meetings around Washington, however, Mr Lee’s message was rather more blunt.

“You guys are giving China a free run in Asia,” he told Fred Bergsten, the director of the Peterson Institute for International Economics. “The vacuum in US policy is enabling the Chinese to make the running.”

Mr Lee’s timing was apposite. On Wednesday Mr Obama leaves for Tokyo for a regional tour that will include China, South Korea and Singapore, where Mr Lee’s government is hosting a summit of the Asia Pacific Economic Co-operation (Apec) forum this weekend. Surveys in each country show that Mr Obama’s popularity has helped to restore the battered US standing in the region.

But the views of Asian governments do not always chime with those of their public. Across the region, concern is rising about the absence of US leadership on trade since Mr Obama took office. Few believe that he has the will or power to restart the Doha round of global trade talks – and he has not asked Congress for a renewal of the presi- dent’s fast-track negotiating authority.

Fewer still believe that he will be able to ratify the landmark 2007 US-South Korea free-trade agreement in the face of strong hostility in Congress....

while globalisation gets steadily less popular in the US, other parts of the world are moving ahead. South Korea recently concluded a free-trade deal with Europe. Japan is holding similar talks with the European Union. Ironically, the EU broached the talks as a way of protecting itself against the trade-diverting effects of the now moribund US-Korea deal.

US business lobby groups are hoping Mr Obama will be able to achieve some kind of a breakthrough in Seoul next week. Given that it would be futile for him to send the free-trade agreement back to Capitol Hill, any new steps would have to include a renegotiation of the deal to include better market access for US cars.

“It is really important to understand just how badly the US is screwing itself on trade,” said Mr Bergsten. “By having an inactive trade policy, others are rushing to fill the vacuum.”

For an administration that claims it wants to have better relations with its allies, Obama and his foreign policy team have been remarkably tone-deaf when it comes to trade policy. 

At every major summit meeting since he's come to office, Obama has heard complaints about the lack of U.S. leadership on the trade front.  This administration has demonstrated that it's not afraid to tackle multiple, complex challenges at the same time -- and yet they've been either mute or worse when it comes to trade. 

Barack Obama's decision to put trade policy in a lockbox and throw away the key is utterly appalling -- and, from a foreign policy perspective, completely counterproductive. 

When the Obama administraton announced the decision to slap a 35% tariff on Chinese tire imports, I was pretty sure that free traders would be incensed.  And I haven't been disappointed -- even the financial markets are freaking out over this one. 

We trade enthusiasts are an excitable lot, however, what with everything leading to the falling off of cliffs, crossroads being reached, and red zones being breached.  Seven years ago, the allegedly free-trade Bush administration imposed steel tariffs that were found to be WTO-inconsistent.  There was a lot of gnashing of teeth and wailing at the time about the end of the open economy as we knew it -- yet the world trade system proved to be pretty robust.  So maybe my trade compatriots are exaggerating things a wee bit, yes?  In all likelihood, won't this be resolved via the WTO dispute settlement mechanism about 18 months from now?

For the first eight months of the Obama administration, I've been resisting the urge to shout "protectionism" at the drop of the hat.  This time, however, there are four reasons why I'm feeling much more nervous: 

1)  This isn't your garden-variety protectionism.  Last month, Chad Bown explained the Financial Times why this decision was a very special kind of protectionism: 

[A] little-known loophole in the rules governing China’s 2001 WTO accession makes it easy for a global protectionist response to spread faster and further than that which took hold in 2002. Nowadays, once any one country imposes a China safeguard on imports, all other WTO members can immediately follow suit, without investigating whether their own industries have been injured.

So this trade dispute can metastasize more quickly than most. 

2)  Beijing is not lying down on this.  China's furious and swift reaction points to another problem:  the United States is not the only country feeling protectionist urges at the moment.  Economic nationalism in China is riding quite high at the moment, as Keith Bradsher suggests in the New York Times: 

The Chinese government’s strong countermove followed a weekend of nationalistic vitriol against the United States on Chinese Web sites in response to the tire tariff. “The U.S. is shameless!” said one posting, while another called on the Chinese government to sell all of its huge holdings of Treasury bonds....

China had initially issued a fairly formulaic criticism of the tire dispute Saturday. But rising nationalism in China is making it harder for Chinese officials to gloss over American criticism.

“All kinds of policymaking, not just trade policy, is increasingly reactive to Internet opinion,” said Victor Shih, a Northwestern University specialist in economic policy formulation.

Methinks Shih and Bradsher are exaggerating things a wee bit -- imagine for a moment if U.S. foreign policy was driven by people getting upset on the Internet -- but you get the point.   

The U.S. use of this provision is doubly troubling, because from Beijing's perspective their WTO accession negotiations were seen as a humiliating kowtow to the power of the West.  China is not going to be selling its bonds anytime soon, but Beijing has not quite mastered how to cope with these kinds of domestic pressures, so they could do something really, really stupid.

3)  Politically, Obama has boxed himself in.  As egregious as the Bush steel tariffs were, they were targeted at a sector and not a country.  Furthermore, the Bush administration responded to the hubbub very quickly by watering down the worst effect of the tariffs. 

The Obama administration's new tariff is expressly directed at China.  And I'm not saying that China is blameless here.  But because it's country-specific, the administration has less room to maneuver -- either the tariffs are applied against China or they aren't.  It can't walk this back without it looking like a flip-flop.  Which means that there's little room for concession or negotiation. 

4)  Obama's base scares me on trade.  When the Bush administration did what it did, it was fulfilling a campaign promise to the state of West Virginia steelwokers.  Fortunately, the rest of Bush's winning political coalition was not seeking trade relief.  So the protectionist instinct pretty much ended with the steel tariffs -- and everyone in the Bush administration knew that they'd be overturned by the WTO eventually. 

With the Obama administration, however, this feels like the tip of the iceberg.  Most of Obama's core constituencies want greater levels of trade protection for one reason (improving labor standards) or another (protecting union jobs).  This isn't going to stop.  "Trade enforcement" has been part and parcel of Obama's trade rhetoric since the campaign.  The idea that better trade enforcement will correct the trade deficit, however, is pure fantasy.  It belongs in the Department of Hoary Political Promises, like, "We'll balance the budget by cracking down on tax cheats!" or "By cutting taxes I can raise government revenues!"  It.  Can't.  Happen. 

If I knew this was where the Obama administration would stop with this sort of nonsense, I'd feel a bit queasy but chalk it up to routine trade politics.  When I look at Obama's base, however, quasiness starts turning into true nausea. 

Developing.... in a very, very scary way. 

UPDATE:  More from Brad DeLong, Dave Schuler, and Shadow Government's Phil Levy. 

My latest column for Newsweek International is now online, and points out the hazards of a failed G-20 summit.  The closing: 

As World Bank president Bob Zoellick recently observed, the promotion of the G20 to the global stage is an accident of history. The group had a harmless existence for close to a decade. When the crisis hit, it was the only forum around that brought together the key players in global finance.

The G20 gets a mulligan for last year's hastily arranged summit. A failure to act this time around will be far more damaging. In the absence of global cooperation, countries will go it alone, which means a ratcheting up of financial, trade and fiscal protectionism. And today's global economy already has too much in common with the 1930s. 

Perusing the draft communique printed in the FT, I'd describe it as "a failure to act" already, but let's be charitable and see what happens in London.

Meanwhile, Heather Hurlburt and I discuss all things G-20 in our latest bloggingheads diavlog.  We also share our fear of "impact" as a verb, and, oh, yes, I propose burning Heather at the stake.  All in all, a lively chat. 

Anu Bradford is hosting a blog roundtable at the University of Chicago's Law School faculty blog about the future of the World Trade Organization. 

So far, the consensus is not encouraging for fans of an open global economy:

Anu Bradford:  "Trade protectionism is on the rise but the institutional foundations of international trade deals have been shaky for several years."

Daniel Abebe:  "we should see great power competition to be increasingly focused on trade issues and, given the tentative claims here, we should see increasing gridlock in the WTO."

Greg Shaffer:  "As for the Doha Round, it looks pallid in light of the staggering financial crisis that confronts us."

Richard Steinberg:  "As a location for trade negotiation, the WTO is dead." 

Well, that is all cheery news! 

In fairness, both Shaffer and Steinberg point out that the WTO is not irrelevant, because its Dispute Settlement Understanding remains the gold standard of enforcement in economic cooperation.  That said, this is still pretty bleak.  What can the WTO do? 

Read the rest of their posts to see some of their suggestions.  Here's my modest proposal -- the WTO needs to start an ilicit nuclear weapons program. 

Think about the benefits:

1. If you thought enforcement was good now, imagine what it would look like backed up by a nuclear deterrent.  The Appellate body would become a seriously bad-ass judicial authority.
2. Trade negotiations would move from page B23 of the business section to page A1.  This would create domestic political pressures for successful negotiations. 
3. The Obama administration would immediately dispatch a high-level envoy to negotiate with the WTO.
4. Russia and China would reflexively support the WTO on various policy positions in the U.N. Security Council.
5. The WTO could likely extract a better set of lunch options for its Geneva-based personnel.  Having just been there, let's describe the current menu of choice as "underwhelming."

A nuclear-armed WTO -- good for trade and good for nonproliferation. 

A lot of bloggers are linking to this Dave Schuler post about how bad things are in East Asia.  I certainly don't dispute the facts in the post, but I'm a bit worried about the implicit schadenfreude that's accompanying a lot of the links. 

To understand why I'm worried, consider this latest blast of bad economic news from the FT's Geoff Dyer: 

Chinese exports dropped 17.5 per cent in January compared with the same month the year before, the biggest decline in more than a decade as the impact on the economy from the global slump gathered pace.

Imports to China declined by a dramatic 43.1 per cent in a further indication of sharply lower demand in the Chinese economy over the last few months which has caused unemployment to soar.

January was the third month in a row that Chinese exports fell although the pace of decline was much faster than the 2.8 per cent drop in December. The decline in imports also accelerated sharply from the 21.3 per cent contraction in December....

With imports falling faster than exports, China recorded another large trade surplus in January of $39.11bn, just below the record of $40.1bn set in November last year.

Everyone will focus on the export number, because that's seen as the important sign of China's economic health.  My concern is with the import number.  Brad Setser explains: 

What worries me the most? The possibility that the sharp y/y fall in imports doesn’t just reflect a fall in imported components or a fall in commodity prices, but rather a major deceleration in China’s domestic economy.

In some sense, it is hard to imagine a worse combination. China’s export are falling, making China understandably reluctant to allow its currency to appreciate. But China’s trade surplus is also rising … certainly in nominal terms and quite possibly in real terms. That isn’t good for the world.

At a time when the world is short demand, China seems to be subtracting from global demand not adding to it. The best solution: an absolutely enormous domestic stimulus in China.

For the global economy to start growing again, China is going to have to be one of the locomotives.  But these kind of numbers are going to make it difficult for Beijing to do anything more on its currency or domestic consumption.  This inaction is going to depress the export sectors of a lot of economies, and I'm really worried about the political response to that. 

As I've said before, in recent months there is a danger of creeping protectionism getting in the way of countries enacting expansionary fiscal policies (and the bill that passed the House only reinforces this danger, by the way)

In the past few days at Davos, others have voiced this concern, but with a twist. Rather than complaining about the underprovision of a fiscal boost, some are complaining that the Americans are hogging all the expansionary plans. First, there's Russia:

A senior adviser to Dmitry Medvedev, Russia’s president, has sharply criticised the scale of the new US administration’s economic rescue package and projected budget deficit, saying it would suck up liquidity from other global markets.

“What is discouraging is [President Barack] Obama’s statement that he is going to run a $1 trillion deficit for years to come. For us, that means that all the free liquidity in the world will run into American Treasury bills,” said Igor Yurgens, who heads a think-tank advising Mr Medvedev. “That liquidity will not be available in other parts of the world. For us, it will be worse.”

Mr Yurgens said the policy was akin to the “beggar thy neighbour” protectionist policies of the 1930s. “Of course [Mr Obama] expects the Chinese or Russians to buy US Treasury bills. That is pretty selfish and philosophically it is protectionism.”

He's not the only one making this complaint. The NYT's Nelson Schwartz has a good chronicle of these concerns:

Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the federal government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.

“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”....

“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.

“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”

Meh. To be generous, these complaints are not completely without foundation. They are a little odd, however. If the United States does not engage in greater stimulus, then other countries are going to have to pick up the slack, or this recession will last a long time. Indeed, count me in the Martin Wolf/Brad Setser camp of those who would love to see other countries -- *cough* China, *cough* -- starting to boost their own consumption as a means for igniting global growth, because that would also help to redress the macroeconomic imbalances that are at the heart of the current predicament.

To date, however, the efforts by most of these other countries have been underwhelming. [What about China?--ed. Their stimulus has targeted investment rather than personal consumption, so yes, them too.] If I were Obama, I wouldn't trust other countries to provide the locomotive power necessary to get the global economy moving again. So I don't see how they can blame the United States for doing what they are choosing not to do.

• UBS projects that the total stimulus from fiscal expansions will be around 1.5% of global GDP.  That's short of the 2% goal of the IMF and will not "meaningfully boost global growth next year."
• It's possible that the UBS estimate was optimistic.  As Wolfgang Munchau writes in the Financial Times:  "The electoral timetable in the US has delayed an effective policy response and I fear that the new economics team of President-elect Barack Obama will be too much focused on domestic stimulus and not enough on global co-ordination. The Europeans and Asians, meanwhile, are unbelievably complacent."  Indeed, the Germans have now announced that they'll wait for President Obama to make the first fiscal move before they do anything strenuous on this front. 
• According to the FT's Raphael Minder, Asian exporters are renewing efforts to undervalue their currencies: 

With plunging exports and economic contraction overtaking inflation and liquidity as concerns, Asian central banks are starting to buy dollars, raising devaluation worries. Patrick Bennett, Asian currency strategist at Société Générale, said there was evidence that central banks in Singapore, Malaysia, India and South Korea had started dollar buying “in the last couple of days”. HSBC has highlighted “a shift to depreciation policy”, notably in Thailand and Taiwan, which recently bought dollars for the first time since August 2007 and April of this year respectively. The Asian Development Bank gave warning last week that “we need to avoid unnecessary and excessive interventions in the foreign currency markets, especially to depreciate domestic currencies”. Writing in this week’s FT, Michael Pettis, finance professor at Peking University, expressed caution about “a grave risk” that Asian countries would seek to force overcapacity adjustment on to trading partners through currency depreciation and other trade-related measures.