Earlier this week Shadow Government's Phil Levy threw some cold water on my pre-election optimism that foreign economic policy would take the lead in 2013, attributing it to my being in Paris when I wrote it. Phil has a lot more hands-on experience in these matters than I do, so it's worth reading his post in full. To sum up here, however:
If, on a 10-point scale, the first term free trade challenges were a 'degree of difficulty' 2, then this term's challenges are an 8 or a 9.... it may be useful to distinguish between President Obama's political cost/benefit of negotiating a trade agreement and of concluding one....
Trade agreements take time. If the president is to get anything completed, he needs to start right away.
How to respond? Well, first, I have a confession -- I did have a lovely time in Paris.
That said, now that I'm back in the austere bleakness that is November in New England, I'll stand by my prediction. This is for a few reasons. First, to push back on Phil a bit, I wouldn't characterize Obama's free trade challenges in the first term so easily. As someone who was pretty critical of the president on trade matters, I would nevertheless acknowledge that he was facing gale-force winds on this topic during his first term. In retrospect, if I had told Phil that the global economy would face the worst economic crisis since the Great Depression and yet the United States would not resort to rank protectionism, I think he'd be moderately pleased. Now, this wasn't entirely due to Obama, but still, I think he could have made things a lot worse... but didn't.
To be fair, I think Phil's point was intended to be a bit narrower -- namely, that it was easy for Obama to push ratification of Budh-negotiated FTAs but hard to negotiate his own. But surely, one of the reasons that Democrats were not particularly keen on those FTAs is because Bush negotiated them, yes? If a Democratic president claims ownership of an FTA, I'd bet he's gonna get more party support in Congress. Also, a side note: I'm dubious that traditional Democratic Party objections would block either the TPP or a Europe deal.
Finally, in his post, Phil actually lays out the logic of why I think these deals will go forward:
The problem is that U.S. trading partners will not be infinitely patient in awaiting the conclusion of the deals under discussion. From a broader foreign policy perspective, the TPP is absolutely central to the administration's pivot to Asia. Europeans are eagerly backing the idea of an FTA as one of the few positive signals they might send to investors amidst the still-looming euro zone crisis. There will be serious foreign policy consequences if the president fools us thrice on support for trade.
Phil is right -- and it's precisely this reason that makes me think that Obama will make more forwrd progress on this in his second term. For most of the postwar era, the United States could act as a veto player. If it didn't get what it wanted in the GATT/WTO or some regional agreement, well, progress was halted. One way the world has changed is that even if the United States calls a time-out, the rest of the world won't. That kind of logic can compel even reluctant traders into agreeing to deals once they recognize that the status quo is even worse -- a logic that Lloyd Gruber spelled out in his excellent, underrated book Ruling the World.
Now I'm not quite Nate Silver-like in my confidence about the next term, but I do hereby offer a challenge to Phil: I'm willing to bet that at least two out of the following four things will happen during Obama's second term:
1) A Trans-Pacific Partnership that is ratified by Congress;
2) Bilateral investment treaties with India and China;
3) A transatlantic integration agreement;
4) A new services deal within the auspices of the WTO.
If Obama comes up short, I hereby offer to treat Phil to an expensive dinner at a DC restaurant of his choosing, because clearly Washington remains dysfunctional. If I'm right, however, Phil has to buy me dinner in New York, that most globalized of American cities.
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?
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).
3) Perfect trade enforcement would have only a marginal impact on employment;
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 decade, Stephen Roach has been the Eeyore of global economic analysis -- gloomy about the U.S. economy, gloomy about Chinese economic policy, and in yesterday's Financial Times, very, very gloomy about what would happen to the Sino-American relationship if Mitt Romney became president. Here's how he closes:
By the autumn of 2013 there was little doubt of the severity of renewed recession in the US. Trade sanctions on China had backfired. Beleaguered American workers paid the highest price of all, as the unemployment rate shot back up above 10 per cent. A horrific policy blunder had confirmed that there was no bilateral fix for the multilateral trade imbalance of a savings-starved U.S. economy.
In China, growth had slipped below the dreaded 6 percent threshold and the new leadership was rolling out yet another investment stimulus for a still unbalanced and unstable Chinese economy. As the global economy slipped back into recession, the Great Crisis of 2008-09 suddenly looked like child’s play. Globalisation itself hung in the balance.
History warns us never to say never. We need only look at the legacy of U.S. Senator Reed Smoot and Representative Willis Hawley, who sponsored the infamous Tariff Act of 1930 – America’s worst economic policy blunder. Bad dreams can – and have – become reality.
Like Roach, I think Romney's stated policies towards China have been a wee bit over the top. And it's certainly true that China hasn't reacted terribly well to Romney. The key word here is "stated," however. In Roach's analysis, this is how things escalate:
Feeling the heat from [plummeting] financial markets, Washington turned up the heat on China. Mr Romney called Congress back from its Independence Day holiday into a special session. By unanimous consent, Congress passed an amendment to [a 20 percent tariff on Chinese products] – upping the tariffs on China by another 10 percentage points.
Call me crazy, but if a brewing trade war triggers economic contraction, which then triggers rising financial discontent, I don't see any president responding by accelerating the trade war. I certainly don't see bipartisan support for such a trade war.
If the 2008 financial crisis failed to spark a renaissance in protectionism, then Mitt Romney ain't gonna be able to do it all on his own. Stephen Roach's yarn is entertaining but not persuasive.
Am I missing anything?
Jason Kempin/Getty Images
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.
Here's a more complete transcript of my interview with Peterson Institute for International Economics founder C. Fred Bergsten that Foreign Policy excerpted earlier in the week. I edited and abridged the transcript to clean up some of grammar. Have at it -- Bergsten's discussion of his role in the Trans-Pacific Partnership should make for interesting reading!!
DANIEL W. DREZNER: I guess the first question I would ask is, what do you think the [Peterson Institute for International Economics'] greatest accomplishment has been?
C. FRED BERGSTEN: I think our greatest accomplishment has been to educate Americans on the benefits of globalization. And the first calculation that tried to quantify the effects, namely a trillion dollar a year -- higher -- national income, the potential for further gains of another half-trillion a year could go all the way to reducing barriers to global trade. Um, it's been a tough battle. It started in earnest I'd say in the NAFTA fight in Congress, and it continued during every one of the trade policies at the time. It's of course come up repeatedly in the capital flows context as well with all the monetary crises going back to the 80s with the debt crisis, and the 90s with Asia, Russia, Brazil, Mexico, etc. And now, with the crises of the high-income countries...but I think, putting it in the broadest terms, we have been the people trying to expand understanding of globalization -- its benefits and costs, which there certainly are -- but how [on] balance, it's a positive force, both for the U.S. economy and for U.S. foreign policy. In doing that, we have never tried to cover up or short-change the costs, particularly the adjustment the cost to workers and [immobile] factors of production, but it's mainly workers. We've quantified that, about 50 billion a year to offset against the one trillion a year of gains --20/1 cost ratio -- pretty overwhelming but that is significant cost. So that has to be dealt with, and the U.S. has not dealt with it very well. Trade adjustment is miniscule -- one billion a year. We need to invest more to deal with the downside; the cost of losing, in order to keep the benefits of globalization on a stable basis. And we've argued that throughout, and I think our balance carried the day. But the battle rages on, as you know, so much work yet to be done.
DWD: Of course, I know you're a Fletcher alum, and I'm speaking right now from the Fletcher school, so I have to ask this question: In what ways did your Fletcher experience prepare you for going to DC and then sort of creating the Institute for International Economics?
CFB: Well, it prepared me really well because I learned really most of my international economics there, from the top professors of the day, [like] Charles Kindleberger.
DWD: Kindleberger was there when you were? Oh, I didn't know that.
CFB: Charlie taught a couple of courses -- a course on Europe, Europe Economy, an economics course on development with Humphry called the Don and Charlie show -- that was one of the highlight performances on the campus. But their teaching gave me most of my roots in international economics, and always -- obviously in a global context -- but also in a real world context; a political economy context that was, of course, really useful then for going into the policy world, which I did, most immediately into government, and then with that of most of my 20 years of career then to creating the institute.
DWD: Do you think America's foreign policy establishment has become more or less economically literate since when you first started IIE?
CFB: I don't think there's been much change. They were not very literate then, and they're not very literate now. My first big job -- I had a couple of lesser jobs -- my first big job was becoming economic deputy to Kissinger when he was National Security Advisor under Nixon.
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.
While today is undeniably International Talk Like a Pirate Day, it also appears to be Let's Release Something About Trade Day inside the beltway. Scanning these documents, I'm pretty depressed about the future of trade policy and trade politics.
The Council on Foreign Relations released a Task Force Report on Trade and Investment Policy. The Task force was populated from a bipartisan list of eminences who agreed upon the following list of bullet points:
1) A trade-negotiations agenda that opens markets for the most competitive U.S.-produced goods and services
2) A National Investment Initiative that would coordinate investment policies to create more high-wage, high-productivity jobs in the United States
3) A robust and strategic trade enforcement effort that ensures U.S. companies and workers are not harmed by trade agreement violations
4) A greater push to promote U.S. exports through more competitive export financing and a more active U.S. government role in supporting American overseas sales
5) An expanded use of trade to foster development in the world’s poorest countries
6) A comprehensive worker adjustment and retraining policy
7) A new deal with Congress to give the president a mandate to negotiate trade-opening agreements with an assurance of timely congressional action
OK, let's see... (1) is just a restatement of principles, (3) is an old saw that only gets repeated during a presidential election season, (4) sounds awfully similar to the status quo policy, (5) is not a politically viable option, (6) is a political non-starter, and (7) will only happen if a single party controls the executive and legislative branches. So, to sum up, all of the the good, innovative policy proposals are politically impossible right now.
You can understand why I'm feeling a bit like Madeline Kahn in Blazing Saddles.
As much as I want to see further trade liberalization, however, I'm getting equally weary of lazy pro-trade rhetoric. Consider, as Exhibit A, this open trade letter to President Obama that Jaggdish Bhagwati pulled together (reprinted in The American Interest). The key paragraph has the following assertions:
The fear of the labour unions that trade with the poor countries produces poor in the rich countries is mistaken. The demand of the business lobbies that want ever more concessions from others is excessive. The contention of some experts that the gains from Doha are minuscule is flawed in neglecting the costs of the failure of Doha and the ensuing damage to the WTO. The retribution by a protectionist public is greatly exaggerated: many jobs today depend on both exports and imports and the polls reflect that.
As the 2012 campaign heats up, let's just re-write that last paragraph in the language of political pollsters:
If you push to ratify Doha as is, the unions will freak, big business will stand on the sidelines, some experts will argue that the gains are miniscule, and the public will likely disapprove of the deal unless they suddenly care enough to follow the issue. Get to it, President Obama!
The worst part of that paragraph, however, is the claim regarding "ensuing damage" to the WTO is Doha fails. Anyone paying attention to Doha has been aware that the trade round has been deader than a doornail since before rthe 2008 financial crisis. It's so dead that the Bush administration's last trade negotiator proposed scrapping it. What's striking is that, three years after Doha became DOA, the damage to the WTO appears to be pretty minimal. The wave of protectionism triggered by 2008 crested a while ago, and trade volumes recovered quickly. Don't get me wrong, I'm not happy that Doha is dead -- but the WTO's survival does not seem contingent on its passage.
Am I missing anything?
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?
Today is Patriots Day in Massachusetts, which means it's a school holiday, which means I'm at home with the Official Blog Children. Because I don't have much time to blog in-depth about much, I'd like to address a shallow topic this AM -- Donald Trump.
The current frontrunner for the 2012 GOP presidential nomination has made a few comments hinting at how he would approach foreign economic policy. Let's take a look, shall we?
From the Wall Street Journal:
As for foreign policy, Mr. Trump said he is "only interested in Libya if we take the oil," and that if he were President, "I would not leave Iraq and let Iran take over the oil." He remains sharply critical of the Chinese, asserting that as President, "I would tell China that you're either going to shape up, or I'm going to tax you at 25% for all the products you send into this country."
"I'm all for free trade, but it's got to be fair trade," he said. "China has taken advantage of this country for a long time." Regarding the $300 billion he said China stands to make from trade with the U.S. this year, Mr. Trump said, "What's protectionism? ...I want to be protected if that's the case." As for pending trade deals with Colombia, Korea and other countries, he said he would only sign them if they were the right deals for the U.S. "If it's a bad deal, I wouldn't sign it," he said.
Here's a fun little project for the commenters: predict what would happen to the global political economy if, in fact, President Trump seized all of Iraq's oil reserves and slapped a 25% tariff on Chinese exports. Hint: I don't think it ends well.
As for the trade deals, given that almost all of Panamanian and Colimbian exports come into the United States duty-free, I'm dying to hear how the Donald is going to improve upon them.
The stuff from the WSJ is boilerplate economic populism mixed with a healthy dollop of ignorance about the global economy -- but then there's this exchange with CNN's Candy Crowley:
Donald Trump says that the "right messenger" could tell OPEC to lower crude oil prices, insisting that prices "will go down if you say it properly."....
Asked on by CNN host Candy Crowley what his idea would be to get OPEC to lower crude oil prices, Trump said: "It's the messenger."
"I can send two executives into a room. They can say the same things; one guy comes home with the bacon and the other guy doesn't," Trump said. "I've seen it a thousand times. ... We don't have the right messenger. [President Barack] Obama is not the right messenger. We are not a respected nation anymore and the world is laughing at us."
Well, I agree with Trump that the world is laughing at someone.
The statement that the U.S. is "not a respected nation anymore" is flatly false. As for whether the "right messenger" can convince OPEC to lower crude oil prices, methinks that Trump is vastly exaggerating the ability of any messenger to tell countries to act against their economic and political self-interest (not to mention OPEC's influence over oil prices). Well, that or he's been watching this scene way too many times.
According to Politico's Maggie Haberman and Ben Smith:
More than anything else, according to those who’ve spoken to [Trump], he doesn’t want to be seen as the butt of this particular joke.
“He gets mad that people aren’t taking him seriously,“ said one Republican who’s spoken with him.
So, just for the record , this is me trying to take Donald Trump's policy pronouncements seriously. That said, I'd like to thank the Donald for providing such easy blog fodder on a holiday!
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.
No president can reasonably be expected to put a ton of political muscle behind a lost cause, and major progress on, say, the Doha round, was pretty clearly a lost cause from the day Obama entered office. In the face of a catastrophic global recession, there was never even the slightest chance of gaining support either at home or abroad for any major trade initiatives, and it's simply not reasonable to expect Obama to put any energy behind it. Not only would it have gone nowhere, it might even have been counterproductive. Better to wait until the global climate provides at least a bit of a tailwind.
Second, this isn't a classroom, where you get an F for not showing up. In politics, you get an F for being counterproductive. Obama hasn't been. He's simply ignored trade as an issue. But he hasn't done any harm, and under the circumstances that's quite possibly about as much as a trade enthusiast could have hoped for.
Avent concurs. He notes that global trade has survived and thrived after the Great Recession, concluding, "The global economy has lived to fight another day, and that's something to appreciate."
These are interesting points, but I fear that Drum and Avent are far too easy in their grading. Rewarding Obama for not making things worse on the trade front is like rewarding him for not invading Pakistan -- kudos for not pursuing a spectacularly bad idea, but really, is that a positive accomplishment? I think not. Or to use another grading analogy -- students can receive an F even if they don't plagiarize.
As for Obama resisting the tides of protectionism, I'll credit the separation of powers a bit more than Drum or Avent. The U.S. political system is arranged to make it very difficult for anyone to change the status quo. Even if Barack Obama wanted to pull the United States out of the World Trade Organization, for example, he likely couldn't have gotten the necessary votes in Congress. The Obama administration has mildly resisted more hawkish member of Congress to "get tough" with China. That's about it in terms of preventing protectionism. When I said Obama had done almost nothing on trade, I wasn't kidding.
If I have a student who barely puts in any work and nevertheless writes great papers, they'll receive a good grade. The outcome matters more as one matriculates. A student who barely puts in any work and has nothing to show for it? F city.
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.
Alexander F. Yuan-Pool/Getty Images
young blogging whippersnapper rising young blogger Kindred Winecoff beat me to a blog post I intended to write last night. Winecoff takes note of the dwindling number of protestors showing up for the IMF spring meetings. This has been a trend for a couple of years now -- far fewer protestors at IMF/World Bank meetings, G8/G20 summits, and WTO Ministerials.
Why are protests dwindling? This is particularly puzzling because the protestors might have an intellectual leg to stand on; the 2008 global financial crisis suggested at least a prima facie case against financial globalization. Winecoff posits some possible explanations:
I can think of a few possibilities. First, the protests were loudest in the 1990s because of NAFTA (1994), the establishment of the WTO to supplant the GATT (1995), the fairly brutal "Big Bang" liberalization of the post-Soviet economies throughout the 1990s, the harsh austerity measures that came with IMF aid following the East Asian financial crises (1997-8), and the accession of China to the WTO (2001). It was a pretty active decade for neoliberals, which means it was a fairly active decade for anti-capitalists and anti-globalizationists despite the collapse of the Soviet system a few years prior.
Since 2001? Not much has happened on the globalization front. Doha is stuck in limbo, even modest FTAs with small countries have been slow in progressing through Congress, and the IMF had basically nothing to do for nearly a decade. Now that the IMF has been pressed into action again it's largely taken a more accommodating line toward recipient states, and it's pretty difficult to argue that Greece, e.g., is a victim of Western economic imperialists. The globalization of the Naughties was a kindler, gentler, calmer globalization compared to the Brave New World Is Flat globalization of the 1990s.
But I think that's only part of it. I think a better explanation is that people in general, and college students in particular, only have attention for one cause at a time, and environmentalism has definitely become the sexy issue over the past 8-10 years. When I hear people complain about China's trade practices these days, the arguments are less about the use of sweatshop labor and more about environmental degradation. To me it seems that the one has simply supplanted the other as the most pressing issue for the socially conscious.
Hmmm.... no, I don't think Winecoff is correct. Even if it's true that the kids today care more about environmental degradation than labor abuses, this shouldn't stop them from protesting at economic summits. Indeed, from the mid-nineties onwards, protests against labor and emvironmental abuses have gone together like racism/sexism/homophobia accusations.
Also, I would dispute the empirics of Winecoff's assertion. The protests didn't die out with the change in the decade -- they were pretty robust at G-8 summits in the first part of the naughties, as well as the 2003 Cancun WTO Ministerial and the 2005 Hong Kong Ministerial. This is a more recent phenomenon.
I'd proffer three possible explanations. The first, which I don't really buy, is that the protestors have wised up and realized that these meetings are not the cause of the ills that they bemoan and bewail.
The second possibility, which I'm very unsure about, is that public opinion has shifted. Anti-globalization activists usually demand greater state intervention in the economy, and that's an increasingly unappetizing idea for people living in the advanced industrialized economies.
The final possibility is an idea I floated in a book review many moons ago:
During boom times, antiglobalizers score political points by stoking fears of cultural debasement and environmental degradation. During leaner years, naked self-interest becomes the salient concern: in the current economic climate, American opponents of globalization talk less about its effect on the developing world and more about the offshore outsourcing of jobs.
Let's call this the Business Cycle Theory of Economic Protestors. I don't know if it's true either.
Readers are encouraged to offer their own hypotheses in the comments -- or, better yet, point to some sloid research on the question.
Angelos Tzortzinis/AFP/Getty Images
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?
MIKE CLARKE/AFP/Getty Images
Yesterday President Obama delivered a speech fleshing out his National Export Initiative -- the doubling of U.S. exports in the next five years. Longtime and short-time readers of this blog are already aware of my deep skepticism of this idea.
Others at FP, however, observe that it has happened in the past (1981 most recently), so perhaps "Obama's plan to double the number by 2015 does not seem so far-fetched."
So, let's clarify: the possibility of U.S. exports doubling in the next five years is pretty small, but within the realm of the doable. Obama's National Export Initiative will have no appreciable effect on export flows.
The fundamental drivers for U.S. exports are the rate of economic growth of the rest of the world and the exchange rate value of the dollar. If the dollar depreciates in value and the rest of the world experiences high rates of economic growth, then exports will take off. Everything else would generously be described as window dressing.
Let's consider the content of the key parts of Obama's speech to see what I'm saying:
I know the issue of exports and imports, the issue of trade and globalization, have long evoked the passions of a lot of people in this country. I know there are differences of opinion between Democrats and Republicans, between business and labor, about the right approach. But I also know we are at a moment where it is absolutely necessary for us to get beyond those old debates.
Those who would once support every free trade agreement now see that other countries have to play fair and the agreements have to be enforced. Otherwise we're putting America at a profound disadvantage. Those who once would once oppose any trade agreement now understand that there are new markets and new sectors out there that we need to break into if we want our workers to get ahead.
Second of all, could someone, anyone, point to a politician that once opposed trade deals and are now in favor of them? Anyone?
So, what are the components of the National Export Initiative, beyond a couple of interagency committees that will accomplish nothing?
First, we will substantially increase access to trade financing for businesses that want to export their goods but just need a boost –- especially small businesses and medium-sized businesses.
Let's be generous and say that this would make a huge difference (it won't) and that it would really increase exports from this sector. Given that roughly 70% of U.S. exports come from large corporations, this still wouldn't accomplish all that much. Next!!
[T]he United States of America will go to bat for our businesses and our workers....
Going forward, I will be a strong and steady advocate for our workers and our companies abroad.
And this effort will extend throughout my administration. Secretary Locke is issuing guidance to all senior government officials who have foreign counterparts on how they can best promote our exports. Secretary Clinton is mobilizing a commercial diplomacy strategy, directing every one of our embassies to create a senior visitors business liaison who will manage our export advocacy efforts locally, and when our ambassadors return stateside, we’ll ask them to travel the United States to discuss export opportunities in their countries of assignment.
SCENE: A small factory somewhere in Malaysia.
The PLANT MANAGER and his FOREMAN are looking at the assembly line:
FOREMAN: You know, we could really make a better widget if only we had a better-quality thingmabob.
PLANT MANAGER: Well, we could import it from Vietnam, Taiwan, South Korea, Japan....
[Sound of trumpets grows louder. PRESIDENT OBAMA enters the factor on a Segway.]
PRESIDENT OBAMA: Have you thought of buying American? [Obama exits]
[PLANT MANAGER and FOREMAN smack hands on heads]
PLANT MANAGER: Why, of course!! I can't believe we didn't think of importing from the largest economy in thw world!
FOREMAN: I know, it's like, we never even thought of America as a producer of anything!
PLANT MANAGER: Thanks, President Obama!!
Third, we’ll unleash a battery of comprehensive and coordinated efforts to promote new markets and new opportunities for American exporters.
Yawn. See response to point one.
The fourth focuses on making sure American companies have free and fair access to those markets. And that begins by enforcing trade agreements we already have on the books.
As I've said before, this is akin to saying that the budget deficit can be fixed through better tax collection measures by the IRS. It won't accomplish much of anhything.
Of course, new trade agreements might actually expand export opportunities, but the language in the speech on that front contains nothing new.
We’ll also work within the G20 to continue global recovery and growth. Last year, when the G20 met to coordinate the international response to our global economic crisis, we agreed that in order for that growth to continue, we needed to rebalance our economies. For too long, America served as the consumer engine for the entire world. But we’re rebalancing. We are now saving more. And that means that everybody has got to rebalance. Countries with external deficits need to save and export more. Countries with external surpluses need to boost consumption and domestic demand. And as I’ve said before, China moving to a more market-oriented exchange rate will make an essential contribution to that global rebalancing effort.
If there were any concrete policy directives on this front, I would straighten up and put away the snark. Global rebalamcing would have an appreciable impact on exports. Unfortunately, there's nothing in the speech on this topic beyond this paragraph.
[W]e’re going to streamline the process certain companies need to go through to get their products to market -– products with encryption capabilities like cell phone and network storage devices....
[W]e’re going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees.
My reaction to this idea is the same as my reaction to the rest of the list -- these aren't awful policy ideas so much as completely superfluous. None of them wuill have an appreciable effect on exports.
The primary purpose of the National Export Initiative is to function as a political excuse. The White House now has something to point to when critics accuse them of lethargy and/or protectionism on the trade front. That is all.
Did I miss anything?
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.
My latest column for The National Interest Online is now available. It takes a longer look at the implications of Obama's tire tariff decision. The more I look at this move, the more freaked out I get. I think I've figured out the precise contours of Obama's trade strategy -- and trade plays a very small role:
With Obama... this dip in the protectionism pool feels like the beginning of something much greater. Many Democrats feel warm and fluffy about protectionism, as a mechanism to improve labor standards or an ironclad guarantor of union jobs. This love affair isn’t going to stop. Thea Lee, the chief economist of the AFL-CIO, told the New York Times that “the trade decision was the president’s first down payment on his promise to more effectively enforce trade laws, and it’s very much appreciated.” Unions are already demanding additional action against Chinese steel....
All presidential administrations engage in protectionism—it’s often the cost of pushing through other forms of trade liberalization. While the previous two administrations engaged in these kinds of actions, they could proudly point to ambitious agendas of trade liberalization as well. The Clinton administration sought to add contentious labor and environmental side agreements to its trade deals—but Clinton also spent political capital to get NAFTA and the Uruguay round through Congress. Bush imposed the steel tariffs—but his administration also secured the passage of (now expired) trade promotion authority, launched the Doha round, and completed major trade agreements with Australia and Central America. President Bush also rejected this action against Chinese tires on four separate occasions.
Barack Obama has no record of trade liberalization to fall back on when defending this measure. Indeed, this is the first major trade action his administration has taken. Based on the political reporting of this trade action, it seems clear that Obama will use trade policy as a sop to his base in order to keep them behind his major policy initiatives on health care, financial regulation, and environmental protection.
Obama has largely decided to become a domestic-policy president. His supporters, his base and the politicking of his underlings indicate things will only get worse. With the global economy in deep crisis, protectionism is a terrible way to build a recovery.
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.
The final G-20 communique -- get it while it's hot! -- contains the following strong statement: "We will not repeat the historic mistakes of protectionism of previous eras."
This is likely true, though one should never underestimate the ability of governments to devise new and unforseen ways to commit new mistakes about protectionism in the current era.*
How could that happen? Check out my latest column in The National Interest online to see how a world of considerably less trade is possible, even within the confines of the World Trade Organization.
The essay is a thought experiment -- I'd put my money on it not happening. But I can't completely dismiss this scenario out of hand.
* Indeed, The FT's Alan Beattie and Jean Eaglesham have the best single sentence on this point of the G-20 statement: "The commitments on protectionism in the G20 communiqué, although longer than their equivalents after November’s Group of 20 meeting, are, if anything, shorter on concrete promises."
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.
Three months ago I blogged that the World Bank's growth projections for this year were too optimistic. Let's review my reasons:
- Credit markets have yet to really unfreeze, because the underlying problem -- putting a price on a lot of toxic debt -- has yet to take place;
- It's going to take some time for trust -- a vital public good -- to return to global capital markets;
- The crisis has done nothing to unwind the global macroeconomic imbalances that contributed to the asset bubble in the first place -- if anything, the crisis has temporarily reinforced it;
- There is a very dangerous prisoner's dilemma game brewing in the interplay of fiscal expansion and trade policy. Unless export engines like Germany start to signal that they'll prime their pump as well, you're going to start to see some nasty protectionist attachments to any new government spending;
- Fiscal expansions are going to take a long time to kick in, and the ones being proposed are not necessarily conducive to countercyclical boosts.
- Beyond the fiscal expansion, this crisis is going to result in a lot more state intervention in the economy. Given what's happened, it would be intellectually dishonest of me not to acknowledge that some of this intervention will be necessary. A lot of it, however, is going to be misguided and stunt long-term growth.
I would be very surprised if global growth was not negative in 2009.
With the very partial exception of no. 5, all of the other factors are still very, very present in the global economy.
And, alas, it now appears that the Bank has caught up with my doom and gloom.
Developing countries face a financing shortfall of $270-700 billion this year, as private sector creditors shun emerging markets, and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty, the World Bank said....
The global economy is likely to shrink this year for the first time since World War Two, with growth at least 5 percentage points below potential. World Bank forecasts show that global industrial production by the middle of 2009 could be as much as 15 percent lower than levels in 2008. World trade is on track in 2009 to record its largest decline in 80 years, with the sharpest losses in East Asia.
The financial crisis will have long-term implications for developing countries. Debt issuance by high-income countries is set to increase dramatically, crowding out many developing country borrowers, both private and public. Many institutions that have provided financial intermediation for developing country clients have virtually disappeared. Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future.
There's something else going on that should bother IR scholars. One of the benefits of having a hegemon is supposed to be greater provision of global public goods. According to hegemonic stability theory, if the United States is really still the hegemon, then it should be providing the following things:
The U.S. did all of these things during the Asian financial crisis, for example.
This time around, the U.S. grade is not as high. There has certainly been provisions of liquidity -- though if one defines the start of this crisis as the fall o 2007, then it's not like LIBOR has fallen to pre-crisis levels.
The U.S. is not a market for distressed goods. On the margins this is due to incipient protectionism, but mostly this is due to the U.S. economic contraction. Indeed, this is why the recession has so deeply affected Pacific Rim exporters.
The worst grade, however, is on counter-cyclical lending. As the New York Times' Peter Goodman writes:
American investors are ditching foreign ventures and bringing their dollars home, entrusting them to the supposed bedrock safety of United States government bonds. And China continues to buy staggering quantities of American debt.
These actions are lifting the value of the dollar and providing the Obama administration with a crucial infusion of financing as it directs trillions of dollars toward rescuing banks and stimulating the economy, enabling the government to pay for these efforts without lifting interest rates.
And yet in a global economy crippled by a lack of confidence and capital, with lending and investment mechanisms dysfunctional from Milan to Manila, the tilt of money toward the United States appears to be exacerbating the crisis elsewhere.
The pursuit of capital suddenly seems like a zero sum game. A dollar invested by foreign central banks and investors in American government bonds is a dollar that is not available to Eastern European countries desperately seeking to refinance debt. It is a dollar that cannot reach Africa, where many countries are struggling with the loss of aid and foreign investment.
Developing.... in a very, very bad way.
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:
A nuclear-armed WTO -- good for trade and good for nonproliferation.
A prominent institution issued the following warning about the "Buy American" provisions in the stimulus package:
History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships.
Name that institution:
Click here for the answer.
Admittedly, the title of this post gives the game away, but it nicely highlights one of the many oddities of the current crisis.
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.
Your humble blogger will be posting on an odd and infrequent schedule over the next few days, as my day job calls me to a conference on the WTO.
On the way here, I read two days worth of Financial Times stories and op-eds excoriating the "Buy American" provisions contained in the House and Senate stimulus packages. [But John B. Judis says that those provisions are harmless to world trade, and they will create jobs!!--ed. No. Wrong on both counts.]
I worried that something like this was going to happen back in December, but now that it's actually happening, I'm cautiously optimistic. The extent of the global blowback, combined with the recognition that an economic recovery will require some serious policy coordination, might just be the slap of cold water to Barack Obama's belief that trade was going to be a tertiary issue during his administration. And, encouragingly, Obama has started to signal that he'll take care of it.
Maybe this is me still being an optimist, but I have to hope that this is precisely the scare that both the administration and Congress needed to realize that they can't just stuff protectionist pork into the stimulus sausage without consequence.
Readers -- am I being too optimistic?
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.
What is truly worrisome, however, is that a lack of cooperation on trade could spill over into a lack of coordination on fiscal policy. Coordination on these two issues are linked. States running trade deficits worry that export engines like Germany and China will free ride off of their own fiscal expansions, boosting the growth prospects of these exporters without any serious fiscal expenditures on their part. Already, other Europeans are upset over Germany's inaction on the fiscal front. German Finance Minister Peer Steinbruck's warning against "crass Keynesianism" to NEWSWEEK's Stefan Theil has merely stoked these concerns even more. If this fear persists, there is a danger that any Keynesian boost will come attached with protectionist provisions to ensure that the benefits remain within national borders. Some reputable economists are already advocating this kind of action in the absence of global policy coordination. As the global downturn persists, these political pressures will become harder to ignore. What has been a mild backlash against trade liberalization could quickly turn into a tsunami. If trade wars break out in the wake of the global financial crisis, they will not take the form of Smoot-Hawley—but they will be equally dangerous.And, hey, on cue, the New York Times' Louis Uchitelle reports the following on the U.S. steel industry in the United States:
The industry itself is turning to government for orders that, until the September collapse, had come from manufacturers and builders. Its executives are waiting anxiously for details of President-elect Barack Obama’s stimulus plan, and adding their voices to pleas for a huge public investment program — up to $1 trillion over two years — intended to lift demand for steel to build highways, bridges, electric power grids, schools, hospitals, water treatment plants and rapid transit. “What we are asking,” said Daniel R. DiMicco, chairman and chief executive of the Nucor Corporation, a giant steel maker, “is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘buy America’ clause.” (emphasis added)What it truly disturbing about this request is that it contradicts the narrative about the U.S. steel sector in recent years, a narrative tat Uchitelle comments on later in his story:
Not since the 1980s has American steel production been as low as it is today. Those were the Rust Belt years when many steel companies were failing and imports of better quality, lower cost steel were rising. Foreign producers no longer have an advantage over the refurbished American companies. Indeed, imports, which represent about 30 percent of all steel sales in the United States, also are hurting as customers disappear.The political economy implications of this are pretty disturbing. Steel, which can compete with the rest of the world, should be one of the last sectors to seek protection from foreign competition. With its mini-mills, Nuxor is one of the most competitive firms within the U.S. steel sector. If this is how Nuxor is behaving, however, how much protectionist lobbying will come from the less competitive sectors of the U.S. economy? Developing.....
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.A restriction of global trade is not going to happen through traditional means, like high tariffs. It's going to happen through domestic content rules on any fiscal programmes and on currency manipulation. [Um... any good news?--ed. Well, I suppose it is encouraging that the developing world has its financial house in sufficient order that it can engage in fiscal expansion. But that's about it.]
I have no doubt this will play in Michigan -- but the ad has a different effect on your humble blogger:
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.