Like other wonks, I watched last night's State of the Union address with a mixture of curiosity and whiskey. As I noted a few days ago, each State of the Union address contains some statements that history will judge rather harshly. Initially that was my focus in listening to last night's speech. That was quickly supplanted by a more interesting undercurrent to Obama's text, however.
Foreign policy wonks like Fred Kaplan have argued that there wasn't much foreign policy content in the speech. That's true only if one has a rather narrow definition of foreign policy. What was striking to me was Obama's global justifications for a lot of his economic policy. Throughout his speech, he used the specter of foreign economic threats to prod Congress into action. Consider the following:
Every day, we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs?....
After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again.There are things we can do, right now, to accelerate this trend....
After years of talking about it, we are finally poised to control our own energy future. We produce more oil at home than we have in 15 years....
Four years ago, other countries dominated the clean energy market and the jobs that came with it. We’ve begun to change that. Last year, wind energy added nearly half of all new power capacity in America. So let’s generate even more. Solar energy gets cheaper by the year – so let’s drive costs down even further. As long as countries like China keep going all-in on clean energy, so must we.....
America’s energy sector is just one part of an aging infrastructure badly in need of repair. Ask any CEO where they’d rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and internet; high-tech schools and self-healing power grids. The CEO of Siemens America – a company that brought hundreds of new jobs to North Carolina – has said that if we upgrade our infrastructure, they’ll bring even more jobs....
Let’s also make sure that a high school diploma puts our kids on a path to a good job. Right now, countries like Germany focus on graduating their high school students with the equivalent of a technical degree from one of our community colleges, so that they’re ready for a job....
In each of these passages, Obama was using comparative language to contrast the United States with other countries -- or, as he would put it, other magnets for jobs. The explicit thesis is that unless the United States makes the necessary investments, scarce jobs will leave American shores.
Obama has used this kind of rhetoric on the campaign trail and in previous SOTUs. It reveals a somewhat mercantiilist worldview, one in which jobs and economic growth have a zero-sum, relative gains quality to it.
[So, what, Dan? Most Americans see the world through a mercantilist lens as well. Will this kind of rhetoric matter?--ed.] I'm honestly not sure. Here's the foreign economic policy component of the SOTU:
Even as we protect our people, we should remember that today’s world presents not only dangers, but opportunities. To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.
Now on the one hand, announcing the formal start of negotiations with the EU on a trade deal augurs well for my prediction last year about foreign economic policy playing a big role in Obama's second term. On the other hand, viewing trade through a mercantilist lens will make tough negotiations even tougher ... which means I might owe Phil Levy an expensive DC dinner.
In a speech in which traditional security threats seemed very much on the wane in terms of actual threat as well as political salience, it would be a cruel twist of fate to ratchet up ill-conceived foreign economic threats as a substitute.
The mobilization towards an agreement reflects the changing landscape of global trade. If a deal emerges, it will allow the U.S. and EU more leeway to set the rules of the road for the industries that matter most to them....
This potential trade deal is also a further sign of the collapse of the movement toward global free trade. The new round of WTO negotiations is effectively dead, and a major deal between two of the world’s largest economies would be a further signal that bilateral negotiations are once again becoming the norm.
Finally, this deal shows us that the BRICs are not quite as influential as many think. A U.S.-EU trade deal is essentially a way to ignore countries like Brazil and India while crafting rules that will govern some of the high-tech industries and information-based services that play a growing role in US-EU trade.
Mead is correct to point out the advantages of the US and EU trying to craft an FTA template, particularly for the sectors they care about a lot. Still, a few quibbles and disagreements.
First, a transatlantic deal doesn't signal a "collapse of the movement toward global free trade" -- it signals a different pathway towards that goal. The collapse of Doha suggests that the traditional multilateral round negotiaions are dead, but it's worth remembering that the global economy got very close to zero barriers in the late 19th century and there was nary a multilateral institution to be found. True, the trade agreements of the 19th century had most-favored nations clauses and their 21st century counterparts do not. Nevertheless, the political economy of trade diversion still generates competitive incentives for a growth in FTAs, thereby leading to a similar end outcome -- a world blanketed in free-trade agreements.
Second, contra Mead, I'd suggest that a transatlantic trade deal is not a sign of US-EU strength, but rather its weakness. There have been rumblings and trial balloons to do something like this for the past fifteen yewars, but it never really got off the ground. The reason it never got off the ground was simple -- both Americans and Europeans were worried that any trade deal this massive would scupper the WTO system. It would seem like a developed country effort to completely rewrite the rules of the global trading game. Since everyone had a lot of skin in the WTO game, it didn't seem like it would be worth it.
Two things have changed. First, the traditional method of multilateral trade liberalization has died. Second, while both the US and EU are major trading states, they're not quite as pivotal as they used to be. Ironically, it's their declining (though still appreciable) importance in global trade that makes a US-EU agreement feasible now. The BRIC economies are now sufficiently large that a transatlantic trade deal doesn't seem like an existential threat.
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.
Your humble blogger has been
eating as much creme brulee as humanly possible in Paris attending a German Marshall Fund/Science Po conference on the 2012 election. Any conference where Mo Fiorina, Bruce Cain, and Greg Wawro talk shop is gonna be fun. Any conference where I'm on a panel with James Mann is gonna be... daunting.
That said, it was William Burke-White who made the most interesting policy observation. He argued that regardless of who would be president in 2013, it would be foreign economic policy that would take center stage for U.S. foreign policymakers. The more I think about it, the more I'm pretty sure he's right.
This is true in part because of what's in the pipeline already. The Trans-Pacific Partnership negotiations are already under wa, with additional countries joining in. In the WTO, momentum to launch a plurilateral International Services Agreement is growing. The European Union and United States are "pre-negotiating" a transatlantic economic agreement that wouldn't exactly be a free-trade agreenent but is definitely more important than, say, a bilateral investment treaty. Speaking of which, the Obama administration finally crafted its own model bilateral investment treaty (BIT), and U.S. Trade Representative Ron Kirk announced that BITs were being negotiated with China and India. Obviously, international trade and foreign direct investment take place regardlesss of whether these agreements exist or not -- but they do suggest greater levels of liberalization, particularly in the service sector.
Now, surely, you must think, whoever wins the election will affect the status of these agreements. Except that I don't. All of these deals are being negotiated by the Obama administration, so I think we can assume that the prsident has signed off on them. If Mitt Romney wins, I don't see him rejecting any of these agreements. If anything, he'll try to add to them. More free trade deals is part of his five point plan to create 12 million jobs
that will be created regardless of who is president. Intriguingly, when he's mentioned this plank in the last few debates, he mentions Latin America in particular. A shameless play for the Hispanic vote? Maybe, but I don't care.
Furthermore, regardless of who wins Congress, these are the kinds of deals that still fall under that shrinking category of "doable in a reasonably bipartisan fashion." If Romney wins I can see the Democrats in the Senate playing a bit more hardball -- but most of these deals would likely go through.
A United States that is both willing and able to sign more economic agreements is a good thing for the country -- oh, and it's a good thing for my argument that, contrary to expectations, global economic governance is doing a pretty decent job.
So, I'm intellectually happy... and I'm in Paris. I haven't felt less cranky since the start of the 2012 presidential election! So au revoir until Monday!!
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 few days I've been getting emails asking whether I'm gonna comment on one of the most offensive and brutally effective campaign ads I have ever seen:
It's brutal because... well, let's face it, that Romney tic was always the most cringe-worthy aspect of the campaign. Anything negative that Romney did, contrasted with that song, would be powerful.
It's ridiculously offensive, however, because it baldly asserts that doing business with Mexico, China or Switzerland is un-American. Other idiocies like the Olympic-uniform controversy feed into the public perception that having the other countries make stuff is an abomination of the first degree.
So, does it matter for policy? Well.... no.
Mario Cuomo once said "You campaign in poetry. You govern in prose." Now, Mario Cuomo was clearly the world's worst poetry connoisseur. Still, to update his observation for our current needs, we can say, "You campaign as a mercantilist; you govern as a free-trader." The reason that Romney has seemed so discombobulated by the Bain attacks is that he's been China-bashing since Day One ofhis campaign, so it's tough to then
flip-flop pivot to a free trade stance. As for Obama, Matthew Yglesias noted the following last week:
[A]ll indications are that Barack Obama also doesn't think Bain was doing anything wrong. As president he's made no moves to make it illegal for companies to shift production work abroad and has publicly associated himself with a wide range of American firms—from GE to Apple and beyond—who've done just that to varying extents. And we all remember what happened to Obama's promise to renegotiate NAFTA after taking office, right?
Or, David Brooks today:
Over the years of his presidency, Obama has not been a critic of globalization. There’s no real evidence that, when he’s off the campaign trail, he has any problem with outsourcing and offshoring. He has lavishly praised people like Steve Jobs who were prominent practitioners. He has hired people like Jeffrey Immelt, the chief executive of General Electric, whose company embodies the upsides of globalization. His economic advisers have generally touted the benefits of globalization even as they worked to help those who are hurt by its downsides.
But, politically, this aggressive tactic has worked.
Brooks' colleague Nate Silver might quibble a bit with the "politically working" point, but that's a small quibble. Americans loooooooove mercantilism, so this kind of rhetoric makes tactical sense during a campaign. As stomach-churning as I find this kind of ad, I must reluctantly agree with Yglesias and Brooks that it doesn't matter all that much for governing. Even this Washington Post story that talks about Obama's "rethinking" of free trade doesn't really deliver the goods on significant policy shifts. And it appears that even the Chinese government recognize campaign bluster for what it is.
So -- to repeat a theme -- I don't think the mercantilist campaign rhetoric will amount to much.
Still, as someone who thinks offshore outsourcing is an unobjectionable practice, this is going to be a nauseating campaign.
Mitt Romney's op-ed in today's Wall Street Journal is devoted to China policy. Let's take a read, shall we?
Barack Obama is moving in precisely the wrong direction [on responding to China's rise]. The shining accomplishment of the meetings in Washington this week with Xi Jinping—China's vice president and likely future leader—was empty pomp and ceremony.
President Obama came into office as a near supplicant to Beijing, almost begging it to continue buying American debt so as to finance his profligate spending here at home. His administration demurred from raising issues of human rights for fear it would compromise agreement on the global economic crisis or even "the global climate-change crisis." Such weakness has only encouraged Chinese assertiveness and made our allies question our staying power in East Asia.
Now, three years into his term, the president has belatedly responded with a much-ballyhooed "pivot" to Asia, a phrase that may prove to be as gimmicky and vacuous as his "reset" with Russia. The supposed pivot has been oversold and carries with it an unintended consequence: It has left our allies with the worrying impression that we left the region and might do so again.
The pivot is also vastly under-resourced. Despite his big talk about bolstering our military position in Asia, President Obama's actions will inevitably weaken it. He plans to cut back on naval shipbuilding, shrink our Air Force, and slash our ground forces. Because of his policies and failed leadership, our military is facing nearly $1 trillion in cuts over the next decade.
This is interesting because it's the first time I've seen a GOP candidate try to respond substantively to the "pivot". And, in my book, the criticism that Obama was too much of a supplicant to China in the first part of his term is actually a fair one. Unfortunately, things fall apart after that.
First, Asian allies were worried about the U.S. presence in the region because of the priority the Bush administration placed on the global war on terror, followed by the 2008 financial crisis. Obama had little or nothing to do with it.
Second, it's important and revealing that Romney only talked about the narrow, military part of the pivot. Left unmentioned were the diplomatic components (joining the East Asia Summit, interceding on the South China Sea, warming relations with Myanmar, tripartite between the U.S., Australia and India) as well as the economic components (ratifying the FTA with South Korea, signing the framework agreement for the Trans-Pacific Partnership). This is important, because any U.S. strategy in the Asia-Pacific region has to be a full-spectrum approach, while Romney seems peculiarly obsessed with shipbuilding.
Third, the primary message Obama has been sending to Xi has been saying that China "don't play by the rules." Which, coincidentally enough, is exactly the same thing Romney says in the op-ed.
In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers.
Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender. (emphasis added)
The bolded section represents the only portion of the op-ed in which Romney even hints that he might cooperate with China. The rest of it is pretty silly. It's ludicrous for Romney to claim he doesn't want a trade war in the same breath that he promises "day one" action against China. No wonder conservatives are labeling Romney's China policy as "blaringly anti-trade."
To be blunt, this China policy reads like it was composed by the Hulk. Maybe this will work in the GOP primary, but Romney and his China advisors should know better.
Eight months ago, the German Marshall Fund asked your humble blogger to be part of an "eminent persons group " to examine the future of the transatlantic economic relationship.
Now, I'm not gonna lie, I've always coveted the title of "eminent person." If I'm required to age, there should be some perks, and I thought this would be a big one:
SNOOTY MAN WITH CLIPBOARD: I'm sorry, this dance club is full
ME: You don't understand, I'm an.... Eminent Person!! (flashed secret Eminent Person card)
SNOOTY MAN: An Eminent Person?! Oh my... take that velvet rope down NOW!!
As it turns out, being on an eminent person task force mostly means dialing into conference calls. Still, the results are now out. Here's the GMFUS press release:
The U.S. and the EU should remove all barriers in the transatlantic market for goods, services and investment. As a first step, custom duties should be eliminated on trade in goods. Services trade should be substantially liberalized. Regulatory divergences that impede trade and investment should be reduced through strengthened regulatory cooperation. Such reforms would not only boost economic growth and jobs; they would also create new positive tensions in global trade negotiations, encouraging other countries to agree on new liberalisation of trade and investment.
In light of experience in the Doha Round of multilateral trade negotiations, future deliberations should be decentralised, both in geographic and substantial terms. New agreements should be based on “coalitions of the willing”. The market access openings in such plurilateral agreements should initially be confined to the participating countries, in order to avoid free-riding. The agreements should, however, remain open for other countries to join, thus extending the benefits from trade liberalization. Strategic sectors, notably services and the digital economy, should be the focus of these negotiations.
Bilateral trade agreements are now the centerpiece of European and American trade strategy. To maximize the benefits from such efforts, the EU and the U.S. should integrate, harmonise and modernise their preferential trade agreements (PTAs) with third countries. In this way, the broadest benefits of such trade liberalization can be extended to more countries by reducing the bureaucratic differences between these agreements.
There is a need for a modern narrative about trade. Traditional perceptions of trade as a zero-sum game involving only imports and exports of goods no longer reflect the growing importance of investment and trade in services, the rise of multilateral firms, the globalization of supply chains, and the expansion of the digital economy.
Read the whole thing -- needless to say, there's not a ton of enthusiasm for another multilateral round via the WTO.
I'm at a stage in my career when reporters will occasionally call or e-mail me for an "expert" opinion on something. I've gotten better at refusing those requests when I'm not really an expert but just a snarky blogger. Still, even when I can claim expertise, I don't always do that great of a job.
To see what I mean, consider this New York Times front-pager by Mark Landler and Annie Lowrey on President Obama's proposed reorganization of foreign economic policy agencies. I'm quoted accurately in this story -- but I'm not quoted fully.
To explain, here's the key bits of the article:
Mr. Obama called on lawmakers to grant him broad new powers to propose mergers of agencies, which Congress would then have to approve or reject in an up-or-down vote. If granted the authority, he said, he would begin pruning by folding the Small Business Administration and five other trade and business agencies into a single agency that would replace the Commerce Department....
Despite regular vows by presidents to overhaul government — Mr. Obama made one in his State of the Union address last January — few have followed through. Those who did, like Richard M. Nixon, often met with failure. Scholars have mixed feelings about such reorganizations, with some arguing that they rarely lead to lower head counts, more effective departments or savings.
“My gut tells me those benefits will end up being much smaller than advertised, and the costs much larger,” said Steven M. Teles, a political scientist at Johns Hopkins University, pointing to the time wasted during the consolidation and the changed political dynamic between the agencies and Congress.
But experts on government efficiency applauded the initiative, saying it was overdue, and some analysts said it made sense to combine agencies involved in business development, foreign investment and trade promotion into a single department with the mandate to promote American exports.
“If you look at American exports, it’s dominated by big business,” said Daniel W. Drezner, a professor of international politics at Tufts University. “If you want small and medium enterprises to get more involved in exporting” — a goal of the Obama administration — “having small business and the trade office in the same agency makes sense,” he said. “So this could be a boon for that.”
Now, based on that quote, you might think that I'm pretty enthusiastic about this initiative. If, however, you checked my initial tweets about this proposal, you would notice a lot more agreement with what Stephen Teles said in the paragraphs above me. My instant assessment was that this was one of those "reorganizing government" initiatives that makes a lot of sense in the abstract but probably leads to more transition costs than long-term benefits. Indeed, the first thing that came to mind could be summed up in four words: Department of Homeland Security.
So what gives? This is what happens when I talk to reporters. I had a long chat with Annie Lowrey during which I listed A) the various ways in which Congress won't go for this; and B) why merging different organizational cultures will likely be a big mess. Lowrey then asked me if there was any rationale for this kind of reorganization. At which point I said what was quoted in the paper of record.
Now if you know my views about the National Export Initiative, you'll see I don't hold out much hope of this accomplishing anything. Still, to repeat, Lowrey's quote of me is completely accurate, and it is a decent motivation for this kind of initiative.
This is one of those mismatches between reporters and experts. It's not really the reporter's job to convey the full gist of a conversation with an expert. This story isn't "What Dan Drezner The Expert Thinks About Something," after all. Still, this is often the natural expectation of many experts, because we think about the entire conversation, not just one part of it. Furthermore, it's an expectation that, despite multiple occurences like this, stubbornly persists in my brain. So the impulse to develop disciplined talking points and not stray from them has never developed.
Why? Because I like answering questions fully, or trying to, anyway. That's why I got a doctorate, and why I became a professor. This impulse, by the way, is why so many experts loathe presidential debates. The candidates are usually too savvy to directly answer a question. Rather, they are being tested on their ability to pivot from the question that's asked to the talking point that is closest to that question.
This is a long-winded way of saying that what I said in the Times was the truth but not the whole truth. And that the odds are good that I'm probably going find myself in this situation again. And that's OK -- one of the perks of having this blog is that when this sort of thing happens, I can ramble my way to a more fuller explanation of my views.
So check out David Rothkopf for a full-throated defense of Obama's proposal. Despite my quote in the Times, you're not going to see one here.
UPDATE: Now this is fascinating. The Anchorage Daily News runs a version of the Times story -- except that the ADN version has much fuller quotes from more experts. The relevant portion:
One government efficiency expert, Jitinder Kohli, applauded the move.
"These efforts to rationalize government are long overdue, frankly," said Kohli, a senior fellow at the left-leaning Center for American Progress. "In fiscally tight times, it's even more important to think carefully about how to deliver savings — and that includes making websites easier to use, providing single points of entry and streamlining."
"In the world of business, reorganization happens all the time, for good reason," Kohli added. "The world changes around businesses, and businesses change to better serve the world. But the government is far, far less nimble."
Still, a body of research throws cold water on the notion that such reorganization leads to lower head counts, more effective departments or cost savings.
"The most important considerations are the costs in wasted time while they do the reorganization, how this changes the politics of the affected agencies in relation to Congress and other executive branch agencies, and how specific the purported benefits of consolidation are," said Steven M. Teles, an associate professor of political science at Johns Hopkins University. "My gut tells me those benefits will end up being much smaller than advertised, and the costs much larger."
Daniel W. Drezner, a professor of international politics at Tufts, said "This is one of those ideas that looks great in abstract. But you're talking about merging the organizational cultures of five or six agencies. It takes a long time for efficiencies and synergies to work out. They're not going to play well for a while."
Nonetheless, Drezner said that having a single body devoted to export promotion made sense.
"If you look at American exports, it's dominated by big business," he said. "If you want small and medium enterprises to get more involved in exporting" — a goal of the Obama administration — "having small business and the trade office in the same agency makes sense. So this could be a boon for that."
Susan C. Schwab, who served as a U.S. trade representative during the Bush administration, agreed that the move might improve export promotion. But she said that it might do so at the expense of broader trade policy.
"You'd take a small, very efficient agency and have it totally swallowed up by this behemoth," said Schwab, who is now a professor of public policy the University of Maryland. "From a trade policy perspective, it makes no sense at all."
Schwab added, "Trade policy involves so many different sectors of the economy, and U.S. interests. It's foreign policy. It's manufacturing. It is services, agriculture, consumers, labor, the environment, intellectual property."
An agency without a strong trade representative, she said, could end up giving "short shrift" to some concerns.
Had this been the version that the Times ran, I wouldn't have bothered blogging about this, because my quotes were both accurate and captured to gist of what I was saying.
Of course, this is a longer story, which reminds me that sometimes it's not the reporter that has mismatched incentives -- it's the editor worried about length.
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!
Earlier this week Treasury Secretary Timothy Geithner went to Brazil as part of a long-running effort to get that country to pressure China on its exchange-rate policy. This effort had yielded some marginal successes in the past, but it had also yielded comments like Brazilian Foreign Minister saying: "I believe that this idea of putting pressure on a country is not the right way for finding solutions. 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 (emphasis added)."
The mild surprise is that Geithner's plea appeared to find a receptive audience in Brasilia. From the Financial Times' Joe Leahy:
Any alignment with the US on the issue of China’s currency would mark a fundamental shift for Brazil. Luiz Inácio Lula da Silva, Brazil’s previous president, had pursued a trade policy that was partially dictated by his vision of a grand “south-south” alliance among developing countries.
His pragmatic successor, Dilma Rousseff, is more concerned that Brazil exports primarily commodities to China while its domestic manufacturing industry is being undermined by a strong exchange rate and cheap imports.
Ms Rousseff has also toned down her predecessor’s criticism of US monetary policy, which Mr Lula da Silva’s administration blamed for exacerbating global capital flows....
One person familiar with the government’s stance said Brazil was considering a public declaration on global imbalances and China’s undervalued currency during Mr Obama’s visit.
“The idea is we might issue a communiqué in which maybe we can work in common language to try to stress this matter,” the person said.
What's going on? A few things. First, it's probably true that this shift won't amount to all that much in terms of affecting China's policies. Second, this is an effective way for Rousseff to distinguish herself from Lula, and she's backing up the rhetorical shift with action items. Third, Lula's foreign policy on this point was always based more on old-fashioned third world solidarity than anything approximating Brazil's national interest. Not that Lula's foreign policy was all that bad, mind you, but this seems more like a return to Brazil's equilibrium set of interests.
If the Obama administration was smart, they would capitalize on this newfound friendship with Latin America's largest country with some big, meaningful and yet highly symbolic foreign policy initiative. If only there was some moribund-yet-highly-useful foreign policy initiative that would cement the relationship. But that's just crazy talk.…
Trying to pick the most offensive campaign ad of this election season is not easy -- there's a long and distinguished list of truly offensive ads out there. However, my award for Most Offensive Ad goes to the Democratic Senatorial Campaign Committee with this attack ad on Pennsylvania Republican senatorial candidate Pat Toomey:
I'll give credit to the DSCC: Not everything in the ad is offensive, just 98 percent of it. By far, however, the worst part is the DSCC's suggestion that Pennsylvanians not vote for Toomey because he thinks that "it's great that China is modernizing and growing." Using that logic, apparently the DSCC supports doing everything to keep China backwards and impoverished. Which, if you think about it a little bit, is really disgusting.
I'd love to say that this is the only anti-globalization ad of this election cycle, but that's obviously not true. In another ad, the DSCC blasts Toomey for -- God forbid -- spending part of his career overseas. Forbes' Shikha Dalmia points out, however, that both sides have been throwing up mercantilist ads as fast as they can produce them:
Virg Bernero, the Democratic gubernatorial candidate in Michigan, where I live, has dubbed his opponent, Rick Snyder, Chief Executive Outsourcer (ha, ha). Mr. Snyder's crime is that he is a successful businessman who invested in a semiconductor company that once employed five -- five! -- people in Shenzen to sell its products in China. In other words, it is no longer a sin to buy from China. It is also a sin to sell to China! (Where did Bernero get his views on trade theory, anyway? The Kim Jong Il School of Autarky?)
Nor is Bernero alone in the Democratic Party: California Sen. Barbara Boxer is accusing her opponent Carly Fiorina, former CEO of Hewlett Packard, of outsourcing thousands of jobs to "Shanghai instead of San Jose"; Senate Speaker Harry Reid is calling Sharron Angle "a foreign worker’s best friend"; and Richard Blumenthal, Connecticut Attorney General running for Senate, who lied about serving in Vietnam, has the temerity to attack his opponent, the former CEO of World Wrestling Entertainment, for "outsourcing" American jobs because her company got toy action figures manufactured in China instead of America.
Hostility to trade is par for the course for Democrats perennially beholden to Big Labor, but what is the excuse of Republicans -- the alleged believers in free markets? In race after race, they too are hitting China to beat Democrats. In West Virginia, Spike Maynard, a Republican running for the House is airing ads against his opponent, complete with Asian music in the background, castigating him for giving stimulus money to a Texas company that happens to be buying windmills from China. Meanwhile, in Virginia Republican Robert Hurt is accusing Rep. Tom Perriell of supporting tax breaks for foreign companies "creating jobs in China."
Well, it's not that surprising to see this. Americans think about trade through a mercantilist, relative gains lens, as opposed to the radical concept that trade can generate win-win outcomes. The Obama administration has abetted this mindset with a trade policy that careens between an
idiotic exclusive focus on exports and complete radio silence. And, of course, China has been taking steps in recent months in order to perfect their role as economic bogeyman.
I'd love to say that if the Obama administration mounted a full-throated defense of trade liberalization, this mindset would go away. The thing is, I don't believe that. As the Gallup data suggests, even decent growth rates won't eliminate the zero-sum mindset that people have when it comes to free trade.
Developing… in a thoroughly depressing manner.
Gideon Rachman notes that the WTO has been denuded of controversy, and wonders why:
It’s strange to recall that - just a decade ago - the World Trade Organisation was a deeply controversial organisation. It was the WTO that was fingered by the anti-globalisation movement as the handmaiden of ruthless western capitalism and oppressor-in-chief of the poor. The WTO summit in Seattle in 1999 degenerated into a street riot.
On Wednesday morning, however, the WTO staged a public forum in Geneva, without the need for riot police - and indeed without much public fuss at all. I chaired the opening session at the organisation’s modest headquarters on the banks of Lac Leman.
I think that one of the main reasons why the WTO is no longer in the line of fire is that the change in the pattern of world trade over the last decade - combined with a slump in the West and a boom in China and India - makes the idea that global free trade is a tool of western domination look increasingly absurd. The world has got a lot more complicated than that; and even the anti-globalisation movement has had to acknowledge that complexity, if only tacitly. These days, it is the developing nations that are pressing for completion of the Doha Round and the rich countries that are dragging their feet.
Hmmmm..... well, let's call Rachman's explanation the optimistic interpretation for why the WTO doesn't attract demonstrators anymore. Let me offer a more pessimistic explanation, which consists of two parts:
1) Finance is the new bogeyman. The 2008 financial crisis and the subsequent Great Recession were caused by bubbles in financial markets -- trade, at best, played a marginal role. Perhaps it's not that trade has become less controversial so much as finance and capital flows have become way more controversial.
2) The WTO is no longer liberalizing. The WTO does an impressive job of ensuring that the status quo of a (largely) open trading system keeps functioning. What has exercised protestors in the past however, was the notion that further liberalization was going to take place. Since the Doha round is deader than a doornail. why bother with protesting?
Now imagine a world where there was forward progress on the Doha round -- do you seriously think there would be no protests associated with the WTO? Oddly enough, in this case, a lack of protest is a bad sign for trade.
I would much prefer Gideon to be right -- but I'm pretty sure he's wrong.
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?
I'm late to this party, but two quick thoughts on Obama's Tokyo speech:
1. Last week a sharp foreign policy observer -- and a former campaign advisor for Obama -- made an interesing lexicographical observation to me about the Obama administration's foreign policy rhetoric to date. They use the word "partnership" a hell of a lot more often than they use the word "alliance." That's not terribly surprising, given their emphasis on talking with adversaries, forming great power concerts, etc. Still, there are times when it's important to reach out more to one's allies than one's rivals.
The Tokyo speech was one of those occasions, and I'm happy to report that Obama used "alliance" 12 times and "partnership" only 9 times. Perhaps this says more about the lay of the land in the Pacific Rim than anything else, but it does suggest that the adminstration is sensitive to regional nuances.
2. That said, I was underwhelmed with the trade outreach of the speech. Some reports suggest that Obama announced that the U.S. would join the Trans-Pacific Partnership, an APEC trade forum comprising, at the moment, of Brunei, Singapore, Chile and New Zealand (with Vietnam and Australia thinking about joining).
What Obama actually said, however, was:
The United States will also be engaging with the Trans-Pacific Partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement.
So what exactly does that mean? Helene Cooper points out the ambiguities of that language in the New York Times:
Although Mr. Obama did open the door during his speech in Tokyo on Asia policy, he did not explicitly say that the United States would join the pact. A formal announcement that the United States is beginning negotiations would undoubtedly kick off criticism from free-trade opponents in the United States and pushback from Congress.
Mr. Obama spoke, instead, of “engaging the Trans-Pacific Partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement.”
That line left many trade envoys already in Singapore scratching their heads: did Mr. Obama mean that the United States would begin formal talks to join the regional trade pact, which presently includes Singapore, Brunei and New Zealand, and could later include Vietnam — an addition that could lead to more Congressional pressure at home?
Many regional officials have been waiting for the United States to join the initiative as a demonstration that Washington will play a more active role in the region. But the Obama administration has yet to establish a firm trade policy, as it is still reviewing its options.
White House officials were not much clearer on what Mr. Obama meant when they were pressed on this after the speech. Michael Froman, an economics expert on the National Security Council, said that what Mr. Obama meant was that he would engage with the initiative “to see if this is something that could prove to be an important platform going further.”
Wow, that's some real enthusiasm coming from the G-20 sherpa.... not.
For an administration that likes to pride itself as savvy in the ways of foreign policy subtleties, I still don't think they grasp the fact that trade policy is now embedded into foreign policy in the Asia/Pacific Region.
My latest column in The National Interest online is up, and it sounds a warning about the Obama administration's policy malaise on both the Asia/Pacific region and the #1 issue to countries in the Asia/Pacific region -- namely, trade:
Obama’s policy malaise on trade will not win him friends in a region hell-bent on deepening economic integration. U.S. policy on trade liberalization has stalled out so badly that rumors are swirling around the Beltway that U.S. Trade Representative Ron Kirk is contemplating resignation. Meanwhile, countries in the region are signing free-trade agreements with each other at a record pace. The European Union has inked a free-trade deal with South Korea, and is negotiating one with Japan. In contrast, the chances of the Korea-United States free trade agreement passing this Congress is hovering around zero. The comparison with China is particularly dispiriting....
The United States has not been eclipsed yet—the bevy of activity in the Pacific Rim is a lot more about hedging than balancing against the United States. Nevertheless, if President Obama wants to be taken seriously in the region, he needs to take the region’s issues more seriously. Trade is not merely about economics—it’s about foreign policy too. Just because Washington ignores a policy issue does not mean others do not think it important. As we are learning, some regions can bypass America altogether if they so choose.
In a very disturbing sign of the times, I see that former State Department official Evan Feigenbaum has written something similar for the Financial Times:
[T]he business of Asia is business. Without more vigorous trade engagement, such diplomatic efforts cannot secure America’s position in a changing Asia. The US could soon face a region less willing to accommodate its commercial and financial interests.
Many eons ago in graduate school Only recently Evan and I woul talk about the Asia/Pacific when we were matriculating in graduate school together -- and, more often than not, we disagreed with one another. The only times we agreed was when some serious s**t was going down. So take this consensus for what you will.
The Financial Times' Edward Luce talks today about the ways in which U.S. perceptions of China have changed:
[N]o amount of dexterity can disguise the fact that Mr Obama’s visit to China crystallises a big shift in the global centre of gravity over the past few years. Just a decade ago Bill Clinton persuaded Capitol Hill that China’s membership of the World Trade Organisation would strengthen the forces of democracy within China.
Today, almost nobody in Washington even tries to make that case. Subsequent developments in China – and elsewhere – make it hard to sustain the argument that economic liberalisation leads necessarily to political liberty.
I'm not saying Luce doesn't have a point. China's been opening to the world for two decades now and Beijing's Freedom House score on accountability and public voice hasn't really budged (and stories like these don't help). So anyone who thinks that economic liberalization will lead to political liberalization in the short-term is fooling themselves.
That said, this isn't a short-term game that's being played. Freedom House also acknowledges that, "Even though political institutions in China have not undergone major change, the degree to which Chinese can manage their own lives has increased substantially in the reform era." Furthermore, as someone watching their foreign economic policy, I think it's safe to say that the current Chinese leadership is far more sensitive to domestic political pressures than was the case a decade ago (whether the Chinese public actually wants what Kantian liberals think they want is another matter entirely).
China might be one of the toughest tests imaginable on the relationship between economic and political liberalization. The country has a strong civilizational identity, but the leadership is acutely aware of the rebellious tendencies of some of its ethnic minorities. The population is so huge that even after decades of double-digit economic growth, a lot of Chinese citizens are dirt poor. It will likely take another decade for China's GDP per capita figure to rise to the level when most political science models would predict some push towards democratization.
I certainly don't think U.S. policymakers can sit around and wait for China to democratize as the answer to policy problems in the Pacific Rim. But neither am I convinced that China's domestic polity has reached its final steady state.
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.
A few months ago I was at a panel on the April G-20 summit, when someone asked why there was a pledge to complete the Doha round when no one expected that to happen?
The answer given by the trade experts in the room was that, as toothless as such a statement might sound, it was worse not to say anything. The signal of not mentioning Doha was ostensibly worse than the cynicism of claiming that two plus two equals five.
Bear this in mind when reading the following:
The world’s biggest economies agreed on Thursday to conclude a comprehensive trade deal in 2010, in the latest attempt to revive the stalled Doha round and give a shot in the arm to the world economy.
Rich countries gathered for the G8 summit agreed with ten other large economies – including India, China and Brazil – that trade talks must resume urgently, with a deadline set for completion next year.
The agreement in the Italian town of L’Aquila will be hailed by world leaders as a decisive moment in reviving the global economy and a statement of intent to conclude a trade round which began in Doha in 2001.
But there will be widespread cynicism over whether such commitments are credible. Every G8 summit – not to mention other international summits – ends with leaders paying lip service to finalising a trade round.
If Obama actually tries a "Nixon goes to China" moment on trade, I might be more optimistic. But with global warming and health care on the horizon, I have zero confidence that Doha will be completed within the next eighteen months.
While I'm on vacation at an undisclosed location, feel free to peruse my latest non-blog publication, Alphabet Soup: The Political Economy of the Great Recession (.pdf), commissioned by the Glasshouse Forum. As they put it:
The current global economic crisis, which began as a subprime crisis and developed into a general credit crisis, is the deepest since the Depression of the 1930’s. There are many signs that we are now facing the beginning of a structural sea change. But what will it be like?
To get a better understanding of the medium-term effects of the crisis, Glasshouse Forum asked Daniel W. Drezner, Professor of International Politics at The Fletcher School, Tufts University, and author of the Glasshouse Forum report White Whale or Red Herring? Assessing Sovereign Wealth Funds, to draft scenarios and make qualified estimates based on as much objective data and historical parallels as possible.
I'd like to stress the word "qualified."
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.
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?
The World Trade Organisation has dropped plans to convene ministers to push for an outline deal in the troubled global trade talks – a further blow to world leaders’ promises to combat protectionism. Pascal Lamy, WTO director-general, said a meeting, originally planned for next week, “would be running an unacceptably high risk of failure which could damage not only the round but also the WTO system”.... The outcome runs counter to promises made by leaders of the Group of 20 major economies in Washington last month, who were committed to reaching an outline deal this year and promised no new protectionist actions within 12 months. Since then at least five of the G20 – Russia, India, Indonesia, Brazil and Argentina – have announced their intention to raise import tariffs or otherwise restrict trade.... Trade experts said the episode underlined the weakness of rhetorical agreements such as the G20 statement to constrain governments faced with domestic political pressure. Douglas Irwin, trade economist at Dartmouth College in the US, said: “Such statements may sometimes act as a signal to local legislatures, but there is usually ample room for governments to renege or weasel out of their commitments.” Since the G20 meeting, Russia has announced it will increase import tariffs on cars, India has raised duties on iron, steel and soy and Indonesia has alarmed trading partners with measures to benefit local producers. Brazil and Argentina have argued for an increase in external tariffs for Mercosur, the Latin American trade bloc of which they are the two biggest members. The G20 was lauded by attendees as a landmark meeting that would put big developing countries at the heart of global policymaking. Following last month’s summit, Gordon Brown, the UK prime minister who will host the next G20 meeting, said there would definitely be a meeting of trade ministers this year. Downing Street did not return calls on Friday. The countries that have raised tariffs deny breaking the agreement. The US said on Friday that it could not be blamed for the stalemate in Doha.
Mr McCain sees trade as a means to the end of economic growth and trade agreements as simply economic instruments. He has said very little about how he would use trade agreements to address negative side effects of globalisation, such as pollution. Nor has he articulated how the US can ensure that the economic growth stimulated by trade is equitable. Beyond suggesting tax breaks for business, he has not explained how the US can ensure that companies remain in the US and continue to hire US workers, rather than rely on technologies to remain productive. To bolster his freer trade bona fides, he has stated: “Only risks to the security of our vital interests or egregious offences to our most cherished political values should disqualify a nation from entering into a free trade agreement with us.” But Mr McCain’s support for freer trade has limits – especially when important constituents are adamant about trade bans. As an example, he supports continued trade sanctions against Cuba and Iran and enhanced targeted sanctions against human rights abusing nations Zimbabwe and Burma. Mr Obama, in contrast, is a trade enthusiast as well as a trade agreements reformer. He sees trade as a means to the end of enhancing human welfare. Thus, he has stated: “From financiers to factory workers, we all have a stake in each other’s success.” He recognises that Americans cannot succeed unless globalisation promotes greater access to resources and opportunities for more of the world’s people (our future growth markets). Mr Obama also believes that trade agreements are essential tools of global governance. He recognises that public concerns about trade are really concerns about inadequate governance – instances where our trade partners are unwilling or unable to adopt and enforce rules to protect workers, consumers and the environment. Demanding such standards in bilateral agreements will not alter global market conditions or empower all workers. Nonetheless, trade agreements can, if properly written, improve both the supply and demand for good governance at the national and international level. Mr Obama also has put forth a consistently positive vision of the potential of trade to promote human rights. Many human rights activists think trade with human rights abusing regimes is a form of complicity that can indirectly perpetuate wrongdoing in countries such as Sudan. But Mr Obama has openly questioned this view, asking whether the US has more or less leverage with less commerce. He has argued that cutting off trade may not be the best (or only) strategy to bring democracy to Cuba or Iran.I'll give this effort a B- because of the difficulty of the assignment. Quoting Obama boilerplate on globalization doesn't make him a enthusiast of freer trade. And Obama's reluctance to deploy economic sanctions is not really connected to his trade policy, since with the exception of Cuba the United States wouldn't be trading a lot with these countries anyway. Aaronson also elides Obama's insistence on linking trade to employment when the link is weak to nonexistent. Now, all that said, Aaronson is correct when she says Obama does not intend to be a protectionist. I think that's true. My question is whether his trade policies would be protectionist in their effect. Given that:
Finally, to achieve lasting peace and stability, Colombia must have more foreign investment and free trade. Congress’s approval of the trade promotion agreement would establish a commitment to open markets that would increase growth and investment. Moreover, it would allow American products to enter Colombia duty-free. Colombia’s hard-won freedom from violence can be sustained only through economic prosperity. Together, as partners, we must see Colombia’s transformation to completion. In winning the war, we must also consolidate the peace.Question to Barack Obama: in what way does opposing the U.S.-Colombia free trade agreement enhance the dignity of ordinary Colombians?
Technology has changed the way we live and the way the world does business. The collapse of the Soviet Union and the advance of capitalism have vanquished old challenges to America's global leadership, but new challenges have emerged, from China and India, Eastern Europe and Brazil. Jobs and industries can move to any country with an internet connection and willing workers. Michigan's children will grow up facing competition not just from California or South Carolina, but also from Beijing and Bangalore.You know how Bush officials like to connect any controversial foreign policy issue to the war on terrorism, even though the link might be exceedingly tenuous? I'm beginning to think that Democrats are practicing the same tactics when it comes to trade. Republicans like to demagogue about what a scary place the world is in terms of security; Democrats do the same thing when they're talking about the global economy. Yes, globalization is responsible for some job losses and wage compression, but it's contribution is pretty damn small. Obama -- or his advisors -- are being disingenuous when he says that jobs have left Michigan for China. Those jobs have disappeared into the ether, period. Technological innovation has yielded so much in the way of productivity gains that even though manufacturing jobs are shrinking in the United States, manufacturing output in this country has more than doubled since 1980. The same process has caused the global number of manufacturing jobs to shrink as well. On the other hand.... the speech echoed what Bill Clinton used to say in 1992, with a slightly greater emphasis on public goods investments than fiscal probity. Given the current state of the economy -- and the current state of our transport infrastructure -- I'm betting it will go over well. After Obama gave an interview sounding similar themes to the Wall Street Journal, James Pethokoukis made some interesting points:
Barack Obama just gave a pretty meaty interview on economic policy to the Wall Street Journal in which he kind of sounded like a guy applying for a job at the Wall Street Journal, at least its editorial board. Obama certainly comes off as a Bill Clinton, Tony Blair, Democratic Leadership Council "Third Way" centrist.... If Republicans are counting on voters being frightened by Obamanomics—at least as Obama presented it in this interview—they are woefully mistaken. John McCain is going to have to make a compelling economic argument on why Obama is wrong and he is right.Pethokoukis really doesn't like Obamanomics, so the fact that he's making these admissions suggests that Obama's economic proposals are going to confound those who wish to paint him as the most liberal man on the planet.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.