trade

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.

Hmmm..... really? 

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.

Go read the whole thing. 

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

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

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

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

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

So this trade dispute can metastasize more quickly than most. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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." 

Read it and weep. 

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

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

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

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

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

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

Well, that is all cheery news! 

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

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

Think about the benefits:

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

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