During my brief time working for the Treasury Department, officials who travelled to Europe were allowed to take the red-eye flight two nights before the beginning of any negotiations. The premise was simple: jet-lagged officials are probably not going to be the best negotiators. The U.S. also usually had one of the larger delegations at the meetings I attended. This was extraordinarily useful, because when bargaining disputes came up, it was the Americans who were usually able to chase down the relevant piece of information that turned into a small concession. I don't mean to exaggerate the effect of these things -- it's not like Germany was going to acquiesce to everything because the United States negotiating team was larger and well-rested. Still, on the margins, this sort of thing mattered.
I bring this up because Mark Landler has a truly depressing story in the New York Times about one effect of the budget sequester: the office of the U.S. Trade Representative is finding it hard to, you know, negotiate or enforce trade agreements:
The Office of the United States Trade Representative has been waging a lonely battle for its budget, which shrank 7 percent to $47 million this year because of sequestration spending caps. Officials in the office, pointing to the 2014 budget proposal in the Republican-controlled House, fear that they could end up with even less money next year.
This matters, officials say, because trade negotiators fly hundreds of thousands of miles just doing their jobs. Since the trade representative’s office spends the bulk of its budget — $46 million — on fixed costs like salaries, benefits and office supplies, a cut of $5 million or $8 million could effectively ground much of its 250-person work force.
“We are in a situation where we’ve having to choose: Can we send people to a negotiation? Can we bring this enforcement case or another?” the newly appointed trade representative, Michael Froman, said in a recent panel discussion with the president of the U.S. Chamber of Commerce, Thomas J. Donohue....
The office’s financial woes have become a minor scandal in trade circles. Susan C. Schwab, a former trade representative in the George W. Bush administration, noted that even in the best of times, life at the office is not glamorous. Negotiators typically squeeze into economy-class seats for 15-hour flights to Asia, after which they plunge into round-the-clock talks on complex issues.
“All of this is under severe threat by virtue of $5 million, $8 million, $10 million,” Ms. Schwab said. “That’s a real travesty.”
If you excuse me, I need to go do this:
[C'mon, Dan, geography doesn't matter anymore!! Why can't they just Skype these negotiations?!--ed.] I'm glad you asked. Let's go back to that Landler story:
As anyone who has watched the ritual of the Doha Round of talks between World Trade Organization members can attest, international trade negotiations are grinding, labor-intensive ordeals, requiring teams of lawyers and other specialists who camp out in hotels in foreign capitals for months. Breakthroughs, when they come, are often reached away from the bargaining table.
When the White House was renegotiating a provision of the South Korean free-trade agreement pertaining to market access in South Korea for American cars, Mr. Froman, then the deputy national security adviser for international economic affairs, and South Korea’s trade minister, Kim Jong-hoon, left the hotel for a stroll around a lake.
Their walk produced a critical advance in the negotiations — a fortuitous moment that generally does not happen when negotiators are squinting at fuzzy images of one another on video conference calls.
This is the kind of budgetary expenditure that perhaps even Rand Paul would agree is one of the things that only the federal government can do. And yet U.S. economic leadership is being compromised because of a measly $10 million. And I'm going to deduce that because this is the sequester kicking in, it's not just the USTR that is finding its travel budget cut, but the Departments of State, Treasury, Defense, Justice and Energy as well.
Now I know, I know, that this is because the budget sequester was designed to be so unbelievably f**king stupid that it would somehow jolt Congress into saner budget cuts. And yet, now it's being implemented.
As longtime readers are aware, I'm reasonably upbeat about the fundamentals of U.S. power. It's when I see stories like this, however, that I despair about the ways in which Congress can weaken U.S. influence in the world with just the tiniest of budget cuts. Plus, it means I might lose my bet to Phil Levy.
What with all the horses**t about "currency wars" floating around over the past few months, the occasional reader might be tricked into thinking that protectionist sentiments are at a new high. After all, with a weak global economy, one would expect enthusiasm about trade to be about as vibrant as the Doha round -- i.e., deader than a doornail. As someone with a betting interest in the United States enacting an ambitious foreign economic policy agenda, you'd think I'd be pretty depressed right about now.
Ha -- wrong!! In actuality, public sentiment on trade is pretty robust. And as Bruce Stokes notes, public sentiment for a transatlantic trade deal is pretty positive:
[C]ontrary to the widespread assumption that protectionist sentiments are rising in the wake of the Great Recession, 58 percent of Americans say they support increased trade with the EU. The same feeling exists across the Atlantic. Three-quarters of the Italians, nearly two-thirds of the British (65 percent) and more than half of the French (58 percent) and Germans (57 percent) believe in deepening trade and investment ties between the European Union and the United States; 63 percent of Americans agree, according to a 2007 German Marshall Fund survey.
There is also strong support for one of the thorniest challenges that lie ahead: harmonization or mutual recognition of national regulations on goods and services, everything from food standards to insurance. Overwhelmingly Italians (87 percent), British (84 percent), French (82 percent), Americans (76 percent) and Germans (71 percent) support such efforts, according to the Marshall Fund survey.
That's just trade between two developed economies, however. Surely, in a slack economy, Americans are more wary of trade in general, right?
Wrong again!! Gallup has the surprising polling results here:
Americans' views on foreign trade have become much more positive this year, departing from their more skeptical position of the last several years. Americans are now about as positive toward foreign trade as they were during the better economic times of the 1990s and early 2000s.
That means the Obama administration is likely operating in an environment more supportive of U.S. trade deals with other countries than has been the case in the recent past. The Obama administration is currently exploring an ambitious free-trade deal between the United States and the European Union, and continues to work toward a trade agreement with Australia and other Pacific nations.
Here's the key graph:
Now, first of all, astute readers might argue that this disproves my oft-repeated claim that the American people are stone cold mercantilists. To which I say, look at the question that's being asked -- exports good, imports bad. The mercantilism is baked into the polling question!! Essentially, what this poll reveals is enthusiasm for exports, not trade more generally.
That said, a closer look at the poll also suggests something even more promising. It would appear that public enthusiasm about trade exports is a leading indicator for rational expectations of U.S. economic growth. The only other positive jump like this came just as the 1990s economic boom really kicked into gear. Even more intriguingly, Americans got much more pessimistic about trade prior to the 2008 finanmcial crisis. And, indeed, even Gallup points out that U.S. economic confidence is at a post-crisis high right now, sequester or no sequester.
We're now in the realm of pure speculation, but another source of American optimism on trade comes from some of the underlying positive trends I talked about a year ago. U.S. consumers are almost done with their necessary deleveraging; the U.S. manufacturing sector continues its small boomlet; and projections about U.S. energy production have become even more optimistic.
These are all intrinsically good trends, but the spillover effect on American attitudes towards trade is particularly promising. The spike in public enthusiasm from last yeear is politically significant. At a minimum, it suggests that president Obama won't face gale-force headwinds in trying to negotitae trade deals. Which means I could win my bet with Shadow Government's Phil Levy. Which is the only thing that matters.
Pop quiz: which administration has been more enthusiastic about joining international treaties, George W. Bush or Barack Obama?
The Obama administration has been slow to submit new treaties to the Senate, and only nine have been approved so far. In contrast, the George W. Bush administration secured Senate approval of 163 treaties over eight years. These included not only bilateral treaties but also multilateral agreements on many important subjects, including human rights, atmospheric and marine environmental protection, the laws of war and arms control.
That paragraph comes from John Bellinger III, Bush 43's former State Department legal adviser. Now, one obvious pushback to this is that Obama has had to deal with a sovereigntist caucus in the Senate that is even more rabid than it was under Bush. Bellinger acknowledges the obvious, but then goes on to argue that fault also lies with the Obama administration:
It isn’t enough to blame Republican opposition to international agreements, which certainly has risen among the party’s senators in recent years. That trend only makes it more important that President Obama work harder to gain Senate support for treaties in his second term....
President Obama must devote more energy to securing Senate approval for pending treaties, both by using the presidency’s bully pulpit to explain the benefits and by directing administration officials to pay more attention to the concerns of individual senators. Despite increasing Republican hostility toward treaties, the president should still be able to persuade between 12 and 15 pragmatic Republican senators to support treaties that give concrete rights to Americans and American businesses or that promote important American interests.
The president should begin with the Law of the Sea Convention, which enjoys strong support from all branches of the United States military and from the American business community. He almost certainly could have gained Senate approval of this important treaty during his first three years in office but inexplicably waited until the maelstrom of the 2012 election year to push for it.
Over at the Monkey Cage, Erik Voeten looks at the political science of this and concludes that Bellinger has a valid point. The reason that Obama has been lethargic on treaties? The opportunity cost of the effort:
The idea that it is indeed hard work to pass treaties is supported by a recent working paper by Judith Kelley and Jon Pevehouse. Passing a treaty isn’t a simple matter of tallying the votes. The Senate’s agree and consent process takes away legislative time and political capital that could be used for other, perhaps more valuable, legislation. This opportunity cost theory yields some interesting and counterintuitive hypotheses. Presidents should become less likely to advance treaties when their approval ratings are high and when their party controls the Senate because that is the time when they can pass more valuable legislation on domestic issues. Kelley and Pevehouse find strong support for these patterns in their analysis with data from 1967-2008.
I suspect that Bellinger is correct that the Obama Administration could have persuaded a few Republicans to switch sides on the United Nations Convention on the Rights of Persons with Disabilities if it had expended more time and capital on the treaty. This is not just about Republican opposition but also about priorities in the Obama Administration, which have, rightly or wrongly, been more on the domestic side.
One could argue that this logic also applies to Obama's cabinet selection process on foreign affairs. With Susan Rice, Chuck Hagel and John Kerry, the White House strategy appears to be, "hey, let's float the name, see if anyone gets upset, and see if the nominee can push back effectively before bothering to actually nominate the person."
Now from a pure logic of politics, this strategy makes some sense on some foreign policy matters. As embarrassing as it was that the Convention on the Rights of Persons with Disabilities did not get ratified by the Senate, it doesn't change much. There is no effect on domestic law and the U.S. takes a marginal hit on the global stage. Even on cabinet appointments, one could be truly bloodless and argue that Susan Rice's Value Over Replacement-Level Policy Principal wasn't that high. The fiscal cliff negotiations matter a lot more.
Still, politics is art as well as science, and there's something just a little bit chickens**t about the Obama White House's tactics. Politics isn't only about winning -- sometimes it's just about making the effort. And the truth of the matter is that when it comes to dealing with Congress, this administration hasn't made the effort. By my recollection, during its entire first term, the only international relations piece of legislation that got the full court Obama White House press was the New START treaty with Russia. Now given what was going on with the economy, one could argue that the administration had the right set of priorities. But one way to help jumpstart the global economy would be a series of potentially significant foreign economic policy moves -- including the ratification of the Law of the Sea Convention, by the way. And I'd feel safer about my bet with Phil Levy if I knew that the Obama administration was willing to get some skin in the game when it came to foreign policy and Congress.
Letting peple like Susan Rice or Chuck Hagel twist in the political wind is, well, cruel. So I hope that in its second term, the White House cares enough about foreign policy to actually engage Congress rather than throw up their hands and say, "crazy Republicans, what can you do?" Actually, President Obama, you could do one whole hell of a lot if you made an effort.
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 think it's safe to say that your humble blogger has been mildly critical at times of the House GOP's negotiating tactics, as well as some of the foreign policy musings of House majority leader Eric Cantor. Matt Bai's forthcoming budget story, for example, places a lot of the blame on last year's debt deal fiasco on House Speaker John Boehner's inability to compromise because of the ideological rigidity of his caucus. Not surprisimngly, House Republicans can claim the lion's share of the credit for Congress' current levels of historic unpopularity.
Every once in a while, however, a story comes along in the mainstream media that provides just a smidgen of sympathy for what the House GOP is trying to accomplish. In that sense, Jonathan Weisman's New York Times story about the relationship between business supporters and House Republicans accomplishes the seeimg impossible: it paints a positive picture of Cantor and the House GOP:
Big business groups like the Chamber of Commerce spent millions of dollars in 2010 to elect Republican candidates running for the House. The return on investment has not always met expectations....
House conservatives are pressing to allow the U.S. Export-Import Bank, which has financed exports since the Depression, to run out of lending authority within weeks. The bank faces the possibility of shutting its doors completely by the end of May, when its legal authorization expires.
And a host of routine business tax breaks — from wind energy subsidies to research and development tax credits — cannot be passed because of Republican insistence that they be paid for with spending cuts.
Business groups that worked hard to install a Republican majority in the House equated Republican control with a business-friendly environment. But the majority is first and foremost a conservative political force, and on key issues, its ideology is not always aligned with commercial interests that helped finance election victories.
“Free market is not always the same as pro-business,” said Barney Keller, spokesman for the conservative political action committee Club for Growth....
To conservative groups, fresh eyes on issues have produced fresh, small-government thinking. The Export-Import Bank, for instance, wanted a new, long-term authorization with an expanded loan limit and broader authority. Instead, Representative Eric Cantor of Virginia is drafting a 13-month reauthorization that would demand the Obama administration begin international talks to phase out export-lending subsidies globally, force the bank to be more transparent in its lending practices and rein in its loan portfolio. (emphasis added)
Props to Cantor: his policy rider makes some sense. National export credit agencies are throwing around hundreds of billions of dollars to facilitate trade. At least one World Bank study suggests that export-lending subsidies misallocate credit -- they tend to provide financing for firms that would have exported anyway. There are instances when such subsidies might be useful, and, it should be oted, the OECD does some of the things that Cantor wants to see at the global level. That said, Cantor's suggestion for broader international collaboration and transparency make sense. Indeed, Cantor now has common cause with some unlikely NGO allies.
In all seriousness, if the House GOP could communicate that bolded message better to the American people, it might have a better approval rating. Of course, there is nothing in that message that is inconsistent with the House doing its job on matters like passing budgets and so forth. So I expect we'll have to wait until 2013 before another positive mention of Cantor appears in the paper of record.
While today is undeniably International Talk Like a Pirate Day, it also appears to be Let's Release Something About Trade Day inside the beltway. Scanning these documents, I'm pretty depressed about the future of trade policy and trade politics.
The Council on Foreign Relations released a Task Force Report on Trade and Investment Policy. The Task force was populated from a bipartisan list of eminences who agreed upon the following list of bullet points:
1) A trade-negotiations agenda that opens markets for the most competitive U.S.-produced goods and services
2) A National Investment Initiative that would coordinate investment policies to create more high-wage, high-productivity jobs in the United States
3) A robust and strategic trade enforcement effort that ensures U.S. companies and workers are not harmed by trade agreement violations
4) A greater push to promote U.S. exports through more competitive export financing and a more active U.S. government role in supporting American overseas sales
5) An expanded use of trade to foster development in the world’s poorest countries
6) A comprehensive worker adjustment and retraining policy
7) A new deal with Congress to give the president a mandate to negotiate trade-opening agreements with an assurance of timely congressional action
OK, let's see... (1) is just a restatement of principles, (3) is an old saw that only gets repeated during a presidential election season, (4) sounds awfully similar to the status quo policy, (5) is not a politically viable option, (6) is a political non-starter, and (7) will only happen if a single party controls the executive and legislative branches. So, to sum up, all of the the good, innovative policy proposals are politically impossible right now.
You can understand why I'm feeling a bit like Madeline Kahn in Blazing Saddles.
As much as I want to see further trade liberalization, however, I'm getting equally weary of lazy pro-trade rhetoric. Consider, as Exhibit A, this open trade letter to President Obama that Jaggdish Bhagwati pulled together (reprinted in The American Interest). The key paragraph has the following assertions:
The fear of the labour unions that trade with the poor countries produces poor in the rich countries is mistaken. The demand of the business lobbies that want ever more concessions from others is excessive. The contention of some experts that the gains from Doha are minuscule is flawed in neglecting the costs of the failure of Doha and the ensuing damage to the WTO. The retribution by a protectionist public is greatly exaggerated: many jobs today depend on both exports and imports and the polls reflect that.
As the 2012 campaign heats up, let's just re-write that last paragraph in the language of political pollsters:
If you push to ratify Doha as is, the unions will freak, big business will stand on the sidelines, some experts will argue that the gains are miniscule, and the public will likely disapprove of the deal unless they suddenly care enough to follow the issue. Get to it, President Obama!
The worst part of that paragraph, however, is the claim regarding "ensuing damage" to the WTO is Doha fails. Anyone paying attention to Doha has been aware that the trade round has been deader than a doornail since before rthe 2008 financial crisis. It's so dead that the Bush administration's last trade negotiator proposed scrapping it. What's striking is that, three years after Doha became DOA, the damage to the WTO appears to be pretty minimal. The wave of protectionism triggered by 2008 crested a while ago, and trade volumes recovered quickly. Don't get me wrong, I'm not happy that Doha is dead -- but the WTO's survival does not seem contingent on its passage.
Am I missing anything?
In the wake of the GOP debate earlier this week, there's been a lot of to-ing and fro-ing and to-ing and fro-ing as to whether Republicans have shifted away from the neoconservatism of George W. Bush and towards offshore balancing or isolationism. I don't think it's a settled question -- I'd conclude that it's partly a genuine realpolitik backlash to the massive costs of Iraq, partly a reflection of public sentiment, and partly a partisan reaction to the fact that it's a Democratic president who's launching
wars kinetic military actions nowadays.
What's more disturbing, however, and uncommented until now, was the total lack of support for freer trade among the GOP field.
This came through loud and clear through what was said and what was not said in New Hampshire. Trade didn't come up all that much during the debate. Tim Pawlenty provided the only comment of substance, and it wasn't a productive one:
[N]umber one, we've got to have fair trade, and what's going on right now is not fair.
I'm for a fair and open trade but I'm not for being stupid and I'm not for being a chump. And we have individuals and organizations and countries around this world who are not following the rules when it comes to fair trade. We need a stronger president and somebody who's going to take on those issues.
In presidential campaigns, this amounts to "don't expect to see any new trade deals anytime soon." As for the other dimensions of globalization, well, peruse the section on immigration
provided you have a green card if you dare. No one said anything about the positive economic and demographic benefits America receives from immigration.
The other thing that was striking was what wasn't said during the debate. All of the candidates focused like sharks with frikkin' laser beams attached to them on the economy. The standard GOP litany of solutions for jump-starting the economy were offered: tax cuts, cutting regulation, tax cuts, cutting government spending, tax cuts, reigning in the Fed, tax cuts, ending Obamacare, tax cuts. Not one of the candidates, however, mentioned trade liberalization as part of their fornmula for getting America moving again.
To be fair, this isn't as bad as when Obama and Clinton were debating over who would eviscerate NAFTA faster in 2008 (and funny, isn't it, how that never happened). And it's not like I was a huge fan of Obama's trade policy. To be just as fair, howeever, at least the current president completed KORUS negotiations and signaled strong interest in the Trans-Pacific Partnership. I get the sense that no one in the GOP field is going to stick their neck out on international trade or investment. For the party that claims to be in favor of lower taxes and regulation, this is a travesty.
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?
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.
No president can reasonably be expected to put a ton of political muscle behind a lost cause, and major progress on, say, the Doha round, was pretty clearly a lost cause from the day Obama entered office. In the face of a catastrophic global recession, there was never even the slightest chance of gaining support either at home or abroad for any major trade initiatives, and it's simply not reasonable to expect Obama to put any energy behind it. Not only would it have gone nowhere, it might even have been counterproductive. Better to wait until the global climate provides at least a bit of a tailwind.
Second, this isn't a classroom, where you get an F for not showing up. In politics, you get an F for being counterproductive. Obama hasn't been. He's simply ignored trade as an issue. But he hasn't done any harm, and under the circumstances that's quite possibly about as much as a trade enthusiast could have hoped for.
Avent concurs. He notes that global trade has survived and thrived after the Great Recession, concluding, "The global economy has lived to fight another day, and that's something to appreciate."
These are interesting points, but I fear that Drum and Avent are far too easy in their grading. Rewarding Obama for not making things worse on the trade front is like rewarding him for not invading Pakistan -- kudos for not pursuing a spectacularly bad idea, but really, is that a positive accomplishment? I think not. Or to use another grading analogy -- students can receive an F even if they don't plagiarize.
As for Obama resisting the tides of protectionism, I'll credit the separation of powers a bit more than Drum or Avent. The U.S. political system is arranged to make it very difficult for anyone to change the status quo. Even if Barack Obama wanted to pull the United States out of the World Trade Organization, for example, he likely couldn't have gotten the necessary votes in Congress. The Obama administration has mildly resisted more hawkish member of Congress to "get tough" with China. That's about it in terms of preventing protectionism. When I said Obama had done almost nothing on trade, I wasn't kidding.
If I have a student who barely puts in any work and nevertheless writes great papers, they'll receive a good grade. The outcome matters more as one matriculates. A student who barely puts in any work and has nothing to show for it? F city.
The Financial Times has been working overtime to discussing an emergent trend: multinational CEOs in Europe and the United States ripping into China.
In some ways, this started earlier this year. There was Google's complaint, of course. And, as TNR's James Mann noted, "Both the American Chamber of Commerce in Beijing and the European Chamber of Commerce in China have issued reports in recent months conceding that the business climate for foreign companies there has steadily worsened."
Things have been heating up in July, however. First, as Guy Dinmore and Jamil Anderlini report, GE CEO Jeffrey Immelt ripped into China while in Europe:
He warned that the world’s largest manufacturing company was exploring better prospects elsewhere in resource-rich countries, which did not want to be “colonised” by Chinese investors. “I really worry about China,” Mr Immelt told an audience of top Italian executives in Rome, accusing the Chinese government of becoming increasingly protectionist. “I am not sure that in the end they want any of us to win, or any of us to be successful."....
“China and India remain important for GE but I am thinking about what is next,” he said, mentioning what he called “most interesting resource-rich countries” in the Middle East, Africa, Latin America plus Indonesia. “They don’t all want to be colonised by the Chinese. They want to develop themselves,” he said. The comments echo a rising chorus of complaints from foreign business groups in China about the regulatory environment they face.
Gideon Rachman notes that Immelt is hardly alone in his complaints:
[W]hen Google, Goldman Sachs, and GE all run into difficulties simultaneously, it seems clear that a bigger trend is at work. Privately, senior US officials have been worrying for some time that Chinese trade and economic policy is taking a more nationalist direction that is penalising US companies. They worry that, after 30 years of strong economic growth, China believes it can now afford to take a less welcoming attitude to foreign investment, and instead concentrate on promoting national champions.
What's interesting is that European firms are now joining in the chorus of complaints. Furthermore, as Jamil Anderlini notes, they're not doing it in private dinners -- they're blasting the Chinese leadership publicly and directly:
Two of Germany’s most prominent industrialists have attacked the business and investment climate in China during a meeting with Wen Jiabao, the Chinese premier.
The criticism from the businessmen, the chief executives of Siemens and BASF, came against a backdrop of rising discontent among foreign businesses operating in China.
The German executives’ comments were all the more striking as they were made directly to the Chinese premier, and in public, as part of Angela Merkel’s four-day state visit to the country.
Jürgen Hambrecht, chief executive of BASF, the chemical producer, hit out at restrictions on foreign business and complained of foreign companies being forced to transfer business and technological know-how to Chinese companies in exchange for market access.
“That does not exactly correspond to our views of a partnership,” Mr Hambrecht told Mr Wen at the weekend meeting in the western Chinese city of Xi’an.
Addressing government procurement practices, a recent area of complaint by foreign executives and governments, Peter Loescher, chief executive of Siemens, the industrial conglomerate, said foreign companies operating in China “expect to find equal conditions in the fields of public tenders”.
Mr Loescher, who is also chairman of the Asia-Pacific Committee of German Business, called on Beijing rapidly to remove trade and investment restrictions in sectors such as automobiles and financial services.
BASF and Siemens had combined sales in greater China of more than €9bn ($11.6bn) last year and employ more than 36,000 people in the area.
Mr Wen responded to the criticism by telling Mr Hambrecht to calm down, insisting that China remained open to foreign investment and did not discriminate against foreign companies. “Currently there is an allegation that China’s investment environment is worsening. I think it is untrue,” Mr Wen said.
Alan Beattie and the ubiquitous Mr. Anderlini provide some general context for the latest venting:
The risk-reward calculation between staying quiet and speaking up has shifted towards the latter. With China employing policies including ignoring intellectual property rights, forced technology transfer and government procurement skewed towards domestic companies, some foreign businesses feel they are being pushed out of the country. “We are feeling less and less welcome in China, which is why you are seeing more people speaking out and reconsidering their futures in China,” says John Neuffer of the US Information Technology Industry Council.
Business leaders say Beijing’s appetite for more liberalisation of foreign investment has waned after a rapid burst of reform around China’s accession to the World Trade Organisation in 2001. So even when current policies only represent a standstill, they feel like going backwards.
At best, current policies are moving very slowly towards liberalization. The good news is that China is seeking to join the WTO's Government Procurement Agreement, which liberalizes trade among participating countries for government-commissioned projects. The bad news is that China's latest offer is
half-assed tokenism underwhelming in terms of what's on offer, and likely to be rejected by the US and EU.
So, why is China suddenly so hostile towards western multinationals? The simple realpolitik answer is that China is simply more powerful than it used to be, and its flexing its muscles now because it has them. In the Wall Street Journal, David Wessel offered a revealing anecdote that suggests President Obama shares this quasi-relative gains view:
Mr. Obama, who took office in an economy far worse and far more hostile to trade than the one Mr. Clinton inherited, appears less convinced of the virtues of free trade per se. He loves exports, easily sold as creating jobs. But he seems to view world trade like a basketball game: He wants to win, and doesn't like feeling that others are taking advantage of his team. He needles aides who worked in the Clinton administration that they let China into the WTO with a better hand than the one he has to play. Aides counter that China would be even more of a threat if not bound by WTO rules. He is unpersuaded....
Mr. Obama's trade strategy is becoming clearer. In international forums, as he did at the Copenhagen climate-change talks, he is arguing that China is posing as a developing country even though it has grown up and needs to be treated like the economic powerhouse it is. At home, he knows—no matter what his economists tell him—that neither voters nor Democrats in Congress will be convinced that free trade is good for them. So he is styling himself as a tough bargainer, who can beat other countries at their own game.
Obama could be right, but on one key dimension his bargaining hand will actually be stronger than those of past presidents. China, by continuing to alienate and frustrate western multinational corporations, is also effectively weakening the strongest pro-China lobbies in both Washington and Brussels. As Rachman notes:
Were it not for the power of big business, the relationship between the US and China might have gone sour years ago. There are forces on both sides of the Pacific – Chinese nationalists, American trade unionists, the military establishments of both countries – that would be happy with a more adversarial relationship. For the past generation it has been US multinationals that have made the counter-argument – that a stronger and more prosperous China could be good for America.
So it is ominous, not just for business but for international politics, that corporate America is showing increasing signs of disillusionment with China....
In the past, American business has acted as the single biggest constraint on an anti-Chinese backlash in the US. If companies such as GE, Google and Goldman Sachs qualify their support for China or refuse to speak up, the protectionist bandwagon will gather speed.
The Chinese government, of course, is not stupid. China’s growing confidence in dealing with the US, and the world in general, is still matched by a cautious desire to avoid conflict. At strategic moments, the Chinese government is likely to make tactical concessions – whether on Google or the currency – in an effort to head off a damaging conflict with the US. But with American business and the American public increasingly restive, the risks of miscalculation are growing.
And here I must dissent from Rachman. In some ways, I do think the Chinese government has been pretty stupid over the past year in executing its "Pissing Off As Many Countries As Possible" strategy. China rankled the Europeans over its climate change diplomacy at Copenhagen. For all of Beijing's bluster, it failed to alter U.S. policies on Tibet and Taiwan. It backed down on the Google controversy. It overestimated the power that comes with holding U.S. debt. It alienated South Korea and Japan over its handling of the Cheonan incident, leading to joint naval exercises with the United States -- exactly what China didn't want. It's growing more isolated within the G-20. And, increasingly, no one trusts its economic data.
This doesn't sound like a government that has executed a brilliant grand strategy. It sounds like a country that's benefiting from important structural trends, while frittering away its geopolitical advantages. Alienating key supporters in the country's primary export markets -- and even if Chinese consumption is rising, exports still matter an awful lot to the Chinese economy -- seems counterproductive to China's long-term strategic and economic interests.
Developing.... in a very interesting way.
Alexander F. Yuan-Pool/Getty Images
To date, your humble blogger has never meet a free-trade agreement (FTA) he didn't like. Sure, in a perfect world I'd like to see the multilateral trade rounds have priority. The perfect is often the enemy of the good, however, and FTAs often carry with them significant non-economic benefits. Signatories to U.S. FTA's, for example, often see an improvement in their human rights record.
I have to admit, however, that the
FTA Economic Cooperation Framework Agreement being talked about in this NYT article by Jonathan Adams gives me some serious pause:
As negotiations move ahead on a Taiwan-China trade deal that could lower tariffs on handmade shoes and hundreds of other products from the mainland, fears are mounting that the island’s traditional industries — like shoemaking — may suffer, even as high-tech, financial services and other sectors gain from freer access to the giant market across the strait.
The government, however, contends that the benefits would far outweigh the costs, and Taiwan’s president, Ma-Ying-jeou, hopes to use the agreement to fully normalize economic relations with Beijing while expanding the island’s access to other markets.
“We can handle diplomatic isolation,” Mr. Ma said last month, “but economic isolation is fatal.”
The Economic Cooperation Framework Agreement, the Ma administration says, would be a prelude to similar deals with Malaysia, Singapore and, eventually, Japan or the United States. “Once E.C.F.A. is signed, we want to sign other free trade agreements and try to use mainland China to link with international markets,” a trade official involved in the negotiations, Hsu Chun-fang, said....
The economies of Taiwan and China are already connected. Taiwan has invested $150 billion in China since the early 1990s, according to a Taiwan government estimate. About 40 percent of Taiwan’s exports already go to China, where they face average tariffs of 9 percent. Half of those exports are semifinished goods that are shipped to factories for assembly and other value-added services and then re-exported, according to Mr. Ma.
I get the economic logic behind this E.C.F.A. -- it would unambiguously benefit Taiwan's economy to have something like duty-free access to the mainland.
The security ramifications are troubling, however. While China's economic leverage over the United States is limited, this kind of agreement would ratchet up the asymmetric dependence of Taiwan on the Chinese economy. Maybe Taiwan has already crossed the point of no return with regard to interdependence with the mainland -- but this agreement would surely guarantee crossing that threshhold.
What would China do with this leverage? I don't know, I really don't. If Beijing plays the long game, they would allow for the build-up of political interest groups in Taiwan with a powerful incentive to appease the People's Republic in order to keep the economic relationship unruffled. The thing is, China has often been clumsy in its initial attempts to translate economic power into political influence, and I could easily see such a misstep occurring a few years from now.
Perhaps I'm being paranoid about this. The one thing I'm certain about, however, is that the most likely flashpoint for a great power confrontation between the United States and China is anything involving Taiwan. So I get veeeeeeerrrrrrry nervous about anything that upsets that particular apple cart.
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?
Over at Reason, Ron Bailey offers an intriguing solution to one of these problems -- use the WTO as a crowbar to bring down the Great Firewall of China:
When China joined the World Trade Organization (WTO) in 2001 it agreed that foreign service companies would have the same access to markets in China as domestic companies do. Now the European Union and the U.S. Trade Representative office are considering an argument that the Great Firewall violates China’s obligations to permit free trade in services under its agreements with the WTO. Last year, in a working paper titled Protectionism Online: Internet Censorship and International Trade Law, the European Centre for International Political Economy (ECIPE) think tank argued that “WTO member states are legally obliged to permit an unrestricted supply of crossborder Internet services.”
Since 2007, the California First Amendment Coalition (CFAC) has been pushing the U.S. Trade Representative to file a case against China on the grounds that it has been violating its WTO obligations. CFAC argues that, among other violations, China discriminates against foreign suppliers of Internet services by blocking them at the border while allowing domestic suppliers to offer like services. In addition, China has violated its commitments not to introduce or apply non-tariff measures when it joined the WTO by blocking a number of imported products without explanation or justification. China has also not set up any administrative procedures through which foreign suppliers of online services could appeal the blocking of imported publications and content.
I'll defer to smarter law blogs for correction, but I really don't think this is going to work. First, I'm not sure the differences in national treatment are great enough to constitute a WTO violation (remember, the Chinese position on the Google controversy is that Google has to obey Chinese laws, which appply to both domestic and foreign search engines). Second, China can respond not by lifting the Great Firewall, but by setting up administrative procedures to handle complaints. Third, as Bailey acknowledges, if China were to lose such a case, one option would be to simply refuse to comply. The U.S. would be allowed to respond with trade sanctions, but I suspect China's government will take that bargain every day of the week and twice on Sundays.
Simon Lester suggests that a bilateral investment treaty (BIT) would be a more useful crowbar -- which is great, except the U.S. and China don't have one. A BIT is being negotiated, and some experts are optimistic that it will be completed by this summer. Call me crazy, but I can't see the Chinese government negotiating anything that would affect their ability to censor.
Am I missing something?
As it turns out, that was the appropriate tack, because my lackluster effort to process the speech matched the Obama administration's lackluster effort to incorporate foreign policy into the speech (FP's Josh Rogin has expertly parsed the little foreign policy content there was). As predicted, there wasn't a whole hell of a lot of international relations content in the SOTU, despite Heather Hurlburt's best efforts to argue otherwise.
Politico's Laura Rozen noted "the seeming downgrading of foreign policy emphasis in the speech," and The Spectator's Alex Massie observed "Foreign policy received very little, even perfunctory, attention." [UPDATE: oooh, Jeffrey Laurenti has data]:
[Obama] devoted just 14 percent of his speech to international concerns – a far cry from George Bush, who regularly devoted half his State of the Union addresses to foreign policy and national security themes (and fully 88 percent of the infamous “axis of evil” address in 2002, which laid out the road map for war in the Middle East).
What attention was paid to foreign economic policy was desultory when it wasn't firmly wedged in Fantasyland.
In fact, let's deconstruct that entire section of the speech -- it won't take that long:
[W]e need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.
We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. And that's why we will continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea, Panama, and Colombia.
Now, let's see if there's anything of substance in there:
1) "We will double our exports over the next five years..." Well, the President said this would happen, so it must be so!! I would humbly request that the president also decree that the pull of gravity be cut in half. The government has an equal chance of making that happen.
2) "we will continue to shape a Doha trade agreement that opens global markets..." The key word there is "shape." I have every confidence the administration will do this, because they make this pledge in every communique they ever issue. It's a tradition now, like playing "Hail to the Chief." Play the music, pledge to work on Doha, and then go about your business.
3) "we will strengthen our trade relations in Asia and with key partners like South Korea, Panama, and Colombia." You mean, by ratifying the threee trade agreements that have already been signed and negotiated? Oh, you don't mean that? Well, never mind, then.
State of the Union speeches are usually about domestic priorities, and it's not surprising that this one played to type. Still, I would have liked to have seen a more robust effort to link foreign policy priorities to domestic priorities -- because the two are more linked than is commonly acknowledged.
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.
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?
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.