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 Date:2/3/2010

 

Wake Up Call
Obama’s Trade Non-Policy is Dangerous
Reginald Dale tells why Washington’s Trans-Pacific Partnership (TPP) trade agreement may be an uphill battle.

Somewhat surprisingly, President Barack Obama included a couple of paragraphs on trade, promising to boost U.S. exports, in his State of the Union message on Jan. 27. The surprise was due to the almost zero interest Obama has shown in trade policy over the past year, in which he has failed to advance the ball in any of the major trading issues facing the United States. Where he has intervened, he has shown a tendency to backslide by going along with various protectionist measures – most notably higher tariffs on Chinese tires, “Buy American” provisions in the economic stimulus bill and a clampdown on Mexican trucks.

Obama’s comments in his State of the Union were vague and contained only feeble commitments to do better. They focused exclusively on increasing U.S. exports, rather than the negotiating give-and-take that is essential to pursuing an open trade agenda. But they at least showed glimmers of recognition that increased trade is vital to creating well-paid jobs in the United States as well as to maintaining America’s world economic leadership.

In his remarks, Obama connected the dots to U.S. jobs, but not to the leadership challenge, despite having given himself the opportunity to do so. Twice in his speech he stressed the urgency of the United States remaining number one in the world economy, but in both cases the context was the need for the United States to lead the world in clean energy. “China is not waiting to revamp its economy. Germany is not waiting. India is not waiting. These nations … aren't playing for second place,” he pointed out.

That’s perfectly true, but if America wants to retain first place it will not be enough to rely on economic recovery or clean energy. It must increase its role in international trade – not just for the sake of economic leadership but to maintain its geopolitical power at a time when China is seeking to dislodge the United States from Eastern Asia and the Western Pacific. What is at stake is not just the “soft” power of economic and diplomatic exchanges; if America wants to maintain its “hard” military power, in the Pacific and elsewhere, it must earn the money to pay for it.

The countries of South-East Asia, for example, look to the United States to counterbalance the growing power of Beijing through a U.S. presence in the region – and that means primarily a trade and economic presence, with “hard” security only at the back of their minds. But China is expanding its trade with the region faster than is the United States, and on Jan. 1 this year Beijing scored a major breakthrough with the entry into force of a huge free trade area grouping China and the 10 nations of the Association of South-East Asian Nations (ASEAN*). Beyond that, according to Demetrios Marantis, U.S. Deputy Trade Representative, 175 preferential trade agreements are now in force among Asia-Pacific countries, with another 20 awaiting implementation and more than 50 others under negotiation.

Even though U.S. exports to the region are rising, “America faces the daunting prospect of getting locked out of the Asia-Pacific,” Marantis warns. The political consequences are as ominous as the economic – the more these countries become trade-dependent on China, the more susceptible they will be to leadership from Beijing, whether they like it or not. At the same time, China aims over the medium-term to ease the United States out of regional economic cooperation groupings in Asia – a goal that, for the moment at least, has become easier as a result of the shaky relationship between Washington and the new government in Tokyo, which sometimes seems keener to improve relations with Beijing than with Washington.

Washington has in the past relied on Tokyo to help ensure that the United States is included in regional economic groupings, making sure they are “Asia-Pacific” rather than simply Asian. For now, however, Washington is involved in a futile spat with Japan over the future of the U.S. base on Okinawa, when it ought to be raising its eyes to the strategic level, both economically and politically. Administration officials would claim that they are now looking to the Pacific horizon with proposals for a hotchpotch Trans-Pacific Partnership (TPP) trade agreement with seven other nations**, launched in December 2009, although hopes that this will transform Pacific trade are unlikely to be fulfilled.

Lack of strategic vision has characterized Obama’s trade policy, or non-policy, for most of the past year. Although Obama came to power promising to be a “multilateral” president, as opposed to the alleged “unilateralism” of his immediate predecessor, he has failed to achieve significant progress in the two biggest multilateral enterprises currently under way around the world – the UN climate change talks that fizzled in Copenhagen in December and the Doha Round of world trade negotiations that is still in limbo waiting to be rescued by imaginative leadership that can come only from the United States or a joint U.S. initiative with the European Union.

Some U.S. businesses have concluded that there would be little advantage for them in a Doha Round success. But a breakthrough in the negotiations would send a particularly important signal that the world is still on track toward freer trade at a time when economic recovery is still hesitant and protectionist forces active. A multilateral success might also help stall the trend to the proliferating bilateral agreements on which many of the major trading powers are now focusing – agreements that, while much less desirable than multilateral solutions, are usually better than nothing.

As it is, while allowing the Doha Round to fester, Obama has done little to persuade Congress to approve the bilateral free trade pacts with Colombia, Panama and South Korea, concluded during the Bush administration. All three are potentially advantageous to the United States but the administration has allowed them to be held up by Democratic objections in Congress and opposition from labor unions. The objections include allegations that Colombia has failed to provide physical security for labor leaders, concern over Panama’s tax haven status and inadequate access to the South Korean market for U.S. autos and beef.

A strongly pro-trade administration would by now have dealt with these problems and launched a serious drive to push the agreements through Congress. The reason why Obama has not done so goes to the heart of his inaction on the trade front – freer trade is unacceptable to a large part of the Democratic Party and to most labor unions, unless it is hedged about with labor and environmental conditions that potential partners are unlikely to accept. These anti-trade forces lay much greater stress on strict enforcement of existing agreements than the negotiation of new ones – a position to which Obama duly genuflected in his State of the Union message, and which has been openly endorsed by U.S. Trade Representative Ron Kirk.

Administration officials claim that most Americans think the same way, that, in Marantis’s words, public opinion “has soured on trade.” Polls find only a quarter of Americans think a global economy benefits the United States, that only 13 percent of Americans think trade agreements create jobs, while over half think that they lead to job losses, Marantis told a recent meeting in Washington, DC. And it’s true that it’s harder to promote trade agreements at a time of high unemployment and economic anxiety in the United States.

But that is not the whole story. Obama has back-pedaled on trade because he does not want to open a hornet’s next among Democrats when his top priorities are health care, financial regulation and economic recovery. Nor, with his manifest dislike of big corporations, and particularly multinational companies, is he is by nature a free-trader. Commitments to enforcement, “fair” trade, and the imposition of new environmental and labor conditions on trading partners, are usually shorthand for backdoor protectionism.

That is one reason why negotiating Obama’s TPP initiative is likely to be an uphill struggle. The administration description of the proposed pact as a 21st century agreement, updated to include America’s (that is the Democrats’ and labor unions’) latest concerns suggests that it will be even less acceptable to developing countries than past attempts to impose environmental and labor standards. In any case, the United States already has preferential trade agreements with four of the proposed parties (Australia, Chile, Peru and Singapore) and the other three (Brunei, New Zealand and Vietnam) are not major trading nations.

The ultimate aim may be, as officials hint, to expand the pact to bigger fish, such as China and Japan, but that would at best take a long time, and the TPP is probably too little too late. After all, if the Obama administration were seriously interested in opening up markets, it would have worked much harder to do so, and shown real trade leadership, over the past year.

* Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam
** Australia, Brunei, Chile, New Zealand, Peru, Singapore and Vietnam


Reginald Dale is Director of the Transatlantic Media Network at the Center for Strategic and International Studies in Washington DC and a former commentator and senior editor for the Financial Times and the International Herald Tribune.