The United States trade policy is adrift, seemingly guided by the protectionist winds of an insular Congress, and an administration that seems more focused on enhancing unilateral enforcement mechanisms than affirming a strong commitment to free trade. In a recent speech, US Trade Representative Ron Kirk signalled the administration’s desire to enhance domestic legislative tools for use in trade disputes, and plans for asking trading partners to “commit to actions that level the playing field”. As a result, America’s closest trading partners are worried and angry; our exporters are anxious; and, just two months into the Obama administration, 60 years of US leadership on free trade is in jeopardy.
Since the 1940s, the US has led the charge to remove international barriers to goods, services and investment. The result: a global trade explosion that has enriched American families, spurred innovation, enhanced our security and helped millions escape poverty. Every US president since Herbert Hoover has championed free trade because of its proven benefits.
Since his inauguration, US President Barack Obama has expressed a desire to follow in his predecessors’ footsteps. Meeting his Canadian and Mexican counterparts, Mr Obama backed away from his “overheated campaign rhetoric” on the North American Free Trade Agreement (Nafta). His nominees for commerce secretary and US trade representative have been vocal trade advocates, and he has often celebrated open markets and vowed to resist “escalating protectionism”.
Unfortunately, Mr Obama’s inaction has undermined this pro-trade rhetoric. Mr Kirk’s confirmation took a lackadaisical two months, forcing US officials to cancel World Trade Organisation and bilateral trade negotiations. Meanwhile, new Energy Secretary Steven Chu carelessly suggested using tariffs to protect US manufacturers from countries that haven’t addressed carbon emissions — only a day after China’s top climate change official warned such carbon tariffs could start a trade war. This has all the makings of a captainless ship.
Mr Obama has not countered the protectionist impulses of his Democratic colleagues in Congress. Without White House leadership, Congress has injected anti-trade features into the year’s two spending bills: the “stimulus” and the 2009 Omnibus Appropriations Act.
Several reports have spotlighted the international angst over the stimulus bill’s “Buy American” provision and the US$2.4 billion in retaliatory tariffs that Mexico applies to US exports because of the omnibus bill’s ban on Mexican trucks (in direct violation of Nafta). But less reported are the bills’ other protectionist gimmicks: the stimulus allows US lumber producers to ignore the federal courts and keep US$92 million in illegally collected Canadian and Mexican lumber duties; the omnibus hits imports of both Chinese chicken and Vietnamese and Chinese textiles, and it enables mandatory country labelling for all imported food.
These measures have been rebuked by many of America’s closest trade partners, and Mr Obama has been lectured on protectionism from, among others, Canadian Prime Minister Stephen Harper, European Union Trade Commissioner Catherine Ashton, Brazilian President Luiz Inacio “Lula” da Silva, and Chinese Commerce Minister Chen Deming. The message: on trade, America is an also-ran.
Because of today’s rules-based multilateral trading system and the interdependence of global markets, US fecklessness on trade shouldn’t lead to devastating protectionism akin to the Smoot-Hawley-induced tariff wars of the 1930s. But it’s still a problem. In 2008, global trade contracted for the first time since 1982, and protectionist pressures abound. The WTO’s Doha Round is comatose, even though an ambitious deal could inject US$2 trillion into the reeling global economy. Considering the US has steered every major trade initiative in modern history, any chance for significant progress on trade will disappear without strong American leadership — in word and deed.
Despite these problems, all is not lost. Mr Obama, although clumsily, has limited the damage from “Buy American” and pledged to reinstate the Mexican trucking programme, and the other missteps are similarly containable. But if he wants to restore US leadership on trade, Mr Obama must move quickly from defence to offence. He should immediately reaffirm America’s unwavering commitment to expanding global trade, not just “resisting protectionism”. He should also tell Democratic leaders in Congress that he will not allow protectionist nitpicking to define his trade agenda.
Finally, the president should announce his intent to treat anti-trade provisions in future bills like all other kinds of earmarks — make them public, transparent and extremely limited.
These steps will calm the current anxiety over America’s wavering trade policy. They will also give the president the breathing room necessary to craft a long-term trade strategy — one that rehabilitates a domestic free-trade consensus and forges a proactive, politically feasible trade policy that will guarantee America’s leadership in the global economy for the next decade.