Springtime for U.S. Trade Policy?

In a Cato paper to be released on April 28 (here’s a link to related policy forum), Scott Lincicome and I explain how President Obama can help restore the pro-trade consensus in America. "How?" is one question, but a skeptic might also ask: Why would the president want to do that given his anti-trade campaign rhetoric and the preferences of many fellow Democrats in Congress for a moratorium on trade liberalization and a focus on enforcement?

The answer is quite simple: we believe the president understands the importance of both trade and U.S. trade leadership to the broader objectives of economic growth and good will among nations.  Since he is inevitably going to alienate some of the constituencies who helped get him elected by embracing trade openness, he could be forgiven for his perceived apostasy if he can articulate his rationale convincingly.

The most comprehensive and convincing articulation would begin with the moral case for free trade: that every American has the right to transact with whomever he chooses, regardless of the nationality or location of the other party.  Voluntary exchange between consenting parties is inherently fair, while government coercion in that process on behalf of some citizens at the expense of others is inherently unfair, inefficient, and subversive of the rule of law. We are not holding our breath that this president will make this principled case for free trade.  But his articulation of other pro-trade arguments, after so many years of hyperbole, myth-making and fear-mongering from his colleagues on Capitol Hill, could go a long way toward correcting and reversing Americans’ artificially-induced aversion to trade.

Why are we so sure that President Obama is going to embrace trade openness? Well, we’re not so sure, but it’s more than a hunch. Here are two broad reasons:

First, like all presidents in the modern era, Obama takes a national perspective on economic matters, and not a local or regional perspective, as most members of Congress do. Unlike a candidate or a member of the opposition party in Congress who is free to criticize the incumbent administration’s policy errors without having to seriously consider the pros and cons of the alternatives, the president has to concern himself with the consequences of policy changes. It’s potentially his mess to clean up. As a senator and presidential candidate, Obama promised to aggressively pursue remedies to China’s alleged currency manipulation. As president, Obama declined to act accordingly when given the explicit opportunity, knowing that provocation in that regard would inject more uncertainty into financial markets and could spark retaliation. A protectionist measure that briefly benefits producers in Illinois (which is why a Senator Obama might support it) could have consequences that penalize an array of interests across the country (which is why a President Obama might oppose it).

Second, President Obama—like all Democratic and Republican presidents in the post-WWII era—sees trade policy as a tool of foreign policy. And from his early trips abroad, Obama has learned that to many countries around the world, U.S. trade policy is the most consequential aspect of U.S. foreign policy. So a president who appears determined to repair the damage caused by eight years of unilateralist foreign policy can only embrace trade openness.

In our paper, Scott and I present several other reasons why we are "audaciously hopeful" that the president will help restore the pro-trade consensus. But some nascent support for our audacity can be found in the following examples:

1. President Obama spoke out against the protectionist Buy American provisions in the original "stimulus" package, and Congress subsequently removed its most egregiously protectionist aspects.

2. The president has encouraged Congress to resolve the Mexican trucking ban and bring the United States into compliance with its NAFTA commitments.

3. The Obama Treasury declined to label China a currency manipulator in its first semi-annual report on the topic

4. The president informed Mexican president Calderon last week that he did not think NAFTA would need to be reopened—contrary to his campaign rhetoric.

5. The president said as much to Canadian PM Stephen Harper back in February.

6. There are increasing signs of interest and promise from the White House and Congress that the long-frozen bilateral trade agreements with Colombia, Panama, and South Korea could start moving soon.

The pro-trade environment is not certain, and it could be fleeting, but there’s a case to be made that it’s not as dire as some predicted it would be. If the president intends to facilitate a liberal trade agenda, he should start laying the groundwork with strong pro-trade arguments now.