Tag: trade agreements

TAA Reversal on Grand Bargain

On Monday, a group of 41 Senate Democrats, led by Sen. Debbie Stabenow (MI) sent a letter to President Obama, praising his administration’s recent decision to abandon its erstwhile promotion of the three pending trade deals as “job creators” and instead warn Congress it won’t submit the pacts for a vote unless they can be assured that a stimulus-enhanced version of trade adjustment assistance will be renewed.

The letter contains much about the benefits of the program, with little mention of its costs to taxpayers and even less concern shown for the innocent consumers whose pockets have been picked for decades to maintain the jobs lost when trade is allowed to flow more freely. That’s pretty standard fare for protectionists, who rely on the hidden and dispersed nature of the costs to get support for their policies. What’s new about this situation is the ratchet effect – the base TAA program is still in place, so what they are asking for is a renewal of part of the stimulus as a pre-condition for supporting trade liberalization. Note that the stimulus changes included a removal of the requirement that job losses be linked to a trade agreement (a feature, not a bug of the program, according to the Senators).

Wait, did I say a renewal of TAA-plus would be a pre-condition for supporting trade agreements? Not necessarily. Note this telling paragraph of the letter:

While we the undersigned may have differing views on elements of the trade agenda - with some of us looking forward to supporting the pending trade agreements with South Korea, Colombia, and Panama, and others skeptical of the impact of the agreements -we are unified in our belief that the first order of business, before we should consider any FTA, is securing a long-term TAA extension.  [emphasis added]

As I’ve said repeatedly, I understand (even if I don’t support) the political calculation that TAA is necessary – and worth it– if it secures votes for trade liberalization. But reading between the lines, some of the letter signers have no intention voting for the trade agreements, even if the mega-TAA is approved.  What we have here is a reversal of the grand bargain on trade liberalization, that gave extra welfare to workers who lost their job because of freer trade in exchange for support for trade agreements that lowered trade barriers. That ‘grand bargain’ has been tenuous for years now, of course – witness the complete lack of movement on the trade agreements even after the 2009 enhancement of TAA, at least until recent months. But now, rather than using TAA to buy votes for trade liberalization, the administration and their allies appear to using pretty-much-assured votes for trade liberalization to buy TAA. As a Wall Street Journal editorial said on Friday, it’s extortion.

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President Obama’s Cognitive Dissonance on Trade with Latin America

As President Obama flies from Brazil to Chile today and then on to El Salvador later this week, trade and jobs have been a major theme of his trip. So far the tour has been a public relations success, but it also highlights the contradictions in the president’s trade policy toward our Latin American neighbors.

One contradiction is that the president says nice things about trade agreements in the abstract, but he has so far refused to show leadership when it really matters. In an op-ed in USAToday on Friday, as he was about to depart for Brazil, the president wrote:

Thanks in part to our trade agreements across the region, we now export three times as much to Latin America as we do to China, and our exports to the region — which are growing faster than our exports to the rest of the world — will soon support more than 2 million jobs here in the United States.

Yet nowhere in the 900-word article did the president even mention “Colombia” and “Panama,” two countries that have already signed trade agreements with the United States but are waiting for the president to ask Congress to actually vote on them. The Colombia agreement alone would stimulate an extra $1 billion a year in U.S. exports. (See our recent Cato study.)

Yet because his labor-union allies oppose both agreements, President Obama could not bring himself to even mention them in a major article on Latin American trade, exports, and jobs. More than passing strange.

A second contradiction is that the president talks a lot about reducing barriers to trade in other countries, but hardly ever acknowledges remaining trade barriers in the United States. No other country would like to hear that acknowledgment more than Brazil, whose producers face high U.S. barriers to some of their most important exports.

In a speech yesterday in Rio de Janeiro, the president told his hosts:

In a global economy, the United States and Brazil should expand trade, expand investment, so that we create new jobs and new opportunities in both of our nations. And that’s why we’re working to break down barriers to doing business. That’s why we’re building closer relationships between our workers and our entrepreneurs.

Our commercial relations with Brazil could be even closer if the United States did not maintain high trade barriers against such major Brazilian exports as sugar, ethanol, steel, and orange juice. Brazil would also export more cotton and soybeans if the U.S. government did not so heavily subsidize our own production.

If President Obama has been working to break down those U.S.-imposed barriers to U.S.-Brazilian trade, I somehow missed the news.

President Obama Fails to Understand Trade

At the beginning of the Obama administration, I had the audacity to hope that the new president would defy conventional wisdom and become a proponent of trade and a good spokesman for its benefits. Scott Lincicome and I even wrote a 20,000-plus word Cato analysis explaining why the economic, geopolitical, and domestic political environment offered the president a unique opportunity to steer his party back to its pro-trade roots.

The thrust of our analysis was that, despite the campaign rhetoric, the president understood the economic benefits of trade and that he would see it as an escape route from recession and a path to political success; that the president’s visibility and new cache with his trade-skeptical political party—and the fact that he wasn’t George W. Bush—made him well-suited to the task of challenging and extinguishing lingering myths about the alleged ravages of trade, while explaining its many benefits; and, that the president would recognize that pro-trade policies should be part of the current Democratic Party platform, if for no other reason than the fact that restrictions governments place on trade harm lower-income Americans and the world’s poor more than they hurt anyone else. (Protectionism is regressive taxation, which is presumably anathema to Democratic Party creed.)

Alas, our study, “Audaciously Hopeful: How President Obama Can Restore the Pro-Trade Consensus,” was just a little too. It fell on deaf ears. It was ignored. In fact, it’s almost as if the past two years of trade policy were conducted to spite the recommendations in that paper.

From this administration, we’ve seen completed bilateral trade agreements sent to an off-site storage warehouse; the imposition of taxes on imported tires; “Buy American” provisions; prohibitions on Mexican trucks; demonization by the president of companies that outsource; defiance of multilateral rules governing use of the antidumping law; and, a “Boardwalk Empire”-style deal to prospectively compensate Brazilian farmers for the lower revenues they should expect on account of the lavish subsidies bestowed by U.S. taxpayers on U.S. cotton producers in lieu of reducing—or better still, halting—cotton subsidies altogether. Yes, the hallmark accomplishment of this administration’s trade policy so far is a deal that requires American taxpayers to subsidize Brazilian cotton producers for the right to continue subsidizing U.S. cotton producers.

Despite all that, I remained audacious (or gullible) enough to hold a glimmer of hope that the president would finally see the wisdom in our advice—given the new political landscape.  That glimmer was snuffed out with publication of an oped in the New York Times this past Saturday, in which President Obama betrays profound misunderstanding of trade and its purpose.  The president portrays trade as an enterprise that is won or lost at the negotiating table, where only the most savvy or most committed negotiators can succeed in bringing home the spoils.  The president promises to fight hard to get Americans their fair shake from this dog-eat-dog process, while actual producers, consumers, workers, and investors are relegated to tertiary roles.

The central dysfunction between Americans and trade is the assumption—reinforced in the president’s op-ed—that exports are good, imports are bad, the trade account is the scoreboard, and our trade deficit means that we are losing at trade. That dysfunction resides comfortably within a zero-sum worldview, which the president touts in a purposeful cadence throughout the oped. In the penultimate sentence, the president writes:

Finally, at the Asia-Pacific Economic Cooperation meeting in Japan, I will continue seeking new markets in Asia for American exports. We want to expand our trade relationships in the region, including through the Trans-Pacific Partnership, to make sure that we’re not ceding markets, exports and the jobs they support to other nations.

By opining about trade without understanding that its real benefits are manifest in imports (here’s Don Boudreax’s elaboration of that process), the president is simply reinforcing myths that will continue to confuse and divide American.  As long as politicians insist that our trade account is a scoreboard and that a surplus is a trade policy success metric, Americans will continue to be skeptical about trade.

What the 2010 Election Will Mean for Trade

One of the many implications of yesterday’s election is that the new Congress will likely be more friendly toward trade-expanding agreements and less inclined to raise trade barriers.

Trade was not a deciding factor in the election, despite efforts by a number of incumbent Democrats to make it so. Many House and Senate contests were peppered with ads accusing an opponent of favoring trade agreements that gave away U.S. jobs to China. It was a stock line in President Obama’s stump speeches that Republicans favored tax breaks for U.S. companies that ship jobs overseas (a charge I dismantled in an op-ed last week). Yet on Election Day the trade-skeptical rhetoric and ads did not save Democratic seats.

Republicans Pat Toomey, Rob Portman, and Mark Kirk all won Senate seats in the industrial heartland yesterday (Pennsylvania, Ohio, and Illinois, respectively) and all three voted in favor of major trade agreements during their time in the U.S. House. None of them ran away from their records on trade.

The key change for trade policy will be the switch of the House to Republican control in January. Democratic House leaders were generally hostile to trade agreements during their four-year tenure, refusing to allow a vote on the Colombia trade agreement in 2008 even after President Bush submitted it to Congress while allowing a vote this fall on a bill to raise tariffs against imports from China.

In contrast, the incoming GOP House leaders, presumptive Speaker John Boehner of Ohio, Majority Leader Eric Cantor of Virginia, and Ways and Means Committee Chair David Camp of Michigan, have all voted more than two-thirds of the time for lower trade barriers, according to Cato’s trade vote data base. The trade-hostile influence of organized labor, so prominent the past four years, will be greatly diminished.

The new Congress will be more likely to consider and pass pending trade agreements with South Korea, Colombia, and Panama. The Obama administration has endorsed all three in the abstract, but has done little to actually push Congress to approve them. These three agreements offer an opportunity for the White House to work with the new Congress in a bipartisan way to promote exports and deepen ties with friendly nations.

The news is not all positive on the trade front. A more Republican-weighted Congress will probably not be much different when it comes to rewriting the farm bill in 2012. Republicans have shown themselves to be similar to Democrats in supporting subsidies and trade barriers to benefit certain farm sectors such as sugar, rice, cotton, and corn. And Republicans are far more inclined that Democrats to support the failed, 50-year-old trade and travel embargo against Cuba.

Protectionist Candidates Firing Blanks So Far

The early returns are in on the Democratic tactic of making trade an issue in the 2010 campaign, and the results are not encouraging for those who want to blame trade agreements for the state of the economy.

In a column this morning for the Wall Street Journal (“Ohio’s Test of Protectionist Rage”), Gerald Seib reports from Ohio that two Republican candidates have been unscathed so far by Democratic attacks on their past support for major trade agreements.

In races for U.S. Senate and governor, Democrats have unleashed hard-hitting ads accusing their GOP opponents of supporting trade deals “that shipped tens of thousands of Ohio jobs overseas.” So far the attacks have failed to draw blood. According to Seib:

Right now, both Republican contenders in those races—Rob Portman for the Senate and John Kasich for governor—are coming under fire for their past support of free trade. The fact that both enjoy big poll leads right now suggests the attacks have had limited effect so far.

A key question in the campaign stretch run, both for Ohio and for policy making in Washington after the election, is whether that remains the case.

Blaming trade for Ohio’s economic woes is wrong on substance, as I noted in 2008 when the issue came up in the state’s Democratic presidential primary. Politically it has proven to be a non-factor. As keen as I am to promote free trade, I’ll admit that it is probably not a big vote-getter on Election Day, but neither is it a vote-loser.

Candidates who support our freedom to trade with the rest of the world should not abandon that sound position under the desperate fire of their opponents.

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Democrats Turn on Trade in Desperation

In the 2006 and 2008 election cycles, Republican candidates for Congress tried to save their bacon by running against immigration. In 2010, according to the Wall Street Journal this morning, a number of Democrats are trying to save their seats by running against trade. I predict the Democratic tactic will be as fruitless as the Republican effort before it.

Democratic incumbents have been running TV ads accusing their Republican challengers of favoring trade agreements, outsourcing, and tax breaks for U.S. companies that invest abroad. The charges are wrong on substance, as I address at length in my 2009 Cato book Mad about Trade: Why Main Street America Should Embrace Globalization, but running against trade has not proven to be a vote getter, either.

It is difficult to find a presidential or congressional election anywhere that has turned on trade. While most voters have an opinion on trade, the issue tends to rank down the list of top concerns, far behind the economy, jobs, and, in this election cycle, government spending and debt.

Demonizing trade is an especially odd campaign tactic in 2010. The recession of 2008-09 was not caused by trade, but by the bursting of the housing bubble. As the economy slowly recovers, trade has been one of the bright spots, with a healthy increase in exports fueling a revival of the closely watched manufacturing sector, as my Cato colleague Dan Ikenson blogged a few days ago.

Democrats running against trade should remember that the “Clinton economy” of the 1990s that they often speak nostalgically of restoring was built in significant part on the passage of major trade agreements and a robust expansion of trade.

The Maytag Repair Man Would Make a Better USTR

Ron Kirk hasn’t exactly been burning the candles at both ends as U.S. Trade Representative.  And I don’t expect he’ll be racking up the frequent flier miles anytime soon, given his recent assessment of the trade policy scene.  Here’s what he had to say, as reported by Jerry Hagstrom of Congress Daily:

Speaking at the USDA Annual Outlook Forum, Kirk said members of Congress “are more open and receptive” to the idea of creating a trans-Pacific agreement because it could be written from scratch.

The Trans-Pacific Partnership comes “without any of the biases of the three [agreements] under consideration,” he said. Kirk added members of Congress also like it because it would take 18 to 24 months to develop and would not come up for approval until after the 2010 elections.

Basically, Kirk’s planning to hang his trade expansion hat on some future trade agreement that’s still in the conception phase and years away from a shot at reality, while giving up on the already-signed agreements with Korea, Colombia and Panama because those agreements are too much of a burden politically for Congress, who would prefer to start from scratch. 

That’s trade leadership from the Obama administration!

At this point, though, likening Kirk to the Maytag repair man might be too optimistic an analogy. The USTR hinted that he might find something to do on the enforcement side of his job description. According to Hagstrom:

Kirk stressed the administration’s commitment to enforcing trade agreements, saying that “enforcement is not protectionist.”

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