One of the problems with trade policy is that the State Department has been predominant in using it for foreign policy without regard to economic impact. The Department of Commerce, which has more purely economic interests, is sidelined, except for merely doing export promotion administrative tasks in several agencies. Our fraying Washington Consensus of free trade is practiced as an ideology, with folks motivated by beliefs and impervious to facts.
But a strong argument can be, and is often, made that America’s pivot from mercantilism to free trade after World War II had more to do with bribing other countries to be our friends (in light of the Soviet threat) than economics. What was the bribe? Access to the U.S. market. Basically foreign policy and the State Department influence was and is primary, with economic results taking a far back seat, if not the trunk of the car.
The Trans-Pacific Partnership is another bribe. We are trying to make Pacific countries our friends in light of China’s rise. While we hear the “export growth” argument time and time again, the fact is that trade agreements don’t give us a net trade benefit. Boeing and Caterpillar and Wal-Mart benefit, but not the country because the net effect is a either a growing trade deficit or a hampered ability to get on track to balanced trade. The State Department is integrally involved in the TPP negotiations… both me and CPA board member Dave Frengel have attended and seen them there. The USTR takes a lead role, but is within the White House, not the Commerce Department. The Commerce Department is virtually absent.
I don’t necessarily presume that Commerce Department involvement would save the day, because it depends upon agency and Presidential leadership. But their mission is more directly related to U.S. economic performance instead of other issues. Other countries trade negotiators come from ministries that are the equivalent of our Department of Commerce, not their foreign ministries.
So you really have a unity of U.S. foreign policy bureaucrats using trade to make global friends – supported by the coalition of free traders that are either ideologically resistant to reality or are pushing for the narrower interests of the companies that benefit from offshoring.
The NY Times has an article today called “Obama’s Evolution to a Tougher Line on China.” The title suggests Obama has gotten tough on China, which I would disagree with. But the text of the long piece outlines how the foreign policy types look at China through diplomatic and human rights lenses.
I did get a bit of a kick out of this paragraph, from an interaction back when Lawrence Summers was White House Chief of Staff.
In meetings, Mr. Obama liked to tease two of his advisers, Mr. Bader and Lawrence H. Summers, who had helped negotiate China’s entry into the World Trade Organization during the administration of Bill Clinton. “Did you guys give away too much?” he asked them, according to a senior aide, who described it as “a running joke.”
Clinton was the President who pushed China’s entry to the WTO, at the behest of Summers, Robert Rubin and others. And of course they did give up too much.
But then there is this paragraph.
At the center of the internal debate on China was a president, who despite being born in Hawaii and spending childhood years in Indonesia, is less beguiled by China’s history and culture than many of his predecessors were, aides said. Once in office, they said, Mr. Obama came to view China primarily through an economic prism. He is angry at what he sees as Beijing’s refusal to play by the rules in trade, and frustrated by the United States’ lack of leverage to do anything about it.
I would be pleased if Obama did view China through an economic prism, but the continued jawboning on currency (instead of action) and the failure to deal with state-owned enterprises just does not cut it. The stepped up enforcement is necessary, but ultimately weak tea given the massive, multi-faceted Chinese trade strategy which includes but goes far beyond merely violating the terms of the WTO agreement.
After World War II, the U.S. was the last economy standing. We had massive production. We also had massive debt, but our production caused us to easily grow our way out of that debt. We could afford to bribe other countries to be our friends.
But we can’t afford it now. National economic interest means that balancing trade or achieving net exports is the primary path to growth for us. The GATT, which I have mixed feelings about, envisioned a manageable balance of trade. Persistent trade imbalances are anti-free trade. And anti-smart trade. I.e. it is dumb.
The U.S. cannot be a global power of consequence without a strong economy. We cannot have a strong economy with a persistent and massive trade deficit that bleeds our jobs, our wealth, our production, and our present and future innovation.
Hopefully Mitt Romney and President Obama will continue dueling on who is stronger on China and trade. This will give the eventual winner the mandate to be stronger when in office, and to bring reluctant Senators and Representatives into line.