Obama, Religion, and Trade

If you want to kill a dinner party, you could do no better than mention any of the three words in the title of this post. If you are following U.S. trade policy, these three words in the context of events over the past week would lead you to conclude that President Obama has had a crisis of faith when it comes to the merits of international trade.

At issue is the evident lack of enthusiasm from the White House in pursuit of so-called Trade Promotion Authority from Congress to continue working on two of his signature trade policy initiatives, the Trans Pacific Partnership (TPP)  and the Transatlantic Trade and Investment Partnership (TTIP). Much has been written about TPA, formerly known as Fast-Track (See Link for a piece on this by yours truly). For most of the postwar period, some form of delegated trade policy authority from Congress to the Executive branch has been a major component of American foreign policy; TPA is one form of this delegation. Yet, for most of the past two decades, this basic delegation of authority has been either hard won and full of caveats or has been allowed to lapse entirely, depriving the U.S. President of a key set of foreign policy tools. The most recent lapse in TPA began when the last delegation of authority expired in 2007. Given President Obama's recent conversion to the merits of international trade, and progress on two major negotiations, advocates of trade liberalisation thought there would be an important push for a renewal of TPA in 2014, in spite of the looming mid-term election campaign. Evidently not.


Last week, the White House essentially abandoned its efforts on TPA after some key Democrats on Capitol Hill, critically House Minority Leader, Nancy Pelosi and Senate Majority Leader Harry Reid, voiced their opposition to doing TPA this year. The White House's rapid surrender on this issue is shocking, but also indicative of the poisonous nature of the contemporary politics of international trade.

Shocking

The most obvious "shock" from this past week's turnabout from the White House is how quickly it was willing to abandon pursuit of a major set of policy tools for the executive branch. The Obama Administration's foreign policy achievements will be debated for years to come. However, I think it's fair to say that what began as a promising effort to restore American prestige in global affairs in the aftermath of the Bush Administration has turned into a confusing and incoherent mush (Syria and possibly now Ukraine). That an administration so desperately in need of some policy (foreign or domestic) success stories of any kind would so quickly throw in the towel on TPA is shocking.

However, even more shocking is the turnabout on trade liberalisation by Obama himself. Recall the bruising primary/caucus fight for the Democratic presidential nomination in 2008. As the race between Senators Obama and Clinton got tighter, the rhetoric got sharper, particularly where trade politics were concerned in rust belt states like Ohio. Enemy number one for both candidates? The NAFTA!!!! To listen to the rhetoric of that campaign was to learn that the NAFTA was responsible for almost every conceivable social, economic, and political ill besetting the United States over the previous two decades. In an effort win primary voters, candidate Clinton spoke openly of "trade time-outs" and Obama of the "renegotiation of the NAFTA" itself. So heated was the rhetoric that it began to alarm Americas two NAFTA partners, Canada and Mexico. Canada, in fact, sent an envoy to speak with Obama's economic advisers to find out if he was serious (see link)? For proponents of an open global trading system, the election of either Obama or Clinton suggested dark times ahead.

Yet, just two years later, President Obama was suddenly hailing the virtues of international trade as part of his recovery plan for the post-financial crisis American economy (See 2010 SOTU). The president picked up the torch on several key bilateral trade negotiations initiated by the Bush Administration (Columbia, Panama, South Korea) and pushed them through Congress. Obama has pushed hard for completion of the Trans-Pacific Partnership (TPP) negotiations, joined by the Bush Administration in February 2008, and launched what could become the most significant trade initiative in American history, the Transatlantic Trade and Investment Partnership (TTIP), with the European Union. Moreover, in early 2010, Obama launched the National Export Initiative aimed at doubling American export totals within five years.

In short, Obama had found religion on international trade. Has he recently become a heretic?

Indicative

Unfortunately, abandoning the pursuit of TPA, at least until after November's midterms, is just the latest sign indicative of how poisonous the politics of international trade have become. For most of the past two decades, trade liberalisation has become synonymous with nearly every conceivable social, political and economic ill affecting the modern state; outsourcing, environmental degradation, labour and human rights violations, and the loss of sovereignty are the most commonly cited, albeit dubiously linked, problems. Trade agreements like the NAFTA, which are in reality shallow forms of integration focused mainly on border measures, are imbued with qualities they simply do not have. Proponents oversell the benefits, critics exaggerate the negative effects. In the early 2000s, Lou Dobbs hosted a program on CNN that regularly referred to policies oriented toward greater economic openness as "faith based economic policies," as though there was no rational thought behind liberalisation. Thankfully, Dobbs' particular brand of xenophobic, anti-immigrant, nationalism was finally pulled from CNN in late 2009. Dobbs' television rhetoric was all the more galling because he knew better (his background was solidly anchored in finance), yet pandered to many of the most simplistic arguments put forward by critics of economic openness.

Even more remarkable was the fact that hardly anyone was willing criticise Dobbs or his ilk publicly. In effect, the entire debate over the merits of international trade has been ceded by to the lowest common denominator (note what happens to those who've dared disagree). As any economist will tell you, trade liberalisation generates "winners" and "losers." There are important distributional consequences to liberalisation that are worthy of a serious public debate. The "winners" are broadly distributed throughout the economy while the "losers" from liberalisation are highly concentrated, most often the form of new foreign pressures on uncompetitive domestic economic sectors. How a society deals with the adjustment process for the "losers" can have critical social, political, and economic consequences. The most obvious means of dealing with those negatively affected is to have some of the gains from the "winners" redistributed to the "losers" in the form of a variety of programs aimed at getting them on a different employment track-- in effect, the "winners" purchase additional openness from the "losers."

The problem is that it's easy to pander politically to concentrated groups of "losers." Unlike the broadly distributed "winners," the "losers" tend to organise and make a lot of noise-- recall Ohio in 2008. All of this tends to shut down the legitimate debate over how much liberalisation and openness to pursue in favour of pursuing none at all. As a result, the larger, more broadly based gains to the nation from more economic openness are lost.

The case for openness has never been as easy as the case for protection. As Douglass Irwin's masterful 1996 book Against the Tide demonstrates, the case for protection regularly won in the centuries up until Adam Smith (1774) and David Ricardo (1817) fleshed out the case for free trade. Until then, the case for protection was oriented around both nationalism and xenophobia. As the 2008 campaign demonstrated, old and intellectually lazy arguments die hard.

Admittedly, the case in favour of openness is not well understood nor easy to articulate, especially if you're a politician standing in front of a group of workers whose jobs have just been outsourced. While a common source of job loss in our globalised economies is technological change, those workers want something to blame, and trade agreements like the NAFTA are easy targets. It is true that patterns of international trade are a little more nuanced than the simple comparative advantage put forward by David Ricardo. Moreover, the increasing degrees of openness we have seen in the postwar era have undoubtedly accelerated the impact of things like technological change on workers as they now compete in a genuinely global labour force on genuinely global supply chains. In short, the competitive pressures on labour (both blue and white collar) are growing. Trade liberalisation is only part of that story (see Gregory Mankiw's 2007 blog post on the continued utility of Comparative Advantage).

Yet, that alone argues for the pursuit of more rules-based management of openness through trade agreements like the TPP and the TTIP. Trade liberalisation is not only about the elimination of tariffs and other protections for domestic industry. Nor is it about eviscerating labour at the behest of big business. It is also about the regulation of practises by other states that discriminate against the products of your nation's exporters, reduce your market access opportunities abroad, shorten production runs at home, and limit your domestic firms' capacity to hire more workers.

It's easy to focus on defending your domestic interests as though international trade is a zero sum game. It is emphatically not zero sum! Lost in this debate are the benefits of openness for a nation's export sectors and the attendant employment benefits from production aimed at servicing more than your domestic consumers. 

For most of the past twenty years, we've had few voices articulate enough to argue that side of the ledger. For all of his gifts as an orator, President Obama is apparently less willing to persuade anyone of this side of the case in an election year likely dominated by parochial local interests than many had recently come to hope. For some, that is political pragmatism; for others, a disappointing delay in realising the benefits of openness.