Focus On Trade Policy
While the financial meltdown is an economic disaster created by grievous errors of judgment in both the halls of high finance and government over many years, the rapid pace of decline in virtually every major economic indicator has focused the minds of the bipartisan political leadership in the United States unlike any time since the aftermath of September 11. Accordingly, the new President and Congress have agreed on economic stimulus legislation of historic proportions. The Federal Reserve is engaged in unprecedented activity to revive the credit markets and the economy. The Treasury Department, Federal Reserve, and Congress are all struggling to advance a financial markets agenda that attempts to restore market confidence while at the same time developing a new regulatory framework. While the partisan brick bats remain evident on both sides of the political aisle, there is an underlying recognition that a successful way forward must be found to avoid further economic damage in America and around the world.
An important boost to this effort would be a return to a bipartisan American trade policy that not only maintains open markets, but creates new opportunities. Trade expansion, as opposed to the current precipitous contraction, is an important factor in fueling an economic recovery and will help create better jobs in the United States and around the world. U.S. Trade Representative Ron Kirk’s recent testimony before the Senate Finance Committee provided some hope for a new collaboration on trade policy between the Obama Administration and Congress when he said, “It is only through bipartisan cooperation that a pro-America, pro-trade agenda can move forward.”
A Look Back to Move Forward
The fallout from the global economic crisis has reminded us of the impact and integration of U.S. business actors in the global economy, and thus how much U.S. economic and trade policy matters. At the same time, it is also clear that solving the current economic turmoil will require unprecedented collaboration by major economic policymakers -- the number of which has grown significantly in the last two decades -- on a global scale. Despite the United States’ continuing massive position in the global economy, a solution to the current synchronized economic downturn requires a resumption of growth in markets around the world. Moreover, the significant and chronic current account imbalances carried by the United States and others, fed in part by excesses in the U.S. financing system and an overemphasis on exports to generate growth in other parts of the world, are unsustainable. Trade policy should complement the fundamental macroeconomic policy tools required to resolve these issues.
Political instincts in times of economic downturn tend to turn inward, and more constituents seek protection from competition. There is compelling evidence in today’s more integrated economy, as trade as a percentage of the U.S. and other key economies has grown significantly in the last two decades, that taking measures that will impede the flows of goods, services, and investment globally would significantly impair efforts to recover from the current downturn. At the same time, and due in part to the increasing importance of trade to the U.S. and other economies and other political dynamics evident in the last 20 years, market-opening trade agreements remain lightning rods for various important political constituencies in the United States.
The odds of overcoming these political dynamics are not inspiring in light of the recent history in U.S. trade policy making, although some glimmers of hope exist. The bipartisan “May 10th Agreement” between the Congress and the Bush Administration did not produce as much as was thought possible, although the recent bipartisan success on revamped trade adjustment assistance (TAA) legislation is being touted as proof that Democrats and Republicans can work together on trade. More recently, however, Congress wrote and President Obama signed “Buy America” provisions in the economic stimulus bill and legislation terminating a pilot program that had been America’s only (partial) implementation of its trucking commitments under the NAFTA. In addition, the main trade policy focus appears to be on developing and enacting legislation designed to improve the enforcement of U.S. trade laws and agreements and -- the argument goes -- the political environment for a new trade “creating” agreement agenda. What constitutes that agenda and the scope of the U.S. commitment remains unclear.
Advancing the Case for Trade Agreements
The results of the November elections symbolized a popular desire not only for a “new direction” for U.S. domestic and foreign policy, but also for a new tone in political discourse and cooperation between the Administration and Congress. Last November, only 9 percent of likely voters gave Congress positive ratings, while a striking 51 percent said it was doing a poor job. Sixty-two percent of voters believed that Congress passed no legislation to improve life in the country over most of 2008, and a solid majority of voters believed this was unlikely to change. Approval ratings of approximately 39 and 67 percent for Congress and President Obama, respectively, in early 2009 indicate that these negative perceptions are changing. However, it remains unclear whether the two branches, much less the two parties, can work together to pass timely and meaningful legislation to address the range of issues confronting America.
To move the trade policy agenda, the new Administration and Congress will need to better address public perceptions on the role of trade expansion in enhancing U.S. productivity, and providing better jobs and a better standard of living overall. National polls continue to reflect that a growing majority of the U.S. electorate seriously questions the value of existing U.S. trade agreements. More fundamentally, while most of the public has been supportive of the concept of freer trade, that support continues to diminish. Pew Global Attitudes polling shows that support for growing U.S. trade ties with other countries declined from 78 percent to 58 percent between 2002 and 2007. Of the 24 countries in the Pew Survey, the U.S. was the least supportive of trade.
These perceptions and worries about competing in the global marketplace have steadily undermined policy making regarding trade agreements. The antitrade agreement rhetoric that came out of the presidential primary campaign this past winter and spring is a reflection of these perceptions, especially among certain constituents active in campaigns. Furthermore, these perceptions are to a significant degree shared equally among Democratic and Republican voters. On top of this, the current financial crisis has given opponents of trade expansion another tool to link trade to the high economic anxiety felt by the working middle class.
Trade agreements that help expand the economic benefits derived from trade expansion should be a bipartisan priority. Rhetoric that exaggerates or simply misleads as to the adverse effects of past agreements while ignoring the related productivity gains and “better jobs” creation that comes from trade expansion is irresponsible. At the same time, explaining trade agreements as the most important generator of job creation and the best solution to a host of non-trade challenges with important countries is equally irresponsible. Trade agreements should be part of a tool kit of policies that advance global integration and help create reasonable conditions of competition and new economic opportunities for U.S. interests while recognizing the varied capacities to contribute among different countries across the spectrum of development and size.
Some facts on the positive impacts of past trade agreements can counter some of the adverse public perceptions:
- U.S. annual income is $1 trillion higher, and the average household $9,500 richer per year, as the result of trade liberalization since 1945 (according to the Peterson Institute for International Economics).
- The NAFTA and the Uruguay Round Agreements generate an annual average income gain for a family of four of $1,300-$2,000 (according to USTR).
- The pending multilateral Doha Development Trade Round could reduce trade barriers by one-third and increase the average American’s annual household income by an additional $2,000 (according to USTR).
- More than 95 percent of exporters are small and medium sized businesses, the mainstay of U.S. job creation. Jobs which support exports pay an estimated 13 to 18 percent more than the national average (according to USTR and the Department of Commerce).
Working Toward a Renewed Compromise on Trade
The current financial crisis presents a new opportunity for President Obama and Congress to engage the American public in a way that goes beyond the stale and often misleading rhetoric of the past and helps create the conditions necessary to advance an inspired and effective trade policy agenda in the world. Working toward agreements that provide better conditions of competition for those engaged in and implicated by global trade should be an integral part of the Administration’s efforts toward economic recovery.
The U.S. “production platform” will not improve for the services, manufacturing or agriculture industries and their workers if we become shortsighted and focused on just “defense” when it comes to trade policy.
2009 marks an opportunity for the Congress and a new administration to commence pursuit of a new consensus on trade agreements -- call it a New Bipartisan Trade Deal. To launch such an initiative would require both branches to return to the partnership behind the original grants of fast track and Trade Promotion Authority, which required both institutional trust and public displays of bipartisanship. Such an effort could leverage off of the beginnings of the bi-partisan cooperation embodied in the passage of the TAA. With the May 10th Agreement as yet another benchmark, the branches could agree a course of commitments along the following lines:
Part I - Consideration of Pending FTAs
- Colombia and Panama. The House leadership and leadership and ranking member of the Ways and Means Committee agree with the Administration on a schedule by the August recess for committee hearings, mark up and floor vote on the U.S.-Colombia and U.S.-Panama FTAs. Senate consideration proceeds according to the original 2002 TPA time frame. Congressional rules might require a new White House/Congressional agreement to consider and pass a new mini-TPA bill applicable to Colombia, and resubmission by the Administration of the 2006 implementing legislation with any additional, or revised, language or agreements with the two signatory countries.
- Korea. Having worked out, in close consultation with Congress, a renegotiation of certain defined auto market access provisions and a solution to the pending beef issue, the Administration submits U.S.-Korea FTA implementing legislation to Congress. House and Senate leadership and committee personnel then agree to committee and floor consideration according to the original TPA rules. Action would be via an agreed timeframe in light of the situation with Korea.
Part II - TPA, Trade Enforcement Legislation, Trade Preference, and Customs Reauthorization
- The Administration and House Ways and Means and Senate Finance Committees meet to craft terms of a new four year Trade Promotion Authority act for the purposes of enabling important multilateral, regional, and bilateral trade agreements; a proposed draft bill prepared by the National Foreign Trade Council and entitled the Trade Negotiating Authority Act of 2009 (TNA) could serve as a place to start. According to the NFTC, “the TNA Act of 2009 is based on two fundamental ideas -- that U.S. trade policy objectives need to be updated to reflect the demands of a much more competitive global economy; and that a successful trade policy requires close consultation and cooperation between the President and the Congress and between the two political parties.” House and Senate Leaders would convene respective chairs and ranking members of the relevant committees and specially designated members of the current Congressional Oversight Group to participate in a Committee of the Whole in order to craft a final bill.
- In a parallel set of discussions, Congressional leaders, the Administration and Ways and Means and Senate Finance Committees agree to the terms and parameters of legislation to improve the enforcement of existing trade agreements.
- Congressional leaders, the Administration, and Trade Committee leaders agree on composition of a final 2009 Omnibus Trade bill with TPA, trade enforcement provisions, trade preference, and customs reauthorization as core provisions; other trade related provisions such as miscellaneous tariff legislation could be included. The relevant bodies agree to action prior to end of the year.
Part III - National Trade Education Summit
- The White House, USTR, and the Advisory Committee on Trade Policy and Negotiations, in coordination with the House Ways and Means and Senate Finance Committees, organize and hold a National Trade Education Summit. The Summit would include federal and state government leaders, representatives of the agricultural, services, and manufacturing industries, labor and environmental leaders and other interested U.S. stakeholders. The event should focus on the role of global integration in the U.S. economy and how and why trade growth serves our domestic and national security interests while highlighting the opportunities, benefits, challenges, and risks inherent to trade now and looking ahead. One result of this summit would be the launch of a campaign that on a regular basis engages and educates Americans about the overall economic, global development, and national security realities at stake. The role of trade agreements in building a more open and rules-based trading system in which the United States continues to play a leading role would be a central part of the discussion. A discussion should also ensue about the limits of trade agreements as an economic tool and why certain types of proposed provisions do not work well in the trade agreement context.
One could assume that achieving a true bipartisan consensus on trade policy may forever be elusive given the partisan stalemate of recent years and the current economic and political climate. However, looking back at the recent deal on TAA, the previous May 10th agreement, and the efforts of congressional leaders to bring their respective rank and file members to support what Chairman Rangel called “A New Trade Policy for America,” there are grounds for hope that a bipartisan middle ground can be reached. President Obama and his trade policy team face a daunting economic and political environment. But, more than ever, the economic and strategic interests of the United States would be well served by implementation of a fully engaged and proactive trade policy. The lack of such a policy will impede our capacity to regenerate and sustain the growth needed to overcome the current crisis.
For more information, please contact:
Welles Orr, email@example.com, 202-626-1481