Business Times - 06 Feb 2009
So where does Obama really stand on trade?
The US president, who made populist noises on the campaign trail, is facing a new reality
By LEON HADAR
WHEN candidate Barack Obama seemed to be advancing protectionist-sounding policy proposals in the midst of the election campaign, suggesting that if elected he would renegotiate with Mexico and Canada the terms of North American Free Trade Agreement (Nafta), some of his advisers pleaded with free traders at home and abroad to take it easy, please.
Mr Obama was making these populist noises during the Democratic primaries as a way of ingratiating himself with powerful anti-globalisation constituencies in his party, they explained, adding with a wink that Mr Obama was a centrist and internationalist pro-free trade Democrat in the tradition of former president Bill Clinton.
But Mr Obama reiterated the sceptical views on liberalising global trade during the general elections. 'I did not just start criticising unfair trade deals like Nafta because I started running for president,' he said. 'I do it because I see what happens to communities when factories close down and the jobs move overseas.'
His aides suggested again that, well, you have to understand that during these troubled economic times, most American voters were not buying into the free-trade agenda and since Mr Obama wanted to defeat the pro-free market Republican John McCain, he had no choice but to embrace the agenda of 'fair trade' as opposed to 'free trade'.
But do not worry, when Mr Obama enters the White House, he would have no choice but to continue his predecessors' liberalising global trade policies, they assured us. Mr Obama's choice of former Dallas mayor Ron Kirk, a strong proponent of Nafta, to become the new US trade representative was seen as good news by free traders in Washington. 'Those of us in Texas, with expansion of Nafta, have been great beneficiaries of (trade),' Mr Kirk said in 2000, according to the Dallas Morning News. 'We've seen expansion of our economies due to increased trade, lowering of our unemployment.'
Mr Kirk also told the Texas newspaper that Mr Obama favoured robust trade and opposed protectionism. 'The exciting thing for me is that the President very much sees a robust trade policy as part of his economic agenda,' Mr Kirk stressed. 'He understands that the United States can't be protectionist, can't step back from our trade relations. But he wisely . . . thinks that we can do better in enforcing those laws that protect our environment and protect our workers'.
Similarly, Mr Obama's announcement this week that he was nominating Republican Senator Judd Gregg, a strong advocate of free trade who had voted in favour of the US-Central America Free Trade Agreement (Cafta) and the US-Chile free trade agreement and other trade accords, seemed to be sending another signal about the new president's commitment to liberalising global trade.
'I believe in trade,' Mr Obama said after the presidential race. 'I think trade can grow our economy and improve the lives of ordinary people.'
Moreover, Mr Obama's first meeting with a foreign head of state after being elected was with Mexican President Felipe Calderon. During their discussions, the new US president reiterated his opposition to protectionism. And there are also some indications that Mr Obama and the Democrats in Congress were ready to reach a compromise with the Republicans over a controversial proposed free-trade accord with Colombia. But then much of this optimism centres on the new administration's relations with economies in Central and South America.
Most observers still remain sceptical about the notion that Mr Obama would follow in the footsteps of Mr Clinton and pursue aggressive global trade liberalisation policies. Mr Obama owes a lot of political debt to his supporters in the trade unions and the progressive wing of the Democratic Party. More significant, the growing economic crisis, including rising unemployment, has reinforced protectionist attitudes among Americans and created a political environment in which neither the White House nor Congress can be expected to press for new trade agreements.
We will all find out where Mr Obama really stands on trade policy - whether he was willing to risk a fight with leading members of the Democratic Party or ignite trade wars with America's global partners, including the European Union and Canada - when the new White House occupant would have to decide whether to support a provision in the proposed economic stimulus bill being debated in Congress that requires that American-made steel and other products be used for public works projects.
Mr Obama, asked about the 'Buy American' provision in television interviews, said the US had to be careful not to include any provisions in the stimulus bill that could 'trigger a trade war'.
'I think it would be a mistake . . . at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade.'
The 'Buy American' provision in the bill introduced in the House of Representative (where it was passed last week) and in the Senate (where a vote is expected soon) has been backed by the unions and their supporters on Capitol Hill. The House bill would block the spending of any funds in the stimulus package 'for the construction, alteration, maintenance or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States'. The language in the Senate bill would allow the administration to waive this provision under certain conditions (such as 'public interest') which provides the White House with certain flexibility when it comes to applying it.
While it is not clear whether the 'Buy American' provision attached to the stimulus plan would amount to a clear violation of the World Trade Organization (WTO), it would be seen by America's trading partners as only a short step from new tariff barriers and is bound to provoke economic retaliation.
Indeed, the suggestion by US Treasury Secretary Tim Geithner that China was 'manipulating' its currency as part of a strategy to export its way out of the recession coupled with the growing competition between the US and other governments in channelling scarce funds into their respective financial systems, could revive the anti-American sentiment of the era of former president George W Bush and lead to global trade wars.
And, indeed, free traders in Washington who are clearly worried about these dangerous trends are warning the administration and Congress not to repeat the same mistakes that Washington made in the aftermath of the 1929 Wall Street Crash when lawmakers signed the Smoot-Hawley Tariff legislation in 1930, raising duties on 20,000 imported goods to record levels. This led to retaliation from trade partners, as a more fractured international economy started sliding into the Great Depression.
While even the most enthusiastic proponent of free trade in Washington recognises that Mr Obama will probably not be able to pursue an ambitious trade liberalisation agenda, that should include the revival of the Doha round, they are still hoping that the new president - who accentuated his multicultural roots and displayed a cosmopolitan outlook during the presidential campaign and renounced unilateralism in foreign policy - will project a sense of leadership and try to contain the threat of economic nationalism rising in Washington.
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