Tuesday, March 16, 2010

Obama's balancing act on US trade policies

Business Times - 17 Mar 2010


Obama's balancing act on US trade policies

His thrust for exports shows he is adopting a more activist stance on global trade issues

By LEON HADAR
WASHINGTON CORRESPONDENT

MOST of the purveyors of the conventional wisdom in Washington concluded a while ago that President Barack Obama would not be able to make any significant move on global trade any time soon.

Against the backdrop of rising populist sentiments around the country and in Congress that reflect the economic distress afflicting much of the country, the current White House occupant is not in a position to start promoting an energetic free trade agenda that would require removing the remaining restrictions on foreign access to American markets.

To put it in very simple terms, the American people who have been at the receiving end of daily reports about the loss of American manufacturing jobs to foreign competitors - dramatised by the expanding US trade deficit - are certainly not in a mood to welcome even more competition from China and India.

The members of the protectionist wing of the Democratic Party who represent the powerful trade unions are certainly not going to give a green light to lawmakers from, say, Michigan, where unemployment has reached the level of the Depression Era, to vote in favour of legislation that would permit more Korean-made cars into American market and threaten the recovery of Detroit's car industry. You don't have to be a veteran trade analyst to figure that out.

And, indeed, the chances that Congress will approve any major free-trade initiative, including the proposed Trans-Pacific Partnership, completion of the Doha agreement and the already negotiated trade pacts with Columbia, South Korea and Panama, before the November midterm Congressional elections remain slim.

As well, there has been growing support among both Democrats and Republicans on Capitol Hill to approve legislation castigating China for refusing to allow appreciation of its currency. Indeed, many lawmakers contend that by maintaining a fixed yuan peg against the US dollar, the Chinese are practising a form of trade protectionism by making their exports more competitive abroad. Congress is also pressing the administration to label China as a 'currency manipulator'.

Mr Obama has been engaged in a very difficult balancing act on this policy issue since coming to office. He knows the political-economic reality in which he is operating. He also knows that protectionist policies could ignite trade wars and harm long-term US economic interests. He played the role of a trade warrior when he imposed tariff on Chinese tyres and inserted 'buy America' provisions into his economic stimulus programme.

But he asserted his commitment to free-trade principles during addresses before American and international audiences. And, notwithstanding the China-bashing atmosphere on Capitol Hill, Mr Obama has resisted pressure to launch a trade war against the Chinese.

But in an indication that he was going to embrace a more activist approach on global trade policy, Mr Obama announced last week a new policy thrust, the National Export Initiative, aimed at promoting American exports around the world. He stressed that his new strategy was an integral part of his efforts to end the recession and strengthen US global economic position.

Unlike his predecessors who had marketed American trade policies as a way of liberalising the global economy, Mr Obama's main emphasis was the role that such policies would play in advancing American economic interests - by doubling America's exports in five years, creating two million new jobs in the process and pushing the US to become the world's top exporter (from its current third position).

'In a time when millions of Americans are out of work, boosting our exports is a short-term imperative,' Mr Obama said in an address at the annual Export-Import Bank conference in Washington, DC, insisting that his plan would rebuild 'an economy where we generate more American jobs in more American industries by producing and exporting more goods and services to other nations'.

Sounding at times as a US president who was outlining an ambitious industrial policy, Mr Obama announced the creation of two new panels that would advise him on matters pertaining to trade and export promotion.

The first would be an informal export advisory panel that would include leading business figures, such as Boeing president and CEO Jim McNerney and Xerox CEO Ursula Burns. Mr Obama also announced the revival of the president's Export Promotion Cabinet that would be made up of secretaries of state, commerce, Treasury, agriculture, labour and other relevant agencies.

The Obama plan would also provide more aid to small and medium-sized businesses to help them sell their products abroad through a US$2 billion credit facility in the Export-Import Bank and by sponsoring a growing number of trade mission (40 this year also). In addition, Mr Obama said that his administration was also working to try to ease some of the government restrictions on exports of certain high-tech US products for national security reasons.

Moreover, Mr Obama reiterated that promoting American exports would include increasing enforcement of existing trade agreements, and that his administration would be 'working to knock down barriers that unfairly keep American companies from markets we belong in, hold our trade partners to their labour and environmental obligations, and crack down on practices that blatantly harm our companies'. A top priority will be better protection of American intellectual property.

And responding to the pressure from his party and Congress, Mr Obama insisted that he would take China to task for undervaluing its currency. He said it amounted to a trade distorting practice. 'China moving to a more market-oriented exchange rate would make an essential contribution to that global re-balancing effort,' Mr Obama said.

Reflecting his balancing act on trade policies, Mr Obama seemed to suggest that he was neither a dogmatic free trader nor a fiery protectionist and that he was planning to steer a middle course on trade issues.

'I know the issue of exports and imports; the issue of trade and globalisation have long evoked the passions of a lot of people in this country,' Mr Obama said. 'I know there are differences of opinion between Democrats and Republicans; business and labour about the right approach,' he said, arguing that 'we're at a moment where necessity has tempered the old debates'.

Hence, even those who once would oppose any agreement 'now understand that there are new markets and new sectors out there that we need to break into if we want our workers to get ahead'.

That Mr Obama launched his campaign to boost exports on the same week in which government data showed that the gap between what Americans sell abroad and what they import - the US trade deficit - narrowed unexpectedly in January may have given a certain lift to his new initiative.

The January trade deficit declined to US$37.3 billion from a revised US$39.9 billion in December. Economists were expecting a deficit of US$41 billion in that month.

But much of the decline in the trade deficit followed a big drop in the imports of oil and foreign cars. In fact, US exports fell by 0.3 per cent in January while the trade gap with China continued to widen.

In any case, it is doubtful that providing more financial assistance to small and mid-sized exporters is going to lead to a dramatic increase in US exports abroad. Much of the boost for American exports could come from implementing the proposed free-trade agreement with South Korea, Panama and Colombia and the conclusion of the Doha round of trade talks.

But there are no signs that Mr Obama would be willing to expert political pressure to get his Democratic allies in Congress to move in that direction.

And while the first set of negotiations of the Trans-Pacific Partnership aka the Trans-Pacific Strategic Economic Partnership Agreement are taking place in Melbourne this week, US Trade Representative Ron Kirk suggested that they would take 18 to 24 months to develop and that an agreement would not come up in Congress for approval until after the 2010 elections.

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