Friday, November 12, 2010

Being practical about trade

Business Times - 13 Nov 2010

Being practical about trade

Most Americans have no ideological commitment in the debate over trade. They want working policies that help create new and well-paying jobs.


IF YOU insist on challenging the notion that the vote in the recent US mid-term elections was not driven by any ideological fervour, reflecting the non-ideological and pragmatic disposition of most Americans, just consider the two politicians - a Democrat and a Republican - who represent the State of Ohio.

The Democrat Sherrod Brown was elected to the Senate in the 2006 mid-term election, when the Democrats regained control of the House of Representatives in what was described as a 'wave election' in which the Democrats were supposedly on their way to establishing a dominant position over the American political system. President Barack Obama's historic victory in the 2008 presidential election seemed to underscore that New-Democratic-Majority narrative and to lead to the conclusion that the progressive ideology that places an emphasis on the role of government as an agent of social and economic change was winning the day.

More specifically, as a progressive Democrat and a strong political ally of the American trade unions, Mr Brown emerged as a leading critic of corporate America and of the drive to liberalise global trade, blaming 'unfair' trade competition from China and other emerging markets for the continuing decline of Ohio's manufacturing base, and expressing opposition to pending US free trade agreements with South Korea, Colombia, and Panama.

If anything, the collapse of the financial markets and the ensuing Great Recession seemed to play directly into the hands of the anti-free-market Mr Brown and his anti-free-trade message. In fact, one of the first decisions made after President George Bush had left office - the vote by US International Trade Commission (USTC) to impose tariffs on Chinese companies whose trade practices made it hard for some American steel pipe makers to compete - seemed to underline Mr Brown's call for 'getting tough' with China and other economies on trade issues.

One of those steel companies was the Ohio-based French-owned V&M Star which, after the ruling by the USTC, announced that it would expand its Youngstown plant. Indeed, Mr Obama flew to Youngstown to praise the US$650 million expansion, which also got a boost from Mr Obama's economic stimulus plan as well. It was a clear sign that progressive Democratic strategy of promoting Fair Trade - as opposed to the Republican's Free Trade approach - was in the interests of Ohio's industries and workers.

So it was not surprising that the initial expectations in Ohio were that that Mr Brown would be joined by another protectionist Senator after the 2010 mid-term elections. But then guess who got elected to represent Ohio in the Senate on Nov 2?

Republican Senator-elect Rob Portman has been a cheerleader for the free market ideology of his party and an enthusiastic promoter of global free trade, including at a time when he had served as US Trade Representative (USTR) in 2005 and 2006 under Mr Bush.

In fact, Democrats who insisted that free trade was costing good-paying factory jobs in Ohio had bashed Mr Portman during the election campaign as a puppet of Wall Street and recalled that during his terms as USTR, Mr Portman refused to follow a ruling by the USTC to impose quotas on Chinese imports of steel pipes. The American steel industry ended up losing US$150 million between 2005 and 2007 and steel makers laid off workers around the country, including in Ohio.

Mr Portman defended his record by recalling that as Mr Bush's USTR, he had brought major cases against China and other trade competitors before the World Trade Organization (WTO) over issues such as copyright protection and textile imports. Moreover, he argued that trade policies are not a zero sum game and that promoting global trade has also helped to strengthen Ohio's economy.

Indeed, it was the Democratic Governor of Ohio Ted Strickland who launched a major initiative through his Department of Development and budget office to strengthen the state's trade and investment ties with other economies. And economists note that while exports were down during the recession, they still were one of the factors that are now helping Ohio to reverse the slowdown and re-energise its economic growth.

In any case, despite the economic distress experienced by many in Ohio and the strong sentiment against free trade that Americans have been expressing in recent years, Mr Portman won the race for the Senate by a large margin - 58 per cent to 39 over his Democratic opponent (as did another pro-free trade Republican John Kasich who won the race for the Governor of the State).

Mr Portman actually did very well, even among blue-collar workers who have traditionally voted for Democratic candidates.

But if Mr Brown's election victory in 2006 and Mr Obama's in 2008 shouldn't have been construed as a sign that Americans were expressing their support for a progressive Democratic agenda and rejecting the principles of global free trade, Mr Portman's election win this year should not be seen as an indication that voters are moving in the conservative Republican direction and are in favour of pursuing aggressive free trade policies.

That both Mr Brown and Mr Portman will be representing Ohio in the next two years suggests that the voters of Ohio, like most Americans, have no ideological commitment in the debate over trade. They are neither economic nationalists nor staunch free traders. They support trade policies that strengthen the foundations of the American economy in the context of a global economic competition with China and other powers. They want policies that help create new and well-paying jobs. And they reject policies that don't seem to work and achieve all those good things.

That means that Mr Obama and Congress now have an opportunity to cooperate on building a national consensus on global trade by uniting behind a policy that demonstrates to the American people that securing free trade accords with South Korea and other economies - while standing-up to violations of trade rules by US economic competitors - is the most effective way to build new industries and create new jobs.

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