11 March 2009

Mr. Obama’s Trade Agenda

This article is extracted from the 11 March 2009 edition of “The New York Times”.

In tough times, there is a strong temptation to turn inward. With so many Americans already out of work, why shouldn’t the country raise trade barriers to protect its workers from foreign competition?

The answer is clear: Trade will play an important role in the world’s eventual recovery, transmitting economic growth from one country to the next. Protectionism leads to further protectionism, and yielding to its temptation could unleash destructive trade wars that would crush any chance of recovery.

Unfortunately, few politicians are willing to tell their constituents that unpopular truth. Instead, governments are succumbing to protectionism’s dangerous lure. In recent months, Russia has jacked up import barriers on cars, farm machinery and other products. The European Union has reintroduced subsidies on dairy products. Europe, India and Brazil raised tariffs on imported steel.

Protectionism is also taking subtler forms…. The United States is not immune. The stimulus bill had a “Buy America” provision, and it made it more difficult for companies receiving stimulus dollars to hire foreign workers under the H-1B visa program.

President Obama’s choice for United States trade representative, Ron Kirk, appears ambivalent about the value of free trade. As part of his confirmation hearings this week, Mr. Kirk testified that he would work to expand trade but also argued “that not all Americans are winning from it and that our trading partners are not always playing by the rules.” He suggested that the administration could press ahead on the ratification of the trade agreement with Panama, which was negotiated by the Bush administration. But he said that Mr. Obama was prepared to walk away from the Bush administration’s agreement with South Korea, calling it “unfair.”

Mr. Obama’s annual trade report to Congress is similarly worrisome. It suggested opening a “discourse with the public” on whether the trade agreements awaiting ratification — with Colombia, South Korea and Panama — are a good idea. It committed the administration to “improving” the North American Free Trade Agreement, without saying how. And it poured cold water on efforts to restart the World Trade Organization’s round of international negotiations.

Those talks, which were supposed to open markets for the world’s poorest countries, are flawed. Still, the administration’s argument that negotiations are imbalanced because it is not clear what they offer to the United States is wrongheaded. The administration should press ahead on a deal and try to revive at least some of its original intent.

If ever there was a need for collective action — on fiscal stimuli, monetary policy, aid to the developing world, fighting protectionism — it is now. A place to start the rethinking is China and how to encourage increased domestic consumption and investment in China and other cash-rich Asian countries so they can start pulling the world out of recession.

China’s leaders, in particular, need to understand that export-led growth no longer works for them or for the world. The United States will have more influence if it stops beating on Beijing for its foreign-exchange policy and engages China’s leaders as partners, not rivals.

… [T]he United States will have to provide strong leadership and a clear commitment to fighting protectionism. Any sign of ambivalence from Washington will only make things worse.