The number of key players in the international economy is expanding — witness this past weekend’s G-20 summit. The decision to expand beyond the usual G-8 industrial powers and include Brazil, India, and China in the conference marks a turning point in the history of global economic cooperation. But the summit also underscored that the key player in the international economy remains the U.S. president. To wit, no one knows which of the summiteers’ recommendations will be implemented because no one knows which Barack Obama will take office in January.
Take trade liberalization. The most praiseworthy aspect of the summiteers’ communiqué is its recognition that free trade is essential to economic growth. Consequently, the G-20 members committed to refrain from taking any protectionist measures within the next 12 months. But which Obama will show up to govern next year — the one who professes to believe in free trade or the one who threatened to withdraw from NAFTA and who cannot even bring himself to support a market-opening agreement with Colombia, whose exports already enter the U.S. duty-free?
The delegates also committed their countries to breaking the deadlock that has brought the Doha Round of trade talks to a halt. The impasse concerns agriculture: The U.S. and other developed countries protect their farmers with a regime of subsidies and tariffs that hurt farmers in the developing world. Again, we have to wonder which Obama will show up at the negotiating table. Will it be the one who criticized the 2008 Farm Bill as a handout to “big agribusiness” larded with “multimillion-dollar giveaways” — or the one who ended up voting for it anyway?
Or take French president Nicholas Sarkozy’s push for an international financial regulatory agency with cross-border authority. From Sarkozy’s perspective, such “harmonization” would be an ideal way to reduce Paris’s competitive disadvantage vis à vis London and New York. To that end, he was able to convince the G-20 to call for a “college of supervisors” from each country to coordinate financial oversight. We doubt this idea will meet with much resistance from Barack Obama — the college of supervisors will probably elect him pope of regulation.
It has become necessary, in order to ward off straw men, for conservatives to stress that we do not favor the abolition of all regulation. But global regulatory regimes tend toward more regulation than is needed or wise. They remove incentives for countries to make market-based improvements to existing regulations, and the bureaucracies charged with overseeing them inevitably fall prey to mission creep. It is also difficult to see how emulating European regulators could have prevented the U.S. banking crisis — last we checked, European banks were faring even worse. President Bush stressed this very point in a speech on Wall Street last week, in which he defended capitalism from those who would blame the crisis entirely on the free market. Bush’s speech effectively laid out his priorities for the summit, and his fingerprints are on the sections of the communiqué that stress a commitment to free-market principles, the respect for private property, and the need for open trade.
Those sections may or may not be in jeopardy, depending on which Obama shows up. In fact, were he of a mind to, Obama might accomplish more on the trade front than John McCain could have. His expressed reluctance to approve new trade agreements could make it easier for him to convince Congress to give him fast-track Trade Promotion Authority — a necessary precondition for completing the Doha Round. Free-trade stalwart John McCain would have had a tougher time.
Union protectionists are likely to oppose fast-track authority in any case, but the G-20’s emphasis on completing Doha gives Obama an opening to outflank big labor, should he choose to do so. Obama could point out that completing Doha would fulfill other campaign promises, such as his pledge to work multilaterally with our allies. He could also remind the public that the Doha Round was launched to help the least-developed countries realize the benefits of trade, and that its agreements are tailored with their needs in mind.
More important, a successful conclusion to the Doha Round would open markets for U.S. exports and give U.S. consumers access to cheaper goods from abroad. Unlike the redistributive stimulus package Congress wants him to pass, freer trade would actually stimulate the economy. It is a worthy goal for Obama to pursue; whether he does will tell us much about who he is.