Politics & Policy

Obama’s Second Chance

On trade, Obama has sided with big labor. He could still redeem himself.

During his first term, President Bush signed a protectionist farm bill and imposed tariffs on imported steel. Similarly, as a senator running for president, Barack Obama voted for the 2008 Farm Bill, and he has now decided to impose tariffs on imported tires. President Bush’s advisers cast his early protectionist moves as bargaining chips in an effort to pursue a larger free-trade agenda. In addition to helping him get re-elected, they said, the moves were crucial in getting Congress to give him fast-track negotiating authority — the power to submit trade agreements to Congress for a simple up-or-down vote.

The Bush administration used fast-track to negotiate free-trade agreements with Australia, Bahrain, Oman, Morocco, Chile, Singapore, and Peru, as well as the Central American Free Trade Agreement (CAFTA). It also vigorously pursued the Doha round of world trade talks and negotiated pending agreements with Panama, South Korea, and Colombia. Despite early protectionist moves, Bush turned out to be a believer in free trade. What inferences can we draw from Obama’s early protectionism? A look at the recent history of his party indicates that the news isn’t good.

Since 2006, negotiators have made little progress toward securing a new round of world trade agreements. In that year, U.S. negotiators offered deep cuts in farm subsidies, but representatives from the EU refused to match them. This position was unacceptable to developing countries like India and Brazil, which have argued that farmers in their countries cannot compete with subsidized farm exports from the U.S. and the EU. The talks — known as the Doha round — collapsed.

Then, that November, the Democrats took over Congress, and hopes for reviving the Doha round vanished. The Democrats allowed the president’s fast-track negotiating authority to lapse, killed an important bilateral deal with Colombia, and presided over the passage of another bloated farm bill. During the 2008 presidential campaign, Barack Obama and Hillary Clinton spent a key part of the primary season arguing over which of them would be quicker to pull the U.S. out of NAFTA. The Democrats’ message to the rest of the world on further trade liberalization was a clear “not interested.”

Now that Obama is president, his trade representative, Ron Kirk, has disappointed free-trade advocates by carrying on this message of indifference. At a recent trade summit in New Delhi, he said that Americans would not support a new round of agreements unless they included strong protections for the environment and workers’ rights. But anyone who has followed recent trade debates knows this to be an exercise in goal-post shifting. The Bush administration acceded to every one of the Democrats’ labor and environmental demands when negotiating agreements with Peru, Panama, South Korea, and Colombia, but the Democrats concocted flimsy pretexts for scuttling all but the Peru agreement.

The U.S.–South Korea free-trade agreement would add an estimated $10 to $12 billion a year to our GDP, but the Democrats opposed it at the behest of the United Auto Workers, to protect Detroit from Korean imports. The U.S.-Colombia free-trade agreement would strengthen ties with a key ally in South America, but the Democrats opposed it at the behest of the AFL-CIO, which falsely accused the government of Álvaro Uribe of turning a blind eye to the assassination of labor activists.

While Korea and Colombia represent lost opportunities, other recent protectionist moves by the Democrats represent lost revenues for U.S. businesses and lost jobs for U.S. workers. Consider Mexico. Last March, the Democrats in Congress, at the behest of the Teamsters union, killed a program that allowed Mexican truckers to haul goods into the U.S. interior. Not only did killing the program violate NAFTA, it also made no economic sense: Unloading trucks at the border and reloading the goods onto U.S. trucks is inefficient and costs U.S. businesses millions of dollars every year. Making matters worse, Mexico retaliated by slapping $2.4 billion worth of tariffs on U.S. goods. According to news reports, businesses have responded by laying off workers. Protectionism doesn’t save jobs; it just shifts the losses to the politically weak — often small businesses — at the behest of the politically powerful.

Organized labor has gained influence over trade policy as the Democrats have gained power in Washington, but the unions still have nothing on the farm lobby. The biggest impediment to progress in the Doha round of talks remains the refusal of the U.S. and the EU to give up their farm-subsidy programs. In 2005, in response to a complaint from Brazil, the WTO ruled that the U.S. had violated an agreement to reduce support to aid-dependent farmers. The U.S. argued that the debate over farm subsidies should be settled in the Doha round. Brazil countered that the Doha round is stalled indefinitely; that meanwhile, U.S. subsidies are hurting Brazilian farmers. This month, the WTO again sided with Brazil and authorized $300 million worth of retaliatory tariffs on U.S. products.

To a certain extent, Obama can’t be blamed for this. While he voted for the obscene 2008 Farm Bill, he was joined by a large majority of senators — enough to override President Bush’s veto. And there’s not much he can do about it now: Farm bills run a five-year course and are rarely reopened, except occasionally to pile on more aid. As in the Mexican trucking case, most trade mischief germinates in the legislature, which is more prone than the executive to populist protectionism. Obama’s true test came on the question whether to enact tariffs on tires imported from China, and he failed miserably.

Once again, organized labor was behind the protectionist push. The United Steel Workers petitioned the U.S. International Trade Commission to recommend the tariffs to the president, arguing that the imported tires have disrupted the domestic industry. Significantly, the tire industry itself opposes the tariffs. As the Cato Institute’s Dan Ikenson wrote, “It is really nothing more than a matter of a U.S. union objecting to management’s decision to produce its lowest grade (lowest quality, lowest priced, lowest profit margin) tires abroad.”

Obama’s decision to impose punitive tariffs on imported tires from China will not just make tires more expensive. It will also signal that the doors are open for any industry to allege “disruption” and receive protection from low-cost Chinese competition. China will likely retaliate with protectionist measures of its own, as Mexico and Brazil have done, only with even greater consequences for U.S. trade. China is our fastest-growing export market. With the exception of a fluky surge of imports in July, our trade deficit with China has been shrinking over the last year. Trade wars are always harmful to consumers, but this one could be especially bad for U.S. businesses that are starting to find a foothold in Chinese markets.

Another consequence of taking the protectionist road will come in the form of lost credibility when we accuse other countries of unfair trade practices. This month, the WTO sided with U.S. aerospace giant Boeing in a dispute with Airbus, its EU rival. Boeing accused Airbus of getting unfair subsidies from the EU in the form of “launch aid,” i.e., low-interest loans for the production of new kinds of commercial aircraft. If the new planes turn out to be a bust, Airbus doesn’t have to pay back the loans. Airbus has countered that Boeing also takes government aid. However, much of this “aid” is in the form of defense contracts; most of the technology Boeing develops for the government is not transferable to the commercial sphere. In other words, Boeing has a case. But the Democrats have undermined U.S. credibility in the WTO by reverting to outdated protectionism.

It is not too late to reverse this course. Much of the responsibility lies with Congress, which could provide immediate relief to small businesses by reinstating the Mexican trucking program and bringing our farm programs into compliance with our WTO agreements. Congress could further stimulate the economy by ratifying our trade agreements with Panama, Colombia, and South Korea.

Obama could also redeem himself by repealing the tire tariffs as soon as possible, just as Bush repealed the steel tariffs when facing the prospect of massive retaliation from the EU. Obama could also follow Bush’s lead by pushing for the renewal of fast-track negotiating authority so as to see the Doha round through to a successful conclusion. If, however, he insists on maintaining the tire tariffs in the face of a trade war with China, we will know that he stands with his party, and organized labor, against the best interests of consumers and competitive industries. 

Stephen Spruiell is a National Review Online staff reporter.

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