President Obama: How will his policies impact free trade?
First off, congratulations to Barack Obama and his campaign for their historic victory. It’s truly a great achievement and regardless of what political party or ideology you belong to he is going to be America’s President come January and deserves our respect and support. Now that the election has been won, everyone will be looking to Obama and his policies for clues as to how his administration will deal with the issues of the day. I’m no expert and politicians rarely can fulfill all, if many, of their campaign promises, but let’s take a look at how an Obama administration might affect U.S. trade with other countries.
Free Trade: At risk?
In a recent post I linked to an editorial in the Journal of Commerce stating that free trade was at risk regardless of who became President. John McCain admitted the economy wasn’t his strong suit and voters agreed, dealing him defeat. However, McCain seemed inclined to continue the relatively free trade policies of the current administration. Obama, on the other hand, will most likely seek to reverse or at least revisit the current policies in place that promote free trade. He advocates including labor and environmental concerns, and possibly including other preconditions, into trade deals; which tends to dilute their very definition, making them “free trade” agreements in name only. He is on the record for being against CAFTA (Central American Free Trade Agreement) unless it meets certain labor and environmental benchmarks. He opposed a vote on the Colombia Free Trade Agreement and has vowed opposition to such a trade deal on similar grounds. During his campaign – and indeed, on his campaign website – he has advocated revisiting and amending NAFTA, using protectionist rhetoric that implied that NAFTA “put special interests over workers’ interests.” He has also voiced opposition to a South Korea free trade agreement and supports higher tariffs on Chinese imports unless they strengthen their currency. Just yesterday Asian countries expressed concern over Obama’s trade policies and the subsequent effect they will have on our major trade partners:
In particular, Obama has suggested he would push for a revision of the terms of a historic free trade agreement signed in 2007 by South Korea and the United States, after nearly a year of tough talks, and yet to be ratified by the two countries. The FTA would abolish most tariffs on goods traded between the two countries and would add tens of billions of dollars to bilateral trade.
“Koreans are all worrying about the FTA,” said Dong Hyu Yang, an economist at Seoul National University. “Mr. Obama would like to renegotiate the agreement, but I wonder if this is possible from this side.” The South Korean government may not be ready to renegotiate, but “it all depends on how tough Mr. Obama will get about this issue,” he added.
——————————————————-
Obama said in September that he was concerned about Chinese textile imports and would consider levying restrictions on Chinese goods, as well as promising to exert greater pressure on Beijing to allow the yuan more leeway to appreciate in order to narrow the $260 billion U.S. trade deficit with China.
And let’s not forget his ideas to “end tax breaks for companies that send jobs overseas” or his Patriot Employer Act of 2007 which would unrealistically try to reward companies that “maintain or increase the number of full-time workers in America relative to those outside the US” among other things. While all of these items are cause for serious concern for those of us in the trade industry, I try to be optimistic in remembering that campaigns are one thing – reality is another. Via RealClearPolitics:
Yet trade looks different from the Oval Office than from the Senate or the campaign trail. Any president has built-in incentives to pursue trade deals, since promises of greater access to U.S. markets can help his administration win concessions from foreign governments on a diverse range of other issues. Consider Bill Clinton’s tough rhetoric toward China during the 1992 presidential campaign. Then remember that it was the Clinton White House that took credit for permanent normalized trade relations with Beijing.
Still, as this same article points out, a Rasmussen poll from earlier in the year found that a larger percentage of Americans think free trade does more harm than good. (We free traders need to be a much better job communicating the benefits of free trade to the public).
So, world traders, as import volumes from Asia rapidly decline and export volumes from the U.S. to the world drop off, should you panic?
I think we should be strongly concerned, but campaign rhetoric and promises are one thing, reality once Obama is in the White House and is receiving advice and info from advisers both in the administration and at the Department of Commerce is something else. I may be wrong, but my personal opinion of Obama is that he seems a pragmatic sort and not the type to ignore advice from trusted advisers. His panel of economic advisers include such figures as Warren Buffett, Pepsi CEO Indra Nooyi, Jason Furman, and Robert Rubin, all of whom I would suspect to advocate a more measured response to international trade. No matter what happens, Obama would need the support of Congress to change, deny, or approve any trade deals. That’s certainly easier with a fellow Democratic congress also leaning towards protectionism, but not necessarily a given. Drawing up legislation and proposals and securing the votes takes time and trade and business interests would not sit idly by. The deteriorating economy, Iraq, Afghanistan, and other issues will be on the front burner from day one and will require much of an Obama administration’s time and energy, so perhaps they will be content to allow the status quo to remain as is. Furthermore, if and when the economy turns around and the government seeks more markets for its goods, or Obama is convinced of the benefits of this or that trade agreement, it will be a far easier sell for him to Congress than if a Republican were President. The bottom line is that any increase in tariffs or restrictions on U.S. trade partners will only raise costs for consumers and further restrict economic growth during a time when we can ill afford it.
My personal opinion is that while free trade might suffer under an Obama Presidency, it will not be the disaster that some might make it out to be. I’m holding out hope that reason and common sense will prevail and major disruptions to current or future trade agreements can be avoided. Time will tell if I’m right or wrong, but here’s hoping that Obama keeps trade flowing smoothly during his administration.
Update:
More on Obama’s possible picks for economic roles in the administration from Larry Kudlow:
At least on the economic side, the market wants to see early cabinet appointments to key economic agencies, especially the Treasury. The Wall Street buzz is Larry Summers, a free trade, strong dollar moderate Democrat, who served under Robert Rubin and then himself was top Treasury man in Bill Clinton’s last year.
Other likely appointments are University of Chicago economics professor, Austan Goolsbee for the Council of Economic Advisors. And Jason Furman for the National Economic Council, another free trade moderate who served under Robert Rubin during the Clinton years. If names like this surface this week they could calm stock market jitters.
——————————————————–
The big question for the stock market and the economy is whether Obama will attack businesses and over-regulate key sectors. Will he insist on raising tax rates on capital, investors, and successful earners? Or might he at least defer those tax hikes until 2010, while at the same time making good on his middle class tax cut pledge?
Hat tip to ShopFloor.org
Related Posts:
Comments
Subscribe to our free monthly newsletter to have the latest 3PLwire articles delivered directly to your inbox. Just enter your email below:Tell us what you're thinking...