If timing is (at least nearly) everything in life, Americans concerned about their economy’s long-term health just got two more reasons to be grateful that President Obama’s trade agenda looks dead in the water in Congress. This week, two major international organizations have made clear that, even leaving aside their fatal substantive flaws, this is about the worst possible time to be pushing trade liberalization deals like the Trans-Pacific Partnership.
First, in its new evaluation of the U.S. economy and its prospects, the International Monetary Fund noted that one important reason for the recent stall in American growth rates has been “slower external demand.” Here’s the link: http://www.imf.org/external/np/ms/2014/061614.htm
In other words, much of the rest of the world, mired in major economic troubles of its own, isn’t buying as many U.S. goods and services as previously. The Fund does expect a short-term improvement in the U.S. trade deficit, but that will stem from the nation’s growing self-sufficiency in energy and reduced need for oil imports, not recovering exports.
This analysis should be surprising to exactly no one. After all, for literally decades, America’s trade competitors have been reluctant to Buy American, at least on a net basis, even when their economies have been good. Why would anyone think that their receptivity would grow during times of stagnation or painfully slow recovery?
In fact, for many of these countries, various combinations of their own sluggish domestic demand and high indebtedness make growing through exporting and improving their trade balances more important than ever. But apparently this is news to the President and his aides, who insist that the same kinds of trade deals that have worsened America’s deficit and thus slowed its own growth and job creation in the past will start producing exactly the opposite results.
Evidently, Mr. Obama thinks that American negotiating skills can craft agreements that overcome these mercantile forces and instincts. But abundant reason for skepticism comes from the World Trade Organization’s latest gauge of the state of protectionism worldwide. In it, the WTO reported that the United States and the rest of the world’s 20 largest economies (the so-called G20) put in place more than 112 new measures restricting trade from last November through May. Eleven of them came from the United States. The report can be found here: http://www.wto.org/english/news_e/news14_e/g20_wto_report_jun14_e.pdf
The 112 figure is actually down slightly from the 116 new sets of trade barriers erected during the previous May-November period. And it certainly doesn’t signal a global return to the trade wars of the 1930s. But the continuing increase is still impressive. More revealing, according to the WTO, since the October, 2008 peak of the financial crisis through the troubles that have followed, the G20 countries have introduced 1,185 trade-restricting measures and removed only 251. The net gain for the latest May-November period is 78.
In addition, there’s ample reason for concluding that the WTO is understating the rebound in protectionism. The organization itself admits that data regarding various government subsidies for industries is full of holes. And currency manipulation and undervaluation– like that of China, Japan, and (many believe) Germany — is ignored.
Just as important, these new trade barriers come on top of the numerous similar measures that have been on the books, or otherwise in effect, for many years – the vast majority outside the United States. And despite President Obama’s faith in American trade diplomacy, legions of these restrictions still block or slow U.S. exports even though many have long been explicitly banned by previous trade agreements.
In fact, the IMF and WTO findings are literally screaming to President Obama that his trade strategy has it exactly backwards. Rather than seeking the fool’s gold of more net U.S. sales in overseas markets, the United States should be focused on increasing U.S. sales in by far the greatest market of opportunity in which it does business. That’s its own domestic market, and specifically, the share that’s controlled by imports. And growing market share at home is all the more essential since so many of these imports benefit from foreign government subsidies and other trade-distorting measures.
But Mr. Obama seems hopelessly stuck in the intellectually bankrupt and fact-challenged conventional wisdom on trade policy. In this case, until he develops a learning curve, this Congress’ do-nothing reputation will remain a big plus for the economy.