Although I know that the Washington Post has reported on a big Obama administration push for new trade deals because the White House wanted this message spread, I’m still somewhat skeptical. The President’s own party generally opposes these initiatives – at least if they lack the kinds of provisions, like effective measures against currency manipulation, that look to be deal-killers with the rest of the world. Higher priorities abound – like the budget, immigration, and tax reform. And if we’ve learned anything about Mr. Obama’s political style, it’s that he’s not a roll-up-his-sleeves-type operator with Congress. Let’s also not forget that the centerpiece trade deal – the Trans-Pacific Partnership – remains far from being concluded, and that every additional day of delay brings the intensification of the next presidential election cycle closer – which tends to make elected officials wary of trade expansion.
One big clue to the President’s real intentions – whether he speaks a great deal about trade in his upcoming State of the Union.
If I’m wrong, though, the Obama trade policies will present a stunning example of policy and philosophical disconnect. On the one hand, the President is a strong believer that government must play a crucial role in solving problems like the rich-poor gap whose growth he has decried. On the other hand, one of the main effects of new trade deals, at least for the last quarter century, has been the exponential increase in what economics and business types call transnational arbitrage opportunities.
In other words, by reducing barriers to the flows of goods, services, investment, and technology, trade liberalization agreements greatly expand business’ ability to capitalize on differences between countries’ regulatory and tax policies across the board – along with formal and informal trade barriers – in deciding where to build new facilities. And of course, countries with the lightest regulatory hands and lowest tax burdens – all else equal – tend to reap the greatest advantages.
Mr. Obama wants to square the circle in two main ways. First, he wants to improve Washington’s efforts to strengthen America’s human capital stock – i.e., upgrading the nation’s schools so that they’ll give more Americans the skills and knowledge to attract talent-conscious employers. Second, he wants to boost government support for developing new technologies and products in the United States, in order to create huge new domestic industries (notably, environmentally friendly products and services).
Trouble is, neither strategy appears even remotely promising. Regarding education and retraining, American primary and secondary schools have been criticized for major shortcomings for decades, and analysts who see significant progress seem few and far between. Why does the President think he’s found the magic bullet that has eluded so many others?
Moreover, as I wrote in my book The Race to the Bottom, trainable potential workers exist in every country. It’s true that America’s overall levels of economic development, its entrepreneurial culture and traditions, its social dynamism, and so many other strengths, can give Americans major legs up on foreign competitors. But it’s also true, as I’ve written, that corporations have learned to transfer many of these keys to business success – along with the building blocks of high productivity – to countries where economy-wide cost levels (and taxes and regulatory burdens) are much lower. American workers are still waiting for their leaders to address this challenge seriously.
Regarding official aid for new technologies and industries, Washington’s historic record has actually been quite impressive. The nation’s continuing leadership in sectors from agriculture to aerospace is the proof. But even if the U.S. budget climate was more promising for renewed funding for such programs, the President doesn’t seem aware that major new global players are now on the scene, and that their own economic subsidies simply dwarf America’s. Case in point – China.
Another problem apparently off Mr. Obama’s screen – the internationalization of manufacturing activity in particular that’s been spurred by post-NAFTA trade policy in particular means that the benefits of U.S. subsidies are all too likely to leak abroad unless Washington takes proactive measures to keep them state-side. A depressing example of such leakage has already been provided by the ballyhooed “Cash for Clunkers” program to bolster the auto industry – which wound up subsidizing the purchase of much more foreign automotive than domestic automotive production.
Congress’ Republican leaders have consistently complained about President Obama’s supposed ambivalence about new trade deals and urged him to show more guts – especially when it comes to lobbying and challenging fellow Democrats. But as made clear by the rising deficits – and resulting output and job loss – that keep accompanying new agreements, American trade policy’s real problem is a shortage of brains.