Im-Politic: Mainstream Conservatives’ Sovereignty Concerns are Way too Selective

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American Enterprise Institute, Buy American, Constitution, COOL, Financial Stability Board, food safety, free trade agreements, G-20, Im-Politic, NAFTA, regulation, sovereignty, The Wall Street Journal, TPP, Trade, Trans-Pacific Partnership, Wall Street, World Trade Organization

Ever since the NAFTA negotiations launched the current era of U.S. trade policy 20 years ago, critics on both the left and right-wing fringes (and I’m not using the word pejoratively) of American politics have complained that many new trade deals have threatened American sovereignty. Joining this chorus over the years have been voices from the far right that have detected the same danger from international organizations like the United Nations. These critics, who typically finger one-world-er American officials as co-conspirators, invariably are dismissed by mainstream journalists and pundits as a paranoid “black helicopter crowd.”

So imagine how strange it is to see a member of the U.S. government’s Securities and Exchange Commission (SEC) co-author an op-ed for The Wall Street Journal claiming that Washington has secretly outsourced some key financial regulatory authority to a little-known international body called the Financial Stability Board (FSB). According to SEC Commissioner Daniel Gallagher and former senior Treasury Department official Peter Wallison, the Obama administration :

“has consistently moved to implement the FSB’s decisions without telling Congress, or the public, that it regards the FSB’s decisions as binding. There’s a reason for this lack of candor. Congress has never endorsed the idea that FSB decisions are binding on U.S. agencies. The FSB’s authority, if any, flows from the G-20 [a grouping of the world’s 20 biggest economies]. Allowing its decisions to dictate U.S. policy means that an American president can create authority to issue domestic regulations simply by making an agreement with the G-20 or other foreign leaders.”

The purpose of this post isn’t to evaluate whether Gallagher and Wallison are right in contending that “This is a dangerous precedent. The FSB’s decisions cover the financial system. But there is nothing to stop similar agreements about the environment, telecommunications and other crucial matters if the precedent is allowed to stand. The result would unravel the separation of powers and the role of Congress in the U.S. constitutional system.”

Rather, the point is to ask where these two, and other establishment conservatives, have been for the last two decades – during which nearly any American laws and regulations having any effect on U.S. trade flows have been vulnerable to the decisions of the World Trade Organization (WTO). And to wonder whether they will finally take off their blinders?

The WTO technically cannot strike down U.S. policy decisions. But it can bring about their elimination, and prevent their enactment, by authorizing countries claiming to be victimized by these measures to respond with tariffs versus American goods and services aimed at their markets.

Nor is this a theoretical possibility. For example, the WTO right now is ruling on whether Washington can require food producers to tell U.S. consumers whence their products come.  And its rules helped President Obama and the offshoring lobby defeat proposals to broaden the Buy American requirements governing federal purchasing policies – which would have greatly increased U.S. production of real world goods and services, and employment in those sectors, at the depths of the Great Recession, when they were desperately needed. (In fact, they still are.) Stronger and wider Buy American rules would have limited multinationals’ ability to supply the U.S. government from their foreign factories and other facilities – at U.S. taxpayer expense.

Moreover, other U.S. trade agreements have generated the same dangers, thanks to dispute-resolution systems that give all signatories equal say and votes, even though the American market is invariably the largest single national market at stake.

In principle, Washington’s submission to these global organizations is constitutional, because American membership and participation were expressly approved by Congress. But how many legislators do you suppose actually read the full texts? And how many do you suppose believed then-U.S. Trade Representative Mickey Kantor, who championed the WTO’s creation with a classic piece of Clinton-style parsing: “[T]he WTO does not require the United States to change any law, regulation at the federal or state or local level as the result of any decision made under this use — dispute settlement process. That’s up to the Congress or other legislative bodies, whether or not they wish to take that act. We’ve not given up any sovereignty in that regard.”

Now of course, President Obama is asking Congress to approve another major trade agreement – the Trans-Pacific Partnership (TPP) – that because of its sweeping regulatory scope arguably contains more threats to America’s sovereignty than the WTO. Yet both the Wall Street Journal editorial page staff that published the Wallison-Gallagher piece, and the American Enterprise Institute that employs Wallison, strongly favor TPP ratification. Which makes it hard to avoid concluding that they think it’s more important for the Constitution protect Wall Street than to protect American workers and the rest of the nation’s productive economy.

(What’s Left of) Our Economy: Does Jack Lew Believe in America Decoupled?

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currency, decoupling, dollar, Financial Crisis, G-20, Global Imbalances, globalization, Jack Lew, recovery, TPP, TPP. Trans-Pacific Partnership, Trade, {What's Left of) Our Economy

Is the Obama administration starting to recognize that, contrary to decades of willful blindness and therefore needlessly counterproductive policies, the United States can do quite nicely economically without much help from the rest of the world? That’s surely an exaggeration. But some awfully suggestive clues can be found in Treasury Secretary Jack Lew’s testimony to Congress today.

At first glance, the relevant passages in Lew’s prepared remarks on President Obama’s new budget sounded like the longstanding conventional wisdom about America’s economic fate being inseparable from the world’s. The Financial Times certainly thought so, headlining its report on the House Ways and Means hearings, “US economy cannot go it alone, says Jack Lew.”

Dig deeper though, and you see how misleading (though not necessarily intentionally) the FT phrasing was. Lew decidedly did not say that America couldn’t go it alone because its own growth would falter without better growth abroad. He said that:

“While the recovery in the U.S. economy has helped to drive global growth, the rest of the world cannot depend on the United States to be the sole engine of growth.  At the recent G-20 meeting in Brisbane, there was agreement that more needs to be done to stimulate domestic demand around the world.  Our strength allows us to maintain our leadership in the global community, and while we must lead by example, we cannot do it alone.”  

The reference to the G-20 – a quasi-formal grouping of the world’s 20 largest economies – may have amounted to Lew simply repeating a longstanding American warning (which never seems to go beyond rhetoric) that the United States can’t long power global growth without producing the kinds of record economic imbalances that can lead to financial crises – and did so in 2008.  But Lew never referred to any of those considerations.

What’s left is a declaration by the Treasury Secretary that what the United States is unable to accomplish by itself isn’t sustaining its own recovery. In fact, in sync with President Obama’s assessment in his State of the Union address, Lew said that this recovery “appears” to be self-sustaining. The only remaining obstacle he mentioned was domestic – the lingering effects of recent Washington political gridlock. Instead, what’s left is a Lew statement that what America can’t do singlehandedly is stoke the rest of the world’s recovery.  At least by implication, he suggested that the U.S. economy has in fact become decoupled from the world economy.  

As I’ve written, given the nation’s immense wealth (both natural and human-made) and still-dynamism-friendly social structure and economic institutions, America’s capacity for such decoupling (i.e., domestic-based prosperity) has been staring policymakers in the face for its entire history, but has only been studiously ignored since the 1930s. Nowadays, it seems at least as strong as ever. Yet so far, globalist dogma still seems to be trumping the facts.

Thus the president’s policy continues taking a tack exactly opposite the one suggested by Lew’s words (assuming they were carefully chosen). Although the rest of the world is lagging America economically, Mr. Obama is working to tie the nation more closely to the slowpokes with the Trans-Pacific Partnership (TPP) and the rest of his trade policy agenda. Lew of course incongruously endorsed these measures as an “important component of our growth strategy.” In addition, there’s no sign that the administration is entertaining second thoughts about a thoroughly boneheaded decision reported by The New York Times last fall – to allow the dollar to keep rising against the currencies of America’s leading trade partners.

For a country believing itself to be tightly tied to growth elsewhere, this approach – which would enable other economies to trade their way to faster growth by ramping up sales to the United States while reducing their U.S. imports – at least embodies a certain logic. But for the country described today by Lew, the decision makes no sense – unless you believe that the U.S. economy is just strong enough to keep growing short-term without better global growth, but not strong enough to keep up the pace over any significant timespan.

Indeed, if this is their thinking, how do Lew and the president think they’ll continue even the current recovery’s lackluster pace if they wink at trade-and currency-related hits to growth? Are they counting on faster global recovery to kick in just in time? These would add up to one heckuva riverboat gamble.

So the burden of proof remains squarely with the optimists to show that some genuinely strategic lights are going on in the ranks of senior U.S. leaders. Conveniently, the upcoming TPP fight will be a genuinely momentous test. If the administration flunks – meaning that it finishes the deal and successfully steers it through Congress – the links between America’s economy and the world’s could grow broad and deep enough to ensure sluggish-at-best domestic growth for many more years.