(What’s Left of) Our Economy: It’s “Big Week” on Trade

Tags

100-day China plan, Canada, China, environmental standards, G20, Gary Cohn, H.R. McMaster, James Mathis, labor standards, Mar-a-Lago summit, Mexico, NAFTA, North American Free Trade Agreement, North Korea, Robert Lighthizer, rules of origin, steel, Steve Mnuchin, tairffs, Trade, Trump, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

During World War II, the United States and the United Kingdom launched a massive multi-day strategic bombing campaign against Nazi Germany called “Big Week.” The stakes are considerably less apocalyptic, but yesterday began a period for U.S. trade policy that qualifies as a big week, too. Here’s why, and what to look for.

First, yesterday marked the deadline for the 100-day plan announced at the summit between President Trump and his Chinese counterpart Xi Jinping to start bringing down America’s immense trade deficit with the People’s Republic. Some near-term deals were announced in May, and the Chinese seem to be playing along, to at least some extent. But even the American offshoring lobby, which has greatly soured on China since its full-court-press lobbying campaign convinced Washington to expand U.S.-China trade exponentially, has been complaining that agreements of this scope are way too small to solve their own problems with Beijing in the Chinese market. These deals have even less potential to stop most of the damage still being inflicted on the American domestic economy from wide-ranging predatory Chinese economic practices.

The results are due to be announced this week – and may be delayed to take into account whatever can be accomplished by a new high-level economics dialogue that will hold its first session in Washington this week. Will they produce some big wins for the administration and the domestic economy? As I see it, reasons for pessimism outweigh reasons for optimism.

The former include the president’s continuing statements about the threat posed by China’s imports (in this case, of steel), and the awareness demonstrated by his campaign of how varied and unconventional (meaning they went far beyond tariffs and quotas) China’s trade and trade-related transgressions have been. Among the reasons for pessimism, though, are intra-administration divisions that entail both economic issues (with the administration’s economic populists arrayed against what’s been called the pro-free trade “Goldman Sachs” gang comprised of top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin) and security issues (pitting the populists against traditional foreign policy thinkers like national security adviser H.R. McMaster and Defense Secretary James Mattis, who would sympathize with notions like the claim that China should be courted to enlist its help in sitting on North Korea). In addition, the kinds of staffing woes still dogging the administration typically make sharp departures from a policy status quo difficult to engineer.

In fairness, Commerce Secretary Wilbur Ross, who has forthrightly described the China economic challenge, acknowledged when announcing the 100-day trade plan’s first results that three months worth of talks couldn’t possibly be a game-changer precisely because China’s mercantilism was so pervasive. But in so doing, he unintentionally made the argument – which I support for U.S. trade policy generally – for dispensing with talks altogether and capitalizing on China’s urgent need to export to the United States by addressing this issue unilaterally.

Certainly, this kind of course change would be much more consistent with the president’s numerous campaign statements emphasizing the destructive effect of Chinese predation on America’s economy and working class. It’s also the kind of strategy you’d expect from a chief executive whose non-trade agenda is almost completely stalled in Congress, who’s under intense political pressure, and who could badly use a big economic win in order to prevent major Congressional losses in the next off-year elections – whose campaign cycle will be here before he knows it.

Another big (self-imposed) administration deadline falls today. It marks the date by which the White House said it would submit its detailed plan to renegotiate NAFTA – the North American Free Trade Agreement. In May, U.S. Trade Representative Robert Lighthizer sent Congressional leaders a brief letter alluding generally to some objectives, but by tomorrow he needs to fill in critical details. Many might have been contained in a draft letter released March 30, and that plan looked pretty impressive. The big question of course is which ones will wind up surviving – and whether the administration is open to other ideas.

As I’ve written, the most important issue concerns the treatment of “rules of origin” – the provisions of NAFTA aimed at ensuring that any goods sold in the three signatory countries (the United States, Canada, and Mexico) are overwhelmingly made in some combination of those countries. The deal that’s currently in place specifies North American content levels that need to be met to qualify for duty-free treatment inside the free trade zone. But the tariff penalties for goods not meeting these standards aren’t nearly high enough to achieve the goal of increasing the entire region’s competitiveness.

The March 30 letter suggested that the administration would seek origin rules that promote U.S. production and jobs more effectively, but it didn’t say how. If much higher external tariffs aren’t proposed in the plan due today, it’s doubtful that any reforms will result in non-NAFTA countries to make more of their products in any of the countries inside the NAFTA zone. Moreover, it’s of course going to be easier for Washington to persuade Canada and Mexico to go along if it re-emphasizes what President Trump has been saying since his meeting last summer, before the election, with his Mexican counterpart: NAFTA should aim to boost the competitiveness of all three countries.

The brief May 18 Lighthizer letter also suggested obliquely the need to change NAFTA’s dispute-resolution procedures, and the March 30 draft discussed the issue at greater length. But even its recommendations to strengthen America’s authority both to respond to import surges from its NAFTA partners (called “safeguards”) and to apply its own Buy American government procurement rules to intra-NAFTA trade may not go far enough.

As I’ve explained, the fundamental problem is that the current dispute-resolution process treats the three NAFTA countries as legal equals, even though the U.S. market is nearly 90 percent of the total NAFTA market, and clearly remains the most valuable prize for all three signatories. Without closing or somehow changing acceptably, the yawning gap between the NAFTA legal regime and the economic facts on the ground, it’s hard to imagine the system serving U.S. interest on net.

At this point, you might be wondering why I haven’t mentioned NAFTA’s labor and environmental provisions. The reason? Although they’ve been major objectives of Democratic party and other left-of-center NAFTA and broader trade policy critics, as with their counterparts in the Trans-Pacific Partnership (TPP) deal, they’re largely unenforceable. As I’ve asked before, how many American bureaucrats will be needed to run around how many factories in a signatory country (in this case, Mexico) to ensure that companies aren’t abusing workers or dumping sewage into nearby streams? With more effective rules of origin, however, producers in Mexico will feel less pressure to remain competitive versus rivals in China and elsewhere in Asia by offering the worst possible working conditions and ignoring environmental considerations completely.

Finally, there’s the steel tariff issue. The administration has delayed announcing its decision to impose national security-related tariffs on U.S. steel imports, but is expected to reveal its intentions this week. For what it’s worth, the president sounds determined to approve some levies on some countries’ steel. The main question is who the main targets will be. It will also be crucial to see whether and how prominently the announcement emphasizes the need to deal decisively with the underlying problem – the ocean of subsidized steel from China that has flooded and distorted world markets in recent years.

At the same time, there’s a reason for Mr. Trump to punt – or to punt for the most part: At their summit earlier this month in Hamburg, Germany, the leaders of the world’s twenty largest economies (the “G20”) agreed to require an international commission on the subject to deliver a report by November containing “concrete policy solutions that reduce excess steel capacity.” Postponing unilateral action until this mandate is fulfilled could prove a tempting option for a president who doesn’t exactly need to come under fire from new fronts.

Moreover, if the commission’s ideas don’t pass U.S. muster, Mr. Trump would be in a much stronger position to slap the tariffs on everyone, and vow to maintain or even increase them until meaningful, concrete agreements are reached.

President Trump has been sending surprisingly (at least to me) mixed signals on trade since his Inauguration Day two-step – killing the TPP but refraining from labeling China a currency manipulator. Big Week in trade isn’t likely to clarify the picture fully, but we’re bound to know more at its end than we do here at the beginning.

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(What’s Left of) Our Economy: The Laughable EU-Japan Trade Deal

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agriculture, automotive, driverless cars, EU, European Union, fake news, Financial Times, free trade agreements, G20, globalization, Japan, Mainstream Media, Trade, Trump, Wolfgang Munchau, {What's Left of) Our Economy

It seems like the economic policy world is all abuzz about the news that the European Union (EU) and Japan have agreed to the broad outlines of a trade agreement. That’s odd, to put it mildly, since reviewing what’s known about the deal for about five minutes is enough to debunk the notion that it’s a global economic game-changer – and the related claims that it will represents a stinging rebuke to President Trump’s moves toward a more results-oriented U.S. trade policy.

It’s true that the EU and Japan are enormous economic entities. They’re also high-income entities. But they haven’t been very dynamic economic entities. From 2005 to 2016, the former increased its output by just under 28 percent (in euro terms) before factoring in inflation. The latter has grown by less than 2.50 percent in yen terms. By contrast, the United States (which hasn’t been killing it, either) has boosted its current dollar gross domestic product by 41.82 percent during this period in U.S. dollars. 

They’re also regions that tend to run trade surpluses – although massive energy imports following the Fukushima nuclear plant disaster have generally tipped Japan’s total trade into deficit. So from a macro-economic standpoint there’s a major question regarding how willing they are to open their markets significantly on a net basis – especially given how slow their overall growth has been. Maybe that’s why one joint European-Japanese effort to estimate their welfare effects came out with results that barely move the needle. And interestingly, this study projects that the United States will be a net winner.

But the strangest aspect of the prospective deal, especially from the EU perspective, concerns the specific trade flows that are apparently targeted. For Brussels is aiming mainly to boost its exports of food products like meat, wine, and dairy, and in return has been willing to lower its automotive tariffs. The agreement has even been nicknamed the “cars for cheese” deal.

In other words, the Europeans supposedly believe they’ll prosper – and show the Trump administration a thing or two – by giving pride of place to industries that, however politically powerful, have relatively little ability to generate big positive spillovers to the rest of the economy, and welcoming more predatory competition to an industry with phenomenal potential to foster future innovation and productivity growth. (Think “driverless cars.”) In fact, this quid pro quo is so bad for Europe that it casts considerable doubt as to whether its terms will be honored.

Also interesting – for all the European ire about the steel tariffs being mulled by the United States (which runs a big trade deficit in this sector), Brussels has said little about the industry during its trade talks with Japan (which runs a big surplus).

Financial Times columnist Wolfgang Munchau has admirably dissented from the Mainstream Media groupthink and dismissed the EU-Japan deal as “a shameful attempt at manipulation” of the narrative surrounding the recent G20 summit that was hyped by journalists exhibiting “confirmation bias” of their pro-internationalist, anti-Trump views. On this side of the pond, we’ve come up with a simpler description: fake news.

Making News: Coming up on The Laura Ingraham Show – & More!

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Buy American, Chronicles, G20, Lifezette.com, Making News, North Korea, The Laura Ingraham Show, Tom Piatak, Trump

I’m pleased to announce that my appearance on Laura Ingraham’s nationally syndicated radio show has been rescheduled for 10:15 AM EST today.  Click here to listen live to what’s sure to be a (desperately needed) outside-the-box discussion of the North Korea crisis.  And of course, I’ll be posting a link to the podcast as soon as one’s available.

Further, my views on the prospects for President Trump’s first summit of the world’s top economic powers were featured yesterday in a post on Laura’s Lifezette.com website.

Also yesterday, blogger Tom Piatak quoted me in an essay for the magazine Chronicles on the importance of Buying American.  Here’s the link.

And keep checking in with RealityChek for ongoing reports on media appearances and other developments.

 

Following Up: Link to Today’s CNBC Interview

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American Enterprise Institute, Bill Griffith, CNBC, Following Up, G20, James Pethokoukis, Kelly Evans, Trade, Trump

I’m pleased to present the link to the video of my appearance today on CNBC discussing the Trump administration’s precedent-breaking performance at this past weekend’s big global economic summit.  Click here to see a great discussion of this possible landmark event, and its possible implications, among anchors Kelly Evans, Bill Griffith, James Pethokoukis of the American Enterprise Institute, and yours truly.

And keep checking back with RealityChek for notices of upcoming media appearances and other news.

Making News: CNBC Interview This Afternoon – & a Big Boo for a Washington Post Blog

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CNBC, Economist's View, G20, Making News, Monkey Cage, The Washington Post, TheWeek.com, Trade, Trump

I’m pleased to announce that I am scheduled to return to CNBC this afternoon to talk about the Trump administration’s global trade policies. The segment is slated to begin at 3 PM EST, and its theme is the surprising, precedent-breaking performance of President Trump’s Treasury Secretary at a recent conference of the world’s leading economies.

I’m also pleased to announce that my recent op-ed article for The New York Times about the administration’s trade policy has been cited by the influential Economist’s View blog, and by the webzine TheWeek.com

Less pleasing:  The Washington Post‘s Monkey Cage blog published a piece critiquing my article (which is of course fine).  But the powers that be on the blog refused to consider publishing a response by me (which isn’t so fine).  Monkey Cage says it was founded to enable “political scientists draw on their own expertise and the discipline’s research to illuminate the news, inform civic discussion, and make some sense of the circus that is politics.”

But editor John Sides informed me that “At this point…we’re not going to begin a more extended back-and-forth on this issue.”

That tells me that Monkey Cage actually isn’t so big on fostering civic discussion – and therefore can’t be much of a blog. That should be the message you take away, too.

(What’s Left of) Our Economy: Latest Trade Deficit Scuffles Still Missing Lessons of 2008

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bubbles, finance, Financial Crisis, free trade agreements, G20, Germany, Global Imbalances, investment, Japan, manufacturing, offshoring, tax reform, Trade, Trade Deficits, trade policy, trade surpluses, Trump, Wall Street, {What's Left of) Our Economy

Roughly ten years after it broke out, it’s still incredibly rare to see economists or pundits link U.S. and resulting global trade imbalances with the financial crisis. So I’m always thrilled – as I tweeted this past week – to see it ever happen. All the same, even this insightful column by Reuters’ Edward Hadas simply dances around the crucial link between these imbalances and American trade policies, and in particular, their offshoring-friendly nature.

In a March 15 essay, Hadas commented on the German (and other countries’) trade surpluses that have attracted such attention this past week for two main reasons: German Chancellor Angela Merkel’s first-ever meeting with President Trump, and a conclave taking place at the same time of the finance chiefs of the world’s 20 leading economies (the so-called G20). The author’s main contention is indisputable as far as it goes. According to Hadas, the real problem with these imbalances is financial:

“The euros, pounds and dollars which Germany, Korea et al accumulate inevitably land in the global financial system. There would be no problem – only gains all round – if these monies funded valuable infrastructure, productive factories and other assets which can generate a reasonable economic return.

“Too often, though, though, the extra currency winds up supporting counterproductive finance. It backs ultimately ruinous property speculation, lends support to chronically weak governments, encourages unsustainable consumer spending and destabilises developing economies, not to mention enriching banks and bankers and stimulating corruption. A typical example: the recycled dollars from the U.S. trade deficit helped fund the American housing bubble whose pop created the 2008 crisis.”

But what Hadas – and so many others – fail to do is explain adequately why deficit countries (like the United States) make such dangerously shortsighted choices with their windfalls. Three main (and not mutually exclusive) reasons have been served up. First, financial systems in the deficit countries (especially the United States, which runs the biggest deficits) have over-rewarded uses of capital that produce the fastest possible payoffs, and under-reward longer-term projects. The result is too much investment that encourages speculation, financial monkey business, and simple consumption, and too little investment that builds factories and laboratories and funds other activities that create wealth more slowly, but on a more sustainable basis.

Second, such irresponsible uses of capital have become practically inevitable if only because the deficits have been so enormous, and so much money has become available. When anything is in such abundance, and therefore costs so little, most economists would agree that there’s little reason to use it carefully. After all, it looks like a sure bet that more of that thing at very attractive prices will be readily available.

A somewhat different version of this argument has to do with what economists call “moral hazard.” It argues that the American financial system used over-abundant money so recklessly at least partly because investors felt certain that they’d get bailed out of most or all of their mistakes by government. So why not take maximum advantage of what seems to be a “heads, we win; tails, we lose” proposition?

The third explanation for the irresponsible use of resources focuses on the consumption-heavy nature of the economies of the deficit countries. (This argument also tends to note that the surplus countries frequently try to limit and even depress consumption.) The more capital they take in, in other words, the more such spending (as opposed to productive investment) is likeliest to result either because such behavior is encouraged by government, because a “live for today” has been produced by that country’s culture, or because of some combination of the two.

Whenever something as a big as a global financial crisis strikes, many culprits are responsible. And all of the above explanations should be taken very seriously (along with others, like lax financial regulation). But what Hadas and all the rest continue to miss is how the world trade system, national trade policies, and the trade flows they have fostered have actively fostered in deficit countries like the United States a neglect of productive activities like manufacturing (which is so heavily traded).

Specifically, as Washington in the 1990s and 2000s signed more and more trade agreements structured to encourage multinational companies from all over the world to supply U.S. consumers from locations in super low-cost and virtually unregulated developing countries like China and Mexico, American leaders and other elites (e.g., in the media) naturally sought to rationalize their decisions by spreading the message that sectors of the economy like manufacturing (and the income loss produced by the accelerated offshoring that rippled throughout so much of the Main Street economy) could be neglected with impunity. And the administration of George W. Bush (along with Congress of course) and the Federal Reserve chaired by Alan Greenspan underwrote America’s spendthrift ways with big budget deficits and ultra-low interest rates, respectively.

Even worse, these destructive trends fed on themselves. The more offshoring seemed to pay off, and the more domestic manufacturing operations looked like losing — or at least anachronistic — propositions, the less interested financiers became in investing in them. So the amount of productive activity on which to use incoming capital to start with began shriveling. And the less productive activity available to sustain Main Street living standards responsibly (i.e., mainly through earnings), the greater the political establishment needed to prop up those living standards by providing more easy money — at least if it wanted to stay in power while maintaining the offshoring status quo.

Ironically, even though Hadas emphasizes regulation as the answer to global imbalances, his particular focus has big trade implications:

“Regulation can do more than strengthen bank capital ratios. It can reform the system, so trade surplus funds are not directed to economically counterproductive uses. That will be tough, both politically and practically. But it should be easier – and will be far more helpful – to solidify finance than to try to change the national characters of Germany or Korea.”

I’m all in favor of channeling the use of trade surplus funds by deficit countries into productive activity. In fact, I strongly support requiring such uses by U.S. multinational companies if much-discussed tax reform finally succeeds in persuading them to bring home the vast amounts of earnings they’re currently stashing abroad to avoid paying higher U.S. corporate rates. 

But this requirement needs to be accompanied by (at the very least) strong measures to keep out foreign-made goods that benefit from predatory trade practices like dumping, subsidization, and intellectual property theft. Otherwise, foreign competitors will be able to keep undercutting their domestic American competition in the U.S. market, and these new productive investments will fail. It’s also entirely likely, however, that more sweeping trade curbs will be needed – to offset the scale economy disadvantages created by U.S.-based firms’ inability to sell into so many important markets and their rivals’ ability to sell freely in their home countries and the United States.

And this is in fact where recognition is needed that the trade problem created by American policy concerns not simply inducements to offshore, but the coddling of protectionism in high income countries like Japan and Germany.

The bottom line: As indicated in a post last week, the United States may have to accept that even reasonably balanced foreign trade is not achievable with competitors holding radically different economic priorities (as I argued last week was precisely the case with Germany), and that reducing trade flows is a more than acceptable price to pay for preventing financial crises caused by imbalanced trade. When you add in America’s great capacity for much more self-sufficiency in a wide range of manufactured good, that seems like a more than acceptable trade-off to me. More important, it’s where the Trump administration, admittedly in fits and starts, could be leading us.

(What’s Left of) Our Economy: China’s Still Taking the Easy — Export-Led — Way to Growth

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China, export-led growth, exports, Financial Crisis, G20, Global Imbalances, mercantilism, protectionism, rebalancing, recession, recovery, Trade, UN Conference on Trade and Development, {What's Left of) Our Economy

Ever since the financial crisis of 2007-08 and the ensuing recession shifted global growth into a much slower gear, the world’s business and economic policy establishment has identified at least one likely silver lining: Sluggish demand in its major foreign markets would force China to speed up its transition from an export-led to a domestic demand-led economy. In the process, the massive, U.S.-China-centered worldwide trade and investment imbalances that resulted in unsustainable international growth patterns and set the stage for the crisis would start to moderate, and the foundation for healthier global growth would be laid.

This scenario was especially appealing to the economic and business powers-that-be because it held that changes in global trade and investment flows would take place without governments resorting to tariffs and other interventions that history supposedly taught would set all countries back further.

Today, however, Reuters reported on data showing that these claims have indeed been too good to be true. As I have predicted, for the closely related reasons that its consumers as a whole remain far too poor to generate satisfactory Chinese growth on their own, and that an import- and offshoring-friendly U.S. government would preserve the export-led approach as Beijing’s easy way out, China has confounded the rosy post-crisis scenario. According to the UN Conference on Trade and Development (UNCTAD), although the world economy and trade flows remain weak, China has coped by boosting its market share.

In fact, UNCTAD contends, not only did China’s share of world exports rise from 12.3 to 13.8 percent between 2014 and 2015 alone. That 13.8 percent represents the highest global export share any country has enjoyed since the United States in 1968. Revealingly, at that time, the world economy was much more vigorous (even though major inflationary and related pressures on the gold standard were mounting), and America’s predominance was still near its zenith.

Moreover, China’s global trade surplus hit a new record last year, too: $595.4 billion. So could we also drop the widely expressed idea that the PRC is an important engine of global growth on net – or is generating any global growth on net? To the contrary: Countries with surging worldwide trade surpluses mathematically must be subtracting from global growth, and in a slow-recovery world, they are nothing less than parasitic.

Discouragingly, however, the official global rhetorical consensus – as expressed in the communique issued by the Group of 20 finance ministers and central bank governors last week – remains focused on using “all policy tools – monetary, fiscal and structural” to foster growth, and resisting “all forms of protectionism.” Leading academics who claim to understand the threats posed by beggar-thy-neighbor currency policies also still appear convinced that more government deficit spending in particular will raise all global boats enough to end the current stagnation even if trade flows are free to stay as lopsided as ever – or worse.

So next year, the safest economic bets seem to be continued sluggish growth, more Chinese trade gains at the rest of the world’s expense, mounting international imbalances, a consequently greater threat of Financial Crisis 2.0 – and repeated insistence that interference with trade must be avoided at all costs. Unless American voters get angry enough?

Following Up: Early Responses to Paris Look Discouraging

Tags

Al Qaeda, border security, burden sharing, defense spending, Following Up, France, Francois Hollande, G20, Germany, ISIS, Middle East, migrants, NATO, Obama, Paris attacks, refugees, Schengen Zone, September 11, Syria, terrorism

Yesterday on Twitter, I asked folks whether they thought that last week’s Paris terrorist attacks would represent a turning point in global politics as big as September 11. I wasn’t too sure about the answer at that point; today I feel much more confident that Paris’ impact should – at least – be even greater, but that its impact will fade much sooner than it should.

There’s no question that the September 11 attacks were more spectacular, and killed many more people, than the Paris operation. But the latter worries me precisely because it was so low-tech, so un-spectacular – and therefore so much more easily repeatable. Clearly, there are many reasons that the use of hijacked civilian airliners as bombs hasn’t been repeated in the last 14 years. Air travel security has been greatly tightened all over the world – although the recent ISIS-claimed destruction of a Russian plane reminds us that gaps remain at various air nodes. But security – and intelligence – responses undeniably have been stepped up, and partly as a result, it’s likely that terrorists are much less interested in fighting “the last war.”

It’s also possible, however, that terrorists have concluded that the airliner bomb approach is simply too difficult, and that the risk-reward ratio is inadequate. First, think about the planning and equipment required for the Paris attacks: It’s not even close. Now think about the “reward”: The September 11 strikes were over in minutes. The handful of Paris attackers turned a major Western capital into a battlefield for hours. This tells me that repeats are much better bets.

Which brings up the likely effect on Western and global responses. It’s true that it’s been less than three days since Paris. But the early indications don’t point even to major shifts, much less wholesale changes. I don’t have the transcript yet, but I watched President Obama’s just-concluded press conference following the G20 summit in Turkey, and nothing could have been clearer than his conviction that he’s pursuing the right strategy, and that nothing more than a moderate escalation of anti-ISIS military operations is in store right now.

Certainly there was no mention of stepped up border security measures, which I have written are the keys to protecting the American homeland more effectively. In fact, Mr. Obama became most emotional when condemning (admittedly stupid) proposals to restrict admissions of Middle East refugees to Christians – despite his (reluctant) acknowledgment that security screening is required.

Not surprisingly, France’s reaction has been more substantial. French President Francois Hollande has just addressed a rare joint session of the country’s Parliament (itself a major departure from domestic political practice), is seeking to extend the state of emergency initially declared to three months, and has requested significantly new constitutional powers to deal with individuals deemed dangerous.

On Saturday, of course, Hollande had described the Paris attacks as an “act of war,” in contrast to President Obama’s continued tendency to view terrorism mainly as a law enforcement challenge. The French president also authorized a round of air strikes versus ISIS targets in the Middle East, and promised more resources for the country’s security forces. In addition, he’s urged the members of Europe’s visa-free travel zone – the so-called Schengen area – to tighten up their internal controls. (At the same time, the president of the European Commission has stated that he sees “no need for an overall review of the European policy on refugees.”)

But a New York Times op-ed this morning made clear how lax and paltry French – and other European – counter-terrorism efforts have been, and therefore how far they need to go to deserve the adjective “serious.” As reported by former senior Obama administration foreign policy aides Steven Simon and Daniel Benjamin, French and German spending on intelligence and counter-terrorism operations are the merest fractions of America’s. And these countries are located much closer to the Middle East breeding grounds of ISIS and similar groups.

Moreover, Hollande’s apparent decision to escalate French military efforts to defeat ISIS in the Middle East is reasonable, and budget figures are never perfect measures of military strength. But even though the Paris attacks have hardly been the first by the region’s extremists against European targets, the only European members of the North Atlantic Treaty Organization (NATO) to have met the alliance’s defense spending goals have been the United Kingdom, Greece, Poland, and Estonia. France and particularly Germany are among the foot-draggers. Will the Paris attacks spur much more energetic efforts? In the face of continued European economic weakness? Or will these countries ultimately continue their decades-long policies of relying mainly on the United States for protection?

Past isn’t always prologue. (If it was, we’d still be living in caves.) But the power of inertia and the temptations of free-riding should never be under-estimated. Nor should the determination of politicians – on either side of the Atlantic – to stick to failed policies. So the odds remain way too high that the Paris attacks will leave the United States and other major countries with the worst of both possible worlds – facing game-changing circumstances and more attached to the status quo than ever.

Our So-Called Foreign Policy: Obama’s Worrisomely Mixed Signals on Paris

Tags

France, Francois Hollande, G20, Iraq, ISIS, law enforcement, Middle East, NATO, Obama, Our So-Called Foreign Policy, Paris, Paris attacks, Syria, terrorism, Turkey

We keep learning more and more about the Paris attacks’ crucial details, and there’s surely more to come. Yet along with the early implications and lessons I discussed yesterday, another big trend is becoming crystal clear: President Obama’s verbal response so far has been remarkably tepid, and arguably confused. More serious, it’s contrasted strikingly with what we’ve heard from France’s President Francois Hollande about the strikes – which indicates that two of the most important countries in the coalition opposing the terrorists who are likely responsible see the threat in significantly different ways that could hamper any responses.

On Friday night, in the midst of the attacks, the French leader did refer to the assaults as a “crime.” But he emphatically changed his tune by Saturday. Those remarks described the attacks as “an act of war” that was “prepared, organised and planned from outside the country by Islamic State, but with help from inside.” He added, “We will be merciless toward the barbarians of Islamic State group.”

President Obama’s initial statement on Friday expressed appropriate outrage, and pledged America’s solidarity with France in “the fight against terrorism and extremism.” But he also continued a pattern of describing such events as law enforcement challenges, terming the attacks “crimes” and vowing to “do whatever it takes to work with the French people and with nations around the world to bring these terrorists to justice….” Although Obama mentioned the need to “go after any terrorist networks that go after our people,” his unwillingness “to speculate at this point in terms of who was responsible” prevented him from connecting these efforts to the military efforts he has authorized against ISIS.

Since then, the White House has issued statements agreeing with the “act of war” description. But these statements (so far) haven’t come from the president himself. Speaking on the eve of the summit in Turkey of the G-20 countries (the world’s twenty largest economies), Mr. Obama mentioned that “as a NATO ally [of Turkey’s] we have worked together to bring about pressure on ISIL” in order to “eliminate the environment in which ISIL can operate.” But he again mentioned “hunting down the perpetrators of this crime [in Paris] and bringing them to justice.”

Again, I don’t favor seeking ISIS’ military defeat, because even if it’s achieved, the terminally dysfunctional Middle East will soon enough serve up a comparable threat. Instead, U.S. military operations in the region should focus on keeping ISIS off balance long enough to hamper its capacity to carry out international operations until Washington can secure the border tightly enough to protect the U.S. homeland from terrorism.

But if the president does mean to fight ISIS abroad principally, he needs to figure out whether he’s going to be a commander-in-chief or a police chief, and work as effectively as possible with as many allies as he can. And as the Paris attacks make terrifyingly clear, time isn’t on his side.

(What’s Left of) Our Economy: Is Obama’s Trade Agenda Based on Currency Lies?

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(What's Left of) the Economy, currency manipulation, easing, fast track, G20, Jack Lew, Michael Froman, monetary policy, Obama, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, Treasury Department, U.S. Trade Representative

If President Obama’s request for fast track trade negotiating authority and his proposed Trans-Pacific Partnership (TPP) trade deals are indeed in trouble in Congress over currency manipulation, he should blame his own administration’s deserved lack of credibility on this critical issue. In recent weeks, overwhelming evidence for two major falsehoods has emerged.

First, Treasury Secretary Jack Lew recently stated that the administration is “working with [Congress] to figure out if there is something that can be accomplished in the context of our trade agreements that is consistent with our overall strategy of bilateral and multilateral engagement.” Yet the president himself reportedly told a January gathering of House Democrats that “adding currency rules into the TPP would be too complicated and could sink the talks, which are nearing completion.”

Second, the Treasury’s own role in handling currency manipulation seems to have been badly misrepresented. U.S. Trade Representative Michael Froman has often told Congress – and most recently in late January – that Lew “had the lead in currency issues ‘at this point’ and was raising them bilaterally and in international groups such as the Group of Seven and the International Monetary Fund.”

But the Treasury Secretary had his latest chance in international groups and clearly punted. Despite Lew’s participation, last week’s meeting of G20 finance ministers and central bank chiefs in Turkey wound up issuing a communique that repeated a pledge to “stick to our previous exchange rate commitments and will resist protectionism” but that also strongly endorsed the kinds of recent monetary easing policies that inevitably have depreciated currencies.

In fact, on the eve of the G20 meeting, a “senior Treasury official” told the Financial Times that “The fact that the European Central Bank, and others around the world, have moved aggressively to loosen monetary policy was broadly positive, even if it helped fuel renewed concerns over “’currency misalignments.’”

Before another step is taken by any U.S. official or legislator on trade deals or trade promotion authority, these glaring inconsistencies need to be cleared up – under oath. If they’re not, some formal perjury investigations should be able to get the job done.