(What’s Left of) Our Economy: Big Business Still Favors A TPP Fast Track – for Everyone Else

Tags

Business Roundtable, Congress, fast track, Michael Froman, National Foreign Trade Council, Obama, offshoring lobby, Orrin Hatch, Paul Ryan, Ted Cruz, TPA, TPP. Trans-Pacific Partnership, Trade, Trade Promotion Authority, {What's Left of) Our Economy

A funny thing has happened to the Offshoring Lobby groups that pushed so hard (and successfully) for Congress to give President Obama fast track trade negotiating authority. Now that they’ve seen the text of the Trans-Pacific Partnership (TPP) trade deal whose passage they’ve also urged, several have decided they don’t like the core provision of fast track trade negotiating authority.

Central to the case for fast track – now officially known as Trade Promotion Authority (TPA) – is that preventing Congress from monkeying around with the final text of trade agreements negotiated by presidents and their aides is vital to persuading America’s interlocutors to negotiate seriously. If American lawmakers could amend the deal at will, why would foreign leaders put forward their best offers, especially if they might anger powerful domestic constituencies?

That’s what U.S. Trade Representative Michael Froman has made unmistakably clear. In a late-2014 article in Foreign Affairs, Mr. Obama’s chief trade diplomat wrote, “By ensuring that Congress will consider trade agreements as they have been negotiated by the executive branch, TPA gives U.S. trading partners the necessary confidence to put their best and final offers on the table.”

The Republican leaders who have supported the president’s trade agenda agreed as well. According to Senate Finance Committee Chair Orrin Hatch of Utah, TPA “allows for trade deals to be submitted to Congress for an up-or-down vote, an incentive for negotiating nations to put their best offer forward for any deal.” And before he was elected Speaker and chaired the House Ways and Means Committee, Wisconsin’s Paul Ryan contended (in an article co-authored with Texas Republican Senator and current presidential candidate Ted Cruz, “By establishing TPA, Congress will send a signal to the world. America’s trading partners will know that the U.S. is trustworthy and then put their best offers on the table. America’s rivals will know that the U.S. is serious and won’t abandon the field.”

When Congress was considering fast track, moreover, leading business groups strongly echoed this line. As specified in a statement from the Trade Benefits America coalition that spearheaded the pro-fast track lobbying campaign, fast track historically ”has provided our trade negotiating partners with a degree of comfort that the United States is committed to the international trade negotiating process and the trade agreements we negotiate.”

One of the coalition’s major members, the National Foreign Trade Council (NFTC), was even more explicit: “Without U.S. trade negotiating authority, other countries will be unwilling to negotiate with the United States for fear that U.S. commitments and concessions would not hold weight.  In particular, they would be unwilling to put important politically sensitive concessions on the table.”

Last week, however, some of these organizations were changing their tune. In a statement calling for Congress to pass the TPP, the Business Roundtable declared that it also wanted to administration “to quickly address the remaining issues that impact certain business sectors in order to ensure the broadest possible benefits to all sectors of U.S. business, which will enable the broadest support possible for the TPP.” Huh? It’s true that Congress can attempt to clear up purported ambiguities in the text when it writes implementing legislation, but as for changing the text itself? Sorry, but that’s a no-no under TPA. Unless the Roundtable wants to reopen the entire negotiation?

Similarly, the NFTC reported that it is “encouraged by discussions that are underway between Congress and the Administration to address provisions in the agreement in order to further improve trade and investment liberalization, and strengthen the system of international trade and investment disciplines and procedures, including dispute settlement, for all of American business. Early resolution of areas for improvement identified by the business community will speed approval by Congress in 2016.”

With due respect, what on earth are they talking about other than the aforementioned clarifications and interpretations that unfortunately are entirely unilateral, and have no standing under the new TPP regime?

It seems that when the Offshoring Lobby touted the importance of banning Congressional amendments to TPP, it meant all amendments except its own. You can’t blame its organizations for seeking such blatant favoritism; it’s their job. Now we’ll see if Congress believes that enforcing the principle of equality under the law is its job.

Im-Politic: Will Trump Spark a GOP Revolt on Trade Policy, Too?

Tags

2016 elections, Donald Trump, fast track, free trade agreements, illegal immigration, Im-Politic, immigrants, Immigration, Jeff Sessions, Jim Tankersley, legal immigration, offshoring, Republicans, Scott Walker, Ted Crjz, The New York Times, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, wages, Washington Post

Honestly – I’m still trying to make sure that posts about Donald Trump don’t completely dominate RealityChek. But with the Republican presidential front-runner still shaking up American politics and policy on an almost daily basis, especially on the vitally important issues of trade and immigration, what am I supposed to do?

The latest bombshells Trump has dropped into the 2016 election mix have now received extensive coverage from The New York Times and the Washington Post – entailing his talk of tax hikes on key segments of the Republican political donor base, like offshoring multinational companies and hedge fund managers.

But the Post article also indicated that an equally important development has been gathering momentum: Some major Republican candidates are starting to criticize Open Borders and amnesty-friendly immigration policies not only on national security, sovereignty, and law-and-order grounds; out of multi-culturalism-related concerns; or based on their role in excessively fueling Big Government and the Welfare State. Instead, these figures are starting to criticize the establishment’s current and favored immigration policies on wage-related grounds. It’s a shift that – finally – opens the way, at least in theory, for these candidates and others to start criticizing the trade policy status quo for similar reasons,and weaken its hold on political Washington.

For years, I’ve been struck by how immigration policy critics have faced the same kinds of powerful opponents as trade policy critics – especially Big Business and the Mainstream Media – yet have achieved much more impressive results. And for just as many years, I’ve been frustrated that even during economically troubled times, these immigration critics haven’t focused their formidable energies and talents on trade measures and decisions that have devastated the jobs and wages of the middle- and working-class Americans so prominent in their ranks. Still more bewildering, many Republican politicians in Washington who staunchly opposed amnesty-friendly immigration reform proposals just as staunchly backed job- and wage-killing trade measures.

Trump has long been one of a handful of national figures who has been as exorcised about Washington’s thoroughly bipartisan trade policy blunders as about its immigration policy failures, and both indictments have been at the center of his campaign. Now it looks like his success to date, and his focus on the pocketbook impact of the establishment’s trade and immigration agenda, has spawned some influential imitators.

Thus, reports Post correspondent Jim Tankersley, Texas Senator Ted Cruz has recently lamented “the enormous downward pressure on wages and employment that unrestrained illegal immigration is providing.” Wisconsin Governor Scott Walker has become even more emphatic on the subject, and strongly suggested that legal immigration as a major contributor to wage stagnation as well:

“In terms of legal immigration, how we need to approach that going forward is saying—the next president and the next congress need to make decisions about a legal immigration system that’s based on, first and foremost, on protecting American workers and American wages, because the more I’ve talked to folks, I’ve talked to {Republican Senator Jeff Sessions of Alabama] and others out there—but it is a fundamentally lost issue by many in elected positions today—is what is this doing for American workers looking for jobs, what is this doing to wages, and we need to have that be at the forefront of our discussion going forward.”

Cruz actually voted against granting fast track trade negotiating authority to President Obama earlier this year, but animus toward the president rather than economics seemed his main motivation. Indeed, after fast track’s passage, a Cruz spokesman somewhat confusingly declared that “Sen. Cruz remains a strong supporter of free trade and fast-track.” In his only other major trade vote, in 2013, he opposed expanding Buy American requirements for certain federal infrastructure projects.

It’s time for Cruz’ supporters, and those whose support he seeks, to ask him why he thinks admitting large numbers of immigrants from low-income countries like Mexico depresses U.S. wages, but passing trade deals that send U.S. production to such countries – and their low wage workers – has no such impact. Ditto for Walker, who hasn’t voted for any trade agreements, but has strongly endorsed Mr. Obama’s proposed Trans-Pacific Partnership (TPP) trade deal (albeit with some wiggle room).

Indeed, if these candidates aren’t ready to rethink their illogical endorsement of these economically destructive trade policies, I’d advise them to start thinking of some convincing answers soon. Because if the voters don’t yet get the connection, it’s clear that the outspoken Mr. Trump does.

(What’s Left of) Our Economy: The Real Economics of Currency Manipulation

Tags

central banks, currency manipulation, currency wars, devaluation, exchange rates, fast track, Federal Reserve, Financial Times, Great Depression, John Plender, Obama, protectionism, QE, Robert Aliber, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, University of Chicago, {What's Left of) Our Economy

Since Congress is finished with its fight over fast track negotiating authority for President Obama, and the next big trade deal in the offing – the Trans-Pacific Partnership (TPP) – is still being negotiated, issues like foreign currency manipulation have virtually disappeared from the media.

That’s more than a shame, since the effects of China’s longstanding exchange-rate protectionism – which gives Chinese-made goods artificial price advantages in all global markets – still weigh on American manufacturing production and employment.  And let’s not forget that Mr. Obama and Congress’ Republican leadership successfully beat back efforts to include strong disciplines on manipulation in the TPP – even though prospective TPP member Japan looks like another huge manipulator.

Here’s hoping, though, that when these subjects return to the spotlight, decision-makers will read John Plender’s excellent post in yesterday’s Financial Times explaining why this predatory practice needs to be abolished – and not just for America’s sake.

Plender makes two main contributions to the heated currency manipulation debate. First, he explains that the main argument against curbing manipulation is a straw man. It doesn’t much matter whether national currencies weaken because the governments in question are explicitly seeking trade advantages or not. It’s true, as manipulation soft-liners note ad nauseam, that the recent spate of central bank monetary easing policies pursued all around the world generally has been bound to weaken their countries’ currencies. It’s also true that America’s own Federal Reserve has eased massively itself – though the dollar has remained strong over the long run partly because of its unique status as the world’s predominant currency, and partly because the U.S. economy has outperformed that of most other major powers lately.

But as Plender notes, the distortions to trade flows take place all the same. He could have added, as opposed to only suggesting, a point I keep making: Monetary easing by a trade- and export-led economy (like China’s or Japan’s) is much likelier to stem from trade-related concerns than easing by a consumption-led economy like the United States. (Other considerations let America off the hook, too.)

His second contribution: observing that the universally condemned currency devaluations that helped deepen the Great Depression were by no means all made to beggar trade partners. Yet as trade policy critics are constantly reminded, trade flows suffered anyway. In fact, Plender cites this stunning claim from University of Chicago economist Robert Aliber: measured in terms of the worldwide trade imbalances that have resulted, “today’s currency wars are more severe than those of the 1930s.”

Indeed, this is a great opportunity to revive another point I’ve made in the context of of the fast track/TPP currency manipulation debate: The devaluations of the 1930s and the economic and military calamities they brought closer taught the American and other architects of the post-World War II global economic order a seminal lesson: that such currency movements needed to be controlled in order to create and maintain a viable international trade system. Unless Mr. Obama and his fellow globalization cheerleaders now believe that this conviction was wrong, they need to make sure that U.S. policy helps end or severely punish manipulation, and finally treat genuinely free trade like a priority, not a talking point.

(What’s Left of) Our Economy: After the Fact, a Big TPP Rationale is Shredded

Tags

Asia-Pacific, Australia, China, CNN, Congress, credibility, fast track, global leadership, Obama, Pew Research Center, TPA, TPP, Trade, Trade Deficits, Trade Promotion Authority, Trans-Pacific Partnership, {What's Left of) Our Economy

Now that Washington’s big fight over the fast track bill is over, the national media will surely return to its norm of almost completely ignoring trade policy until a new trade deal like a Trans-Pacific Partnership (TPP) comes before Congress. The only likely exceptions will be the extent that trade comes up in the intensifying presidential campaign.

This neglect is even more of a shame than usual, and not just because America’s relentlessly growing trade deficits keep slowing its already slow-enough semblance of a recovery. It’s a shame because the main justifications for the TPP keeping falling apart – most recently with the release of a new survey of international opinion from the Pew Research Center.

As will be recalled by those whose memories exceed the short term, a major set of arguments for concluding the TPP pretty much as it stands sprung from geopolitics. One especially prominent claim was that the agreement was vital for maintaining and strengthening America’s preeminence in the fast-growing Asia-Pacific region.

No one should be surprised that President Obama himself insists that the fast track legislation that will ease TPP’s journey through Congress “will reinforce America’s leadership role in the world -– in Asia, and in Europe, and beyond.” (The wisdom of a national leader suggesting that his country’s position needs strengthening is another subject entirely.) Somewhat more surprising is how completely the national chattering class accepted this view. Thus even someone as remote from trade (and foreign policy) issues as senior CNN politics reporter Stephen Collinson felt comfortable presenting as a fact, “Had the fast-track provision crashed,” the TPP “would have died, likely taking U.S. credibility in Asia and Obama’s pivot to the region with it.”

As I have repeatedly pointed out, such assertions are (take your pick) moronic or deceptive on their face. Examining America’s role as the leading final consumption market for export-dependent Asia, and its role as the only conceivable source of protection against a rising China, makes its centrality beyond legitimate dispute. But since doubters will always remain – and especially self-interested ones – it’s great that Pew has just made clear that the populations of the Asia-Pacific region itself clearly understand America’s importance economically.

Pew asked publics in several first-round TPP countries (and many other countries) to “name the world’s leading economic power” and gave them the choice of the United States, China, the European Union, Japan, or “Other/None/Don’t Know.” Although there was some country-by-country variation, the Asia-Pacific region was the one that most often awarded the United States the top spot – with solid majorities.

Specifically, respondents in Japan, Malaysia, and Vietnam considered the United States to be Number One by majorities of 59 percent, 53 percent, and 50 percent, respectively. The share of their populations that believed China had gained the lead? Twenty-three, 33, and 14 percent, respectively. Only one TPP first-round country placed China atop the world economy – Australia, by a whopping 57 percent to 31 percent over the United States. These results indicate that Australians know that their economy has relied heavily on exporting raw materials to China – but also that Australians need to learn about where much of China’s own growth comes from.

Indeed, the Chinese are apparently well-positioned to instruct the Aussies. They named the United States as the world’s leading economy over their country by 44 percent to 34 percent.

In fairness, another Pew survey reveals some evidence of America’s perceived top dog status slipping between 2014 and 2015. At the same time, this decline could have resulted from several months of Mr. Obama and other American leaders warning about China’s rise and thereby implicitly poor-mouthing their own country.

In fact, the only main TPP-related question surrounding the Pew results concerns timing: Why did the Center wait to release them four days after fast track’s final passage by the House?

Making News: Talking Fast Track on Chattanooga, Tenn. Radio at 2 PM EST Today

Tags

Chattanooga, Congress, fast track, Making News, Tennessee, TPA, Trade, Trade Promotion Authority, WGOW-FM

I’m pleased to announce that I will be interviewed this afternoon on Congress’ passage of the fast track trade bill, and where it leaves American politics and the economy, on “The Brian Joyce Show” on Chattanooga, Tennessee’s WGOW-FM radio station.  The segment is scheduled to air live at 2 PM EST, and you can listen live at this link.

As always, I’ll post any podcast that becomes available as soon as I can.

(What’s Left of) Our Economy: With Fast Track Done, Where We Stand

Tags

2016 elections, AFL-CIO, Asia, China, Congress, Democrats, fast track, Hillary Clinton, House of Representatives, Lincoln Chafee, national security, Obama, Senate, technology transfer, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, unions, {What's Left of) Our Economy

President Obama hasn’t signed the bill yet, but the Senate’s passage of fast track legislation yesterday ensures that the nation is entering a new phase in trade policymaking. So here are some first thoughts about where we stand economically and politically right now.

>It’s crucial to remember that Congressional approval of fast track doesn’t automatically mean approval of the Trans-Pacific Partnership (TPP) when (and if?) negotiations on this trade deal are completed. The odds of passage have certainly soared, since Congress has never rejected a trade deal that it’s considered under fast track procedures.

But thanks to the almost entirely unbinding, loophole-filled presidential negotiating instructions Congress has included in the legislation, the final TPP is nearly a lock to lack meaningful disciplines on currency manipulation and the discriminatory activities of state-owned enterprises. It will also extend trade benefits to a country that’s a major violator of global human trafficking norms (Malaysia) and one that’s recently instituted Islam’s often brutal Sharia as the law of the land (Brunei). Moreover, it looks likely that even the most obtuse American lawmaker will see that TPP contains a “docking” provision that will permit its ranks to be expanded beyond the current initial group of members – for example, to China.

>As I’ve written previously, organized labor still needs to take the political scalps of lots of the Senate and especially House Democrats who defied its heatedly expressed wishes and supported the fast track bill. I distinguish between the Senate and House because members of the former inevitably have broader political bases in their (almost always) larger jurisdictions, and therefore are much harder for any particular interest group to unseat. But an age-old rule of politics still holds: If you’re going to strike at your enemies, make sure (figuratively!) to kill them.

Making good on its threats will be particularly important for labor, since Democratic politicians have been feeling free for decades to ignore its wishes on a raft of other priority issues, like the so-called “card check” legislation that would have changed the laws governing unionization elections.

>The not-trivial levels of Congressional Democratic support for fast track will create an especially interesting situation for the party’s presidential politics during the rest of this national election cycle. All but one of its main presidential hopefuls – including Hillary Clinton – declared their opposition to the bill. (Former Rhode Island Governor and U.S. Senator Lincoln Chafee has been the exception.) So assuming that Chafee or another fast track supporter is not its nominee, the party’s 2016 standard-bearer will find him or herself running alongside (and thus endorsing) a number of House and Senate candidates who have backed a measure detested by many of the party’s major constituencies (not just unions, but environmental organizations as well).

>Finally, for now, I’ll be waiting breathlessly for signs that impending American approval of fast track will shore up the nation’s position in East Asia versus China’s encroachment – in line with TPP supporters’ repeated claims that the agreement is vitally needed to contain or counterbalance China. So I’ll continue to keep a close eye on China’s activities in the region – as well as the actions of U.S. allies, who have shown every sign of hedging their bets regarding Asia’s future kingpin and will undoubtedly maintain such postures whether TPP is created or not.

For as I’ve explained, unchangeable geopolitical realities, a rapidly evolving military balance, and the longtime massive, reckless, ongoing U.S. corporate transfers of defense-related technologies to Beijing (not to mention trillions of dollars’ worth of trade profits) all mean that although the United States is anything but destined to remain a “Pacific power,” an ever stronger China unmistakably is.

Our So-Called Foreign Policy: TPP Backers Ignore Business Deals that Strengthen Bogeyman China

Tags

China, Congress, fast track, FinFET, Huawei, national security, Obama, Our So-Called Foreign Policy, semiconductors, SMIC, technology transfer, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership

Congress has just reminded us that, if timing is indeed the secret of great comedy, it’s even more crucial for political tragicomedy. What better way to describe the Senate’s final vote for fast tracking a prospective Pacific Rim trade agreement touted as a bulwark against rising Chinese regional influence two days after a U.S. corporate tech giant dramatically increased its investments in China’s (inevitably) defense-related technology sector?

The Senate was passing the fast track bill even as I wrote this, which means that the president could sign it before close-of-business. As I’ve repeatedly noted, it’s become an article of faith in the main stream of the nation’s foreign policy establishment that the Trans-Pacific Partnership (TPP) trade deal whose Congressional endorsement fast track will ease (though not guarantee) will help prevent China from increasingly dominating East Asia’s commerce and security relationships. And as I’ve also repeatedly noted, these same security whizzes, from President Obama on down, have consistently turned a blind eye to U.S. corporate transfers of advanced technology that can only strengthen China militarily at America’s expense.

The latest instance came earlier this week. On Tuesday, China’s state-linked flagship semiconductor manufacturer, SMIC, announced that American computer chip firm Qualcomm will help it develop new generations of the integrated circuits that control communications devices in particular. But the knowhow supplied by Qualcomm and by a world-class microelectronic research center in Belgium can be applied across the full range of semiconductors – including the types used in all modern military systems. Indeed, a major focus of the new joint venture will be enabling China to master so-called FinFET technology, which is a key to manufacturing chips that can leapfrog current limits on semiconductor power consumption and speed.

I’d say that “To put the icing on the cake, the third partner in the JV is Huawei, the Chinese telecommunications equipment maker that has been all but explicitly banned from selling in the United States because of national security concerns.” But the ironies scarcely end there. Qualcomm has lobbied actively for the TPP. It also paid Democratic presidential front-runner – and former Secretary of State for President Obama – Hillary Clinton $335,000 to give a speech last October.

It’s inconceivable that this new Qualcomm deal isn’t known to the Obama administration. It’s just as inconceivable that it’s not known to the Pacific Rim countries whose security from China the TPP will supposedly bolster. What’s certain is that Qualcomm’s efforts to strengthen China’s high tech industries, and similar recent corporate moves, are known to very few American voters – and that Members of Congress who supported fast track should be very grateful that they haven’t been front page news.

(What’s Left of) Our Economy: New GDP Figures Show All-Time Worst Trade Hit to Growth

Tags

Congress, exports, GDP, goods trade, gross domestic product, imports, Obama, recovery, services trade, TPA, Trade, Trade Deficits, Trade Promotion Authority, {What's Left of) Our Economy

As Congress continues voting in favor of fast-tracking President Obama’s trade agenda, today’s revised first quarter GDP figures reveal that worsening U.S. trade deficits took the biggest relative quarterly bite out of economic growth on record. Moreover, the new data confirm that both the widening trade shortfall and the growing gap in trade flows shaped by trade deals keep slowing an already historically weak recovery – the latter by nearly 20 percent in real terms. 

The new GDP revisions also continue showing that last quarter’s after-inflation trade deficit was the nation’s biggest since early 2008 – when the economy grew respectably, not shrunk.

Here are the trade highlights from this morning’s GDP report:

>The third and final (for now) estimate of first quarter GDP figures show that the expansion of the U.S. trade deficit slowed America’s inflation-adjusted economic growth by the greatest degree in relative terms since quarterly changes began to be tracked – in 1947.

>According to the new data, the real goods and services deficit subtracted 1.89 percentage points from a constant dollar GDP contraction of 0.20 percent in annualized terms in the first quarter. That’s a bigger proportionate hit than the 1.90 percentage point subtraction from the 0.70 percent real annualized GDP decline reported in the previous estimate. The new trade hit also exceeds the 1.60 percentage point subtraction from the 0.30 percent real annualized GDP increase during the fourth quarter of 2002.

>The biggest absolute trade hit to real growth occurred in the third quarter of 1982– a 3.22 percentage point subtraction. But in that quarter, overall GDP fell at a much greater 1.40 percent annualized rate.

>As a result of the latest revisions, the rise of the trade deficit has cut cumulative U.S. real growth during the current, historically weak recovery by 9.40 percent.Through the first quarter, the growth blow delivered by the rise in the deficit most heavily affected by trade deals and related policies – the real non-oil goods deficit– has been 19.82 percent.

>This trade policy-related lost growth amounts to just under $647 billion out of the economy’s cumulative real GDP increase of $1.9321 trillion since the recovery technically began in the middle of 2009.

>Today’s GDP data show a modest narrowing in the estimate of the first quarter’s real combined goods and services trade deficit – from the $548.4 billion reported in the previous estimate to $548 billion. But this total still represents the biggest quarterly real trade gap since the second quarter of 2008.

>Nonetheless, during that quarter, the economy ran a $550.4 billion real trade deficit when it grew at a two percent real annualized rate. The latest, slightly smaller, trade deficit came during a quarter when the economy shrank at a 0.20 percent real annualized rate.

>The new GDP report revised the quarterly decline in real exports from 7.6 percent in annualized terms to 5.9 percent. But the quarterly increase in real imports was revised from 5.6 percent to 7.1 percent annualized.

>As a result, real combined imports, real goods imports, and real services imports all confirmed their quarterly record levels – which now stand at $2.6433 trillion,$2.1602 trillion, and $482.4 billion, respectively, annualized.

>The new record quarterly real services export total revealed in the previous GDP estimate was revised slightly higher this morning – from $667.7 billion annualized to $667.9 billion.

(What’s Left of) Our Economy: Washington’s Africa Sloppiness Shows Dangers of Fast Tracking Trade

Tags

Africa, African Growth and Opportunity Act, AGOA, Congress, economic development, fast track, garments, manufacturing, MFA, Multifibre Arrangement, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, Uruguay Round, World Trade Organization, WTO, {What's Left of) Our Economy

Renewal of America’s trade agreement with sub-Saharan Africa isn’t the single biggest determinant of the fate of fast track authority in Congress this week, but it’s certainly in the mix. And the enormous popularity it’s enjoyed even among lawmakers generally opposed to current trade policies speaks volumes about how sloppily Washington as a whole develops trade agreements, and how the results can fail even intended foreign beneficiaries.

The Africa trade deal – created by the African Growth and Opportunity Act (AGOA) – is intended to promote economic progress on the continent by opening the U.S. market wide to its exports. Even though African countries aren’t required to reciprocate, the measure seems worthwhile, as the continent’s own purchasing power is meager at best, and its non-oil sales to the United States are miniscule as well.

But since AGOA went into effect in 2001, even supporters in academe, like Harvard University economist Robert Z. Lawrence have called its growth-inducing effects in Africa “quite disappointing.” And the reasons stem from two major and related U.S. trade policy mistakes that could be easily corrected, but that remain in effect mainly because Washington has cared much more about pretending to help the continent rather than seriously addressing its problems.

The first fatal flaw has to do with AGOA’s “rule of origin” provisions, which principally affect the African apparel production and shipments. Developing strong apparel industries is crucial to the development hopes of the AGOA countries, because as a labor-intensive manufacturing sector, clothing historically has served as a “starter” industry for developing nations seeking both higher growth and higher incomes. And the hope clearly was that, once competitive local garment manufacturing had been established, sub-Saharan Africa would be able to attract the kind of investment needed to move to from relatively simple assembly to the next stage up the industrialization ladder – fabric and other input production.

Indeed, the current lack of meaningful fabric or yarn manufacturing in most of the AGOA countries to begin with led Washington to permit them to export on a duty-free basis to the United States garments made largely of foreign-produced fabric – both from the United States and from third countries. In its first few years, AGOA did stimulate strongly growing African apparel shipments to the United States. But progress came to an abrupt halt in the middle of the last decade, The quality failed to improve – in particular, AGOA fostered almost no fabric production – because most of the non-U.S. providers of fabric for African-assembled garments showed almost no interest in its encouragement. So AGOA apparel sales to Americans still largely consist of fabric produced outside Africa, generally in Asia – including China. Consequently, Africans have remained stuck in knitting and sewing work, which adds relatively little value to their economies.

But even the growth of shipments from Africa to the United States has slowed, and that owes to Washington’s second major trade policy mistake – its insistence that a global system of quotas for third world apparel exports be abolished as part of the Uruguay Round world trade liberalization agreement. As I wrote in this 2013 article, this Multifibre Arrangement (MFA) was widely criticized as selfish protectionism on the part of the high income countries that used it to regulate foreign market access for textiles and clothing. But it also gave invaluable opportunities to the world’s least developed countries to establish niches – and indeed growing niches – in this business, mainly by limiting imports from more advanced developing countries, like Taiwan, Korea, China, and even India.

And since AGOA’s provisions remain largely unchanged, most of its economic development benefits will continue flowing to countries that need them much less. And in a final, especially cruel, irony, avowed friends of Africa who vote for President Obama’s proposed Pacific Rim trade deal will only wind up putting added pressure on the continent. For one of the biggest expected results of this Trans-Pacific Partnership (TPP) will be to supercharge U.S. apparel imports from hyper-competitive – and super low-wage and anti-union – Vietnam.

So if Congress – and the Obama administration – really wanted to help sub-Saharan Africa, they would push the World Trade Organization to restore the MFA or at least reestablish a quota system of its own, and they would rethink the TPP. That neither proposal is on the table in Washington strongly indicates that, when it comes to using U.S. trade policy to aiding developing countries, American leaders are much more interested in feeling good than in doing good. And can the same president and legislators who have so thoroughly neglected crucial AGOA-related details really be reasonably expected to produce a TPP that benefits America?

Im-Politic: On Liberals, Trusting Presidents, and Trade

Tags

1990s expansion, 2000s recession, AFL-CIO, Asian financial crisis, Bill Clinton, China, Congress, Democrats, fast track, House of Representatives, Im-Politic, Jobs, liberals, manufacturing, Obama, stock market bubble, tech bubble, TPA, Trade, Trade Promotion Authority, unions, wages, World Trade Organization

Given the pronounced leftward shift evident recently in the ranks of Democrats in the House of Representatives, last Thursday’s “final” (for now) vote for “fast track” trade negotiating authority for President Obama makes clear that at least 28 of these Congress Members believe that current trade strategies are entirely compatible with their stated aims of boosting MainStreet America’s fortunes. I hope they’ll read over this speech given in 1997 by President Bill Clinton to an AFL-CIO convention. It explains clearly why these beliefs are delusional, and why presidents who try to reinforce them don’t deserve their trust.

Mr. Obama knows he needs at least a sliver of House Democrats to ensure passage of fast track – which would prevent Congress from amending any trade agreements he brings before it, as well as sharply curb debate. So he’s repeatedly sent progressive groups the message that such agreements will actually benefit working class and middle class Americans, and that, further, he’s proved his progressive bona fides beyond reasonable doubt by championing any number of domestic programs to enable the “99 percent” to take full advantage. In the president’s words:

“Smart, new, 21st century trade agreements are as important to helping the middle class get ahead in this new economy as things like job training, and higher education, and affordable health care.  They’re all part of a package.”

And he continued, in this April 23 speech, “I mean, think about it.  I’ve got some of these folks who are friends of mine, allies of mine saying this trade deal would destroy the American working families, despite the fact that I’ve done everything in my power to make sure that working families are empowered.  And, by the way, they’ve been with me on everything.”

Now flash back 18 years. In 1997, President Clinton was seeking fast track, too, and realized he needed at least some backing from his biggest constituencies to the left of center. He was also clearly just as worried as Mr. Obama about threats by unions in particular to work to unseat Congressional Democrats who supported the trade measures that labor detested.

So he told AFL delegates that his trade policies – including NAFTA – were “about how we can best seize our opportunities in the economy that is emerging, and how 4 percent of the world’s people can continue to maintain 20 to 22 percent of the world’s wealth, and continue to grow the economy so incomes can rise and new jobs can be created.”

Clinton went on to insist that “we share too many values and priorities to let this disagreement damage our partnership. You just think of all of the things that I reeled off that we’ve done together and all of the things we’ve stood against in the last five years. I have worked to make this economy work for middle-class Americans. I care about making sure everybody has a chance and making sure nobody is left behind. But I can’t build a better future without the tools to do the job, and America can’t lead if it’s bringing up the rear.

“At the moment of our greatest economic success in an entire generation, we shouldn’t be reluctant about the future; we ought to seize it and shape it. And I think I also have to say to you that there are a lot of good members of Congress who agree with me about our trade policy who also stood for the minimum wage. They agree with me about our trade policy, but they fought to provide health care for 5 million more kids. They support open trade, but they also fought to protect Medicare and Medicaid and education and the environment, and to open the doors of college to all Americans.

“And when the majority in Congress wanted to do so, they stood against them and fought with you against the Contract on America. They fought with you against attempts to repeal the prevailing wage laws, to weaken unions and workplace health and safety laws. They did so in the face of intense pressure. They have fought for you and for all working people, and they deserve our support. If they were to lose their positions because they stood up for what they believe was right for America’s future, who would replace them, and how much harder would it be to get the necessary votes in Congress to back the President when he stands by you [emphasis added] against the majority?”

Clinton, it must be remembered, lost the fast track vote that year, and was denied the authority in 1998 as well. But this avowed champion of working class Americans went on to press (successfully) for admitting China into the World Trade Organization, and when the Asian financial crisis struck in the late-1990s, kept U.S. markets wide open to Asian exports. Both these policies added powerfully to downward pressures on middle class manufacturing jobs and their high wages. Clinton escaped much blame back then because the interlocking technology and stock market bubbles created enough growth and employment to mask these more enduring losses.

When the ’90s high came to an abrupt end with the early 2000s recession, the middle class and especially manufacturing workers were hit especially hard, and the historic (for an expansion) employment and pay hits the latter kept suffering showed how greatly,and structurally, the Clinton trade policies damaged their fortunes.

Since hope springs eternal, and should never be dismissed out of hand, what would be understandable would be for House Democratic supporters of fast track to acknowledge the recent past, but to hold that This Time it’s Different. What would not be understandable would be for them to fail to explain exactly why.