Judging by the negative rhetoric from the presidential campaign trail, the fate of U.S. free trade is in dire straits. President Obama caved to China over free trade violations, while Republican nominee Mitt Romney will outsource thousands of American jobs, according to campaign attacks.
Despite the jabs playing on voters’ protectionist leanings amid a sluggish economy, however, each candidate will likely advance free trade if he wins the presidency. The question is, to what degree would Romney and Obama take on new free trade agreements and protect U.S. intellectual property if elected.
Obama’s record on promoting free trade generally gets a mixed review from the industry. The transportation community embraced his goal to double U.S. exports by 2015, but success is unlikely because of the decline in European demand and drought-hit agricultural exports.
Aside from boosting trade agency assistance and pushing free trade parts, the Obama administration has limited influence over how much U.S. companies ship abroad. Obama supporters, however, say the previous two rounds of quantitative easing weakened the dollar, making U.S. exports more attractive. The Federal Reserve is considering a third round of quantitative easing.
Obama also resolved a trade impasse with Mexico over trucking provisions of the North American Free Trade Agreement. A limited cross-border trucking pilot project was implemented in 2011, two years after Congress and the administration killed a Bush-era program, despite strong opposition from the Teamsters union. In return, Mexico lifted $2.4 billion in punitive tariffs on U.S. goods.
The recent passage of free trade agreements with Colombia, Panama and South Korea were “gimmies,” after most of the details were worked out under President George W. Bush, said Bill Frenzel, a guest scholar at the Brookings Institution. “On the other hand, to pass those treaties, (Obama) relies mostly on Republicans, and (passage) may be frozen in place by his own pals in Congress,” said Frenzel, a Minnesota Republican who served in the House for 20 years.
Obama has done “reasonably good work” on advancing the Trans-Pacific Partnership Agreement, a proposed trade pact involving Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, Mexico and Canada, he said. Frenzel, who chairs the Advisory Committee on Trade Policy and Negotiations, expects the FTA to be completed next year. The Obama administration also has filed complaints with the World Trade Organization against China, most notably over tire dumping and duties on U.S.-made automobiles.
“It is true we have a responsibility to enforce our agreements, but as a free trader, I have a feeling we have been in a hurry to play defense and not in a hurry to play offense,” Frenzel said.
Obama’s preference of attacking China over free trade disputes instead of building more agreements is “natural because” of the president’s sympathies to unions, he said.
Romney also has criticized the WTO complaints as protectionist. Frenzel said Romney has made promoting free trade a bigger part of his campaign than Obama has, although he says the former Massachusetts governor has been “excessively confrontational” regarding China and Russia.
Romney famously said he still sees Russia, which gained WTO entrance this month, as a “geopolitical adversary,” and has promised to label China a currency manipulator on his first day of office, according to reports. (For more on Russia joining the WTO, see page 10.)
Even if Romney gets elected and follows through on his promise, there is no guarantee he’ll enforce retaliatory tariffs on China. The business community will lobby him even harder than they are now to not risk a trade war with one of the largest U.S. trade partners. Obama took a similarly hard line during his 2008 campaign but softened his tone once in office.
Aside from taking a more aggressive approach to striking FTAs, Romney said he would bring back the Trade Promotion Authority, an executive privilege allowing the president to negotiate agreements free of amendments and filibusters from Congress. Legislators still would be able to reject or approve an FTA if the authority were granted. Senate Democrats rejected bringing back the TPA last year, which expired in June 2010, but Trade Representative Ron Kirk said in February the tool was needed to complete the TPP talks, according to Reuters.
The last big plank of Romney’s free trade platform is the creation of a “Reagan Economic Zone,” a global free trade area that China is unlikely to join. “But with or without China as a member, the Reagan Economic Zone will establish a system of trade that could knit together the entire region, discouraging imbalanced bilateral trade relations between China and its neighbors, limiting China’s ability to coerce other countries, and ultimately encouraging China to participate in free trade on fair terms,” according to Romney’s platform.
For others, such as Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute, both candidates’ pursuits of FTAs will only increase the outsourcing of U.S. jobs. Scott, a vocal critic of U.S. trade policy, argues FTAs make it harder for the U.S. to file complaints over violations, and neither candidate is being tough enough on China, largely because Wall Street’s profits would suffer as result.
Such arguments may have some validity, but even as a lukewarm global economy encourages protectionist sentiment, the world is still marching toward globalization. Voters in November will decide whether Romney or Obama can get them the best deal out of the changing international marketplace.