Obama's Big Failure: His Vague, Cautious Trade Policy

By Aaronson, Susan Ariel | The International Economy, Summer 2010 | Go to article overview
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Obama's Big Failure: His Vague, Cautious Trade Policy


Aaronson, Susan Ariel, The International Economy


When Americans went to the polls in 2008, they cast their ballot for the more deliberative and creative candidate. Voters wanted change and Barack Obama delivered. Despite the cumulative pressure of multiple crises, from two wars to an economy in freefall President Obama was able to remake key aspects of U.S. governance. Working with a fractious Congress, Obama's team has made significant changes to U.S. health, education, and banking regulatory policies. Beyond U.S. borders, Obama and his team have reestablished constructive relations around the world and remade national security

Yet the Obama Administration has offered few new ideas in the realm of trade policy, an area essential to long-term U.S. and global economic growth. It is way past time for a rethink of U.S. trade policy-given global interdependence, increasing competition for resources, and the unanticipated spillovers of the growing reliance by governments on preferential trade agreements, rather than multilateral trade liberalization. Alas, President Obama's approach to trade policy has been cautious and vague. And in the face of U.S. timidity, few other nations are willing to "think big."

To his credit, President Obama early on recognized he could not negotiate new agreements unless he addressed longstanding public concerns. Thus, Congress expanded eligibility and strengthened trade adjustment assistance programs so that more individuals who lose jobs due to trade have income, retraining, and healthcare until they find other jobs. He also promised to focus on enforcement of existing trade agreements and stressed that his team would vigorously scrutinize foreign labor practices. Finally, his U.S. Trade Representative tried to involve more citizens in the policymaking process by making the USTR web site interactive and broadening the membership of trade advisory committees. In recent months, the Administration became more ambitious, announcing that the United States would enter into negotiations for a regional Asia-Pacific trade agreement and would work to gain Congressional approval for three free trade agreements negotiated by the previous Administration. The President also promised to double exports over the next five years with his National Export Initiative. However, in the face of a rising dollar and a lifeless Doha Round, and the failure to develop a broad rethink of trade, it is unlikely that U.S. business can achieve that goal.

Because they have not put forward an alternative model, by default, Obama Administration officials have accepted the Bush paradigm for trade liberalization. The Bush Administration reoriented trade negotiations from time-consuming multilateral negotiations towards bilateral and regional negotiations that covered more issues and sectors with willing countries. In this way, the Bush Administration addressed the how and what that had long frustrated trade liberalization.

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However, the focus on preferential trade agreements has had several unanticipated side effects. Many countries became less willing to propose deep cuts multilaterally, while accepting or proposing deep cuts in key bilateral agreements. The cumulative effect of these agreements undermines both the effectiveness of the World Trade Organization and its fundamental principle of most favored nation (nondiscrimination among nations). Moreover, this strategy has not helped all countries. While WTO negotiations include all members, many smaller (or poorer) markets have not been invited to negotiate bilateral or regional free trade agreements. The citizens in such nations are thereby less able to reap access to global markets compared to their counterparts in larger or richer nations. Moreover, traders have less security of market access. Every one of these free trade agreements has preferential rules of origin, and their complexity and diversity may distort sourcing decisions. Finally, these bilateral and regional agreements often contain tighter standards for intellectual property and transparency, and broader standards for issues not covered by the World Trade Organization such as labor, the environment, and investment.

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