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DAVID KRUSE

By Staff | Nov 5, 2009

I was going to give President Obama a “D” on trade, but Sen. Chuck Grassley, R-Iowa, made a good point when he said, “If you go to class, college, and you don’t do anything, you get an ‘F.'”

There is a level of protectionism that is generated when all activity relative to opening trade stops and forward movement toward opening trade has halted. Labor hates free trade agreements and the Democrats are beholden to labor.

The Democratic majority is too thin for Democrats to gain consensus on many issues within their own party without making concessions to labor on trade. Expanding trade typically generates creative destruction where some old jobs are destroyed, but more new ones are created.

It’s disruptive to the workforce, understandably creating some resentment. Overall, however, trade creates far more wealth than it destroys.

Unratified FTAs exist with Columbia, Panama and South Korea. When the Doha trade talks bogged down, the focus shifted to negotiating individual agreements between nations; but today no new ones are being pursued and those negotiated have been shelved.

The U.S. opted to turn protectionist in the 1930s and now it is doing it again. This is called repeating the mistakes of history. President Obama is smart enough to know it’s a mistake and won’t admit to it outright, but the politics of trade restrain his political options; if that is any excuse. The U.S. is going to have to grow its exports in order to grow the economy again. Opportunities to eliminate trade barriers are now being ignored while trade barriers are being raised.

Ironically, the European Union is moving ahead with FTAs, negotiating one with Korea. If Congress fails to ratify the existing negotiated U.S./Korea FTA, it will give the EU a significant trade advantage over the U.S.

This will put the protectionists in Washington in an uncomfortable spot. If they keep the U.S. from participating in trade liberalization, while major trading partners reduce trade barriers exclusive of the U.S., free trade will go around us leaving us stuck in the mud of protectionism. Meanwhile, the rest of the world progresses from expanding trade.

There was a time when such a thing couldn’t happen, but we think that time has passed. The Wall Street Journal surmised, “Across the globe, countries are moving ahead with similar bilateral trade deals, often giving their own national companies an edge over U.S. competitors.

“In a perfect world, all countries would be able to benefit from multilateral trade opening under the Doha Round. But for now bilateral deals are better than nothing and America is leaving itself behind.”

With developing nations now the center of global economic growth, U.S. trade isolation will reduce the U.S. growth rate while U.S. liabilities surge by record proportions. The U.S. Chamber of Commerce produced a study that concluded that failure to ratify pending trade agreements could lead to the loss of 585,000 U.S. jobs.

If protectionism worked, then the Depression of the 1930s would have been short and shallow as the Smoot-Hawley tariffs would have resulted in a remarkable resurgence of U.S. economic growth instead of the significant setback in world trade and contraction in the global economy that occurred.

The same political pressure that resulted in Smoot-Hawley exists in Washington today. Free trade costs jobs while creating others. The net result is positive. Attention to the pain results in no gain. Obama’s tire tariff against China will save how many jobs? The U.S. Chamber of Commerce says that failure to ratify pending FTAs will cost 100 times more.

Our trade competitors are not standing still. Canada enacted an FTA with Columbia. The EU is negotiating one. Columbia is a major U.S. ally and strategic partner for U.S. interests against Venezuela. Canada and the EU will get that benefit of trade with Columbia that we deny ourselves simply because our unions don’t like how unions have been treated in Columbia. The link is a contrived excuse for protectionism.

I’ve said for a long time that Doha was dead. The Obama Administration has given a wink and a nod to Doha to suggest that it takes Doha seriously when it doesn’t. WTO Director General Pascal Lamey admitted that no progress is being made to complete Doha.

The basis for a Doha agreement may not exist today in this case, not directly because of U.S. unwillingness to proceed, but because developing nations aren’t willing to open sensitive market sectors further. India, in particular, protects its agriculture.

It’s not that the U.S. has passed up anything negotiated in Doha that it should have agreed to. Too many exemptions and waivers exist in proposals to protect sensitive commodities of developing nations.

The only difference between the George W Administration and Obama’s on Doha is that George W was trying and Obama stopped. The WSJ says Doha could boost world trade by $130 billion. Obama blew five times that much on a careless stimulus spending package that inflated U.S. debt for dubious returns.

Bottom line here is that the U.S. is no longer pushing trade liberalization. Once the U.S. was an ocean vessel of free trade. It was growing markets. But its engine has gone dead in the water. Negotiated trade pacts have been left adrift. The current of trade growth is now flowing around the U.S. threatening to isolate the nation as an island of protectionism.

The president is getting D’s or F’s in trade policy by choice to appease political interests.

Bad change.

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