Monday, May 19, 2008

Democratic Activists Will Push Obama Toward Trade Protection

Support for free trade has been declining among partisans of both parties this election season.

Yet as
this morning's Wall Street Journal reports, the Democratic Party in the last couple of decades has become the party of trade protection, and intense pressure from the party's restrictionist wing will likely prevent Barack Obama from adopting international economic openness should he take the White House next January:


Since at least John F. Kennedy, presidential candidates have campaigned as tough on trade and then governed as free traders. Some business leaders are expecting the same if Barack Obama makes it to the White House.

Don't count on it.

Sen. Obama, the Democratic party frontrunner, and his rival, Sen. Hillary Clinton, have expressed some support for trade liberalization during their careers, as public opinion and congressional politics have shifted markedly against free trade. A coalition of anti-free trade activists and labor unions also has used the long primary season to wring commitments from the two candidates on an astonishingly detailed list of trade issues, making it hard for them to reverse course.

The two Democrats are on record saying they would rewrite the North American Free Trade Agreement with Canada and Mexico -- if not pull out of the deal -- remake Nafta arbitration panels, oppose trade pacts that President Bush wants to push through Congress, designate China as a currency manipulator and examine whether World Trade Organization commitments impinge on issues as diverse as local-content rules and subsidies for colleges.

While only Sen. Clinton has said she would take a formal "time-out" on new trade deals, a President Obama would likely do the same thing, given the commitments he has made.

Sen. Obama "wants the right kinds of trade policies," says his chief international economic adviser, Daniel Tarullo, a former Clinton White House economic aide. "We need to address shortcomings of past trade agreements and the international environment," especially Chinese foreign-exchange policy, he says.

The Illinois lawmaker stresses that any trade deal must include provisions to protect unions' rights to organize and bargain collectively. Violations could be enforced through trade sanctions.

That's significantly different from current practice. Few trade deals cover labor; Nafta does, but the chances of assessing damages under the accord are remote.

The provisions "can help put pressure on countries to keep improving worker conditions," Sen. Obama argued in his book, "The Audacity of Hope," a view he repeats regularly on the campaign trail. But his stump speeches don't include the doubts he expressed in his book. The changes "won't eliminate the enormous gap in hourly wages between U.S. workers and workers in Honduras, Indonesia, Mozambique or Bangladesh," he wrote.
Rising protectionism is a worldwide phenemenon, but it's been boosted as a political issue by hard-left anti-globalization activists, many of whom have hammered the Democrats on import competition and labor standards.

Of all the principles of economics, there are few that have been more powerfully demonstrated than the notion of comparative advantage. In the post-World War II period, the trends in the U.S.-led international economy have been toward increasing prosperity, and
those nations with the most liberalized trade regimes have been best at expanding GDP growth and reducing poverty.

Trade protection has become a knee-jerk issue among those freaked out by growing transnational interdependence, but the benefits are real, and a shift to protectionism today would curtail American export success and harm job growth in highly integrated U.S. job sectors. Note, further, what
former U.S. Trade Representative Carla Hills has said about the patterns of trade expansion in the postwar era:

The U.S. experience since World War II proves that increased economic interdependence boosts economic growth and encourages political stability. For more than 50 years, under both Democratic and Republican administrations, the United States has led the world in opening markets. To that end, the United States worked to establish a series of international organizations, including the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)....

The results to date have been spectacular. World trade has exploded and standards of living have soared at home and abroad. Economist Gary Hufbauer, in a comprehensive study published this year by the Institute of International Economics, calculates that 50 years of globalization has made the United States richer by $1 trillion per year (measured in 2003 dollars), or about $9,000 added wealth per year for the average U.S. household. Developing countries have also gained from globalization. On average, poor countries that have opened their markets to trade and investment have grown five times faster than those that kept their markets closed. Studies conducted by World Bank economist David Dollar show that globalization has raised 375 million people out of extreme poverty over the past 20 years.

And the benefits have not been only economic. As governments liberalize their trade regimes, they often liberalize their political regimes. Adherence to a set of trade rules encourages transparency, the rule of law, and a respect for property that contribute to increased stability. Without U.S. leadership...the world would look very different today.
In today's political environment, in which just 10 percent of Americans say the ecomomy's getting better, the case for expanding free trade may be a hard sell.

The challenge for the candidates will be to convince their constituencies of the continued benefits of trade openness.

For more on the dangers of growing protection, and trends in labor market dynamics, see Purple Nation, "
Frank Gets it Wrong Again," which offers a powerful criticism of Thomas Frank's recent article, "Our Great Economic U-Turn."