World Trade - March 2009 - (Page 18) COVER STORY eree a growing split in his party on free trade. In the 1990s, the party embraced free trade, exemplified by the NAFTA deal negotiated by Bill Clinton. But over the past decade, the party has begun to split on trade. Some economic centrists like former Treasury Secretary, and now senior Obama advisor, Larry Summers, still support trade deals, even if they now say that globalization has not broadly benefited the American middle class. But others in the party have become stridently anti-trade, including most of the major trade unions. Many leading Democrats also have seen that bashing trade can win elections—a view reinforced by underdog victories in 2006 and 2008 by Democratic trade skeptics, like Ohio Senator Sherrod Brown, one of the loudest critics of globalization on Capitol Hill. Obama himself reflects this division. On the campaign trail, Obama opposed many of the trade deals negotiated by the Bush administration, including the U.S.-South Korea agreement, also opposed by the Democratic Congress, and the U.S.-Colombia deal. Yet several advisors who know Obama well believe he is more of an economic centrist, and trade supporter, than he let on in the campaign. Obama, says one of his close Asia advisors, isn’t necessarily anti-trade, but he just is not as willing to push trade deals just to keep the U.S. in the front of free trade negotiations. “If a trade deal is flawed or if laws on the books are not being enforced does that really make one skeptical?” the advisor asks. “And if you negotiate a bad deal does that make you ‘good’ for trade?” Yet the China juggernaut is not unstoppable, and Obama’s hands are not tied, even though he must simultaneously take on Beijing and rely on China to keep buying up U.S. treasury bills—Beijing is the largest foreign holder of treasuries. As China becomes a bigger global player with many free trade deals up in the air, it will be forced to respond to complaints about questionable trade practices like dumping, or soft loans to its state-owned companies, or else lose the positive image it is building by inking free trade deals around the globe. “We see that the trade deal has meant a lot of cheap Chinese products coming into the local market, and there are questions about how China is dumping these products at such a low cost here,” says Macaranas, of the Asian Institute of Management. “If that continues then we’ll have much stronger anti-China feeling.” Indeed, some experienced China hands in Washington expect Obama to use Beijing’s newfound desire for respect as a tool of leverage, perhaps to get China to make its banks more transparent, or to revalue its currency, a constant point of dispute between the U.S. and China. (It doesn’t help, too, that powerful Speaker of the House Nancy Pelosi is known as one of the biggest China hawks in town.) But danger lurks in this approach. Derek Scissors, a China expert at the Heritage Foundation, predicts a disaster, coming as soon as the next few months. “Congress may well pass unprecedented legislation targeting China…featuring a short period of time by which the PRC must satisfy any of a variety of possible American demands or face Whither Doha? Even as he ponders how to handle China, the new president also must master an even trickier trade issue: the Doha round of multilateral trade negotiations, which has been stalled for years since launching in November of 2001. On the campaign trail, again, Obama staked out a relatively hardline stance, similar to the anti-trade elements of the party. Though Obama claimed to want to finish the round of negotiations, during the campaign one of his advisors declared: “Obama believes we need to change our trade focus from the Bush years so there is a true focus on workers, jobs, farmers and on ensuring that we are lifting standards of living overseas.” In other words, trade deals without corresponding labor and environmental agreements, which help ensure trade does not cause a race to the bottom, would be Obama’s mantra in the Doha round. But in office, as he has tacked back to the middle on other issues like defense and diplomacy, Obama may change his mind on Doha. Several Obama advisors say that, along with reinvigorating America’s relations with multilateral organizations like the United Nations, which often had a poor relationship with the Bush administration, Obama could invest his capital in the Doha round to show that Washington again can work with the world. But don’t count on it. Doha, says Derek Scissors of the Heritage Foundation, is abstract and thus hard to sell to the American public—and the world lost interest as the global financial crisis hit. The round is “not only abstract but comatose,” he says. “The push from everyone else got much weaker starting the moment Lehman failed.” of NAFTA, their trade bogeyman was Mexico, today this group of Americans has trained its sights directly on China. In another study, this time by Zogby International polling group, both the American public and congressional staffers said that job losses due to trade were their greatest concern about China, outstripping even fears of a future war between the two nations. A toxic brew In the 2008 election, these unions provided a critical base of support for Obama, especially in key swing states like Ohio and Pennsylvania. Catering to their anger, Obama promised a tougher line on Beijing than his predecessor, like filing many new cases against Beijing at the World Trade Organization or pushing China much harder to revalue its currency. “China must stop manipulating its currency because it’s not fair to American manufacturers, it’s not fair to you, and we are going to change it when I am president,” Obama promised in one appearance on the campaign trail. With a Democratic president and a Democratic Congress, this toxic brew of factors could explode. Within the Obama administration, the new president will have to ref18 WORLD TRADE MARCH 2009
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.