Photo: Jewel Samad/AFP/Getty Images
Obama Is Floundering on Trade Because He's Too Much Like Bill Clinton, Not Too Little
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Obama Is Floundering on Trade Because He's Too Much Like Bill Clinton, Not Too Little

By Photo: Jewel Samad/AFP/Getty Images

Barack Obama’s top trade representative, Mike Froman, gave a curious speech last week. Although almost everyone in Washington believes Obama’s trade agendamost notably the 12-country Trans-Pacific Partnershipis dead for the foreseeable future, Froman was strangely defiant. He argued that while no one thinks we should stop technological progress when it costs American jobs, critics want to block trade agreements for the same reason. He then explained, in terms that were unusually animated for a lifelong technocrat (which is to say, moderately animated), why this was bunk. It was a bit like watching a gang leader retreat from a more powerful rival, then try to save face by shooting the rival’s dog.

Retreat is, however, clearly what the White House is up to for the moment, even if Froman continues to negotiate tirelessly and the administration plans to make another push later on. Last month, Senate Majority Leader Harry Reid announced he had no intention of considering fast track authority, the provision that allows the administration to submit trade agreements for simple up-or-down votes, and without which it’s hard to imagine the TPP passing Congress. "Everyone knows how I feel about this,” Reid told reporters. “The White House knows. Everyone would be well-advised to not push this right now.” Appearing before House Democrats a few weeks later, Joe Biden dutifully conceded that the cause was lost. “I know it’s not coming up now,” he said.

This turn of events has prompted the predictable recriminations from professional trade boosters, who have been quick to highlight the president’s tactical failings. "He's great at speeches, but not very good at retail politics" with individual members of Congress, the Peterson Institute’s Gary Hufbauer told The Wall Street Journal. George H.W. Bush’s trade representative, Carla Hills, added that "[t]rade has never been an easy sell. What it takes is leadership.” Lurking just below the surface of these criticisms is the hallowed memory of Bill Clinton, who famously arm-twisted a reluctant Congress into a series of landmark trade agreements.

What these criticisms miss is that the world has changed quite a bit since Clinton’s day. The problem with Obama’s approach isn’t that it departs from Clinton’s. It’s that it’s much too similar.

Back in the Clinton era, it was fair to describe the congressional wing of the Democratic Party as divided on trade. In this context, it made sense to appoint a corporate lawyer-typeMickey Kantor in those daysas the administration’s chief trade negotiator. A Kantor-esque appointment was a signal to both pro-business Democrats and the corporate sector that the administration cared deeply about eliminating trade barriers. In turn, moderate Democrats would support the deal. Corporate honchos would lean on Republicans to follow suit and fund a PR effort to boost its popularity.

These days, however, the party’s congressional wing is no longer really divided on trade. It’s overwhelmingly opposed to the Clinton approach. “Now the divide is between the executive and congressional branch,” says Scott Paul, a former aide to Michigan congressman David Bonior who now runs the Alliance for American Manufacturing. “Few people in the Democratic leadership think this is good idea.” Even Ron Wyden, the chairman on the Senate Finance committee, typically a forward operating base for the party’s free-traders,1 has expressed concern about the TPP and outright opposition to the main fast track bill pending in congress. To the extent there’s a divide in Congress, it’s actually among Republicans. Rank and file GOP voters are increasingly skeptical, according to polling Paul’s group has done.

In this world, it’s hard to see the advantage of putting trade policy in the hands of a pro-business technocrat. It’s not the business community that needs reassuring, after all. It’s skeptical elites, to say nothing of a growing majority of voters.

There are a variety of ways to provide these reassurances, ranging from the substantive to the political. Substantively, the challenge is to figure out which parts of our manufacturing sector are viable in a global economy, and then defend them relentlessly. This is much trickier than it sounds, since U.S. manufacturers are actually quite capable of competing in industries for which they appear to be ill-suited. In many cases, the source of their disadvantage isn’t any particular law of economics, but mercantilist and downright criminal practices on the part of our trading partners.

Politically, meanwhile, the challenge is to convey that the government considers this exercise a top priority and will approach it in good faith. In PR terms, the entire orientation of U.S. trade policy needs to suggest a healthy skepticism toward globalization rather than the whiff of boosterism it still gives off.

In fairness to Obama, his administration is closer to the healthy skeptic end of the spectrum than any administration in decades. During his first year in office, he slapped a tariff on Chinese tire imports after the government’s International Trade Commission (ITC) ruled that they were “disruptive” to the U.S. market. Obama renegotiated the Korean Trade Agreement he inherited from George W. Bush to make it much more favorable to U.S. car manufacturers. He has brought numerous trade enforcement actions against China and India“twice the rate of the previous administration,” Froman recently boasted to me by phone from Singapore. During the TPP negotiations, Obama’s envoys have targeted the massive subsidies that companies in countries like Vietnam effectively receive by virtue of being owned by the government. “We're crafting new obligations and have made extremely good progress,” Froman says. “We're seeking provisions with teeth, including the availability of trade sanctions.”

On the other hand, being more of a globalization-skeptic than your predecessors is not much of a feat if you happened to be elected president in 2008. (Just look at the Korean deal Bush inked, which was preposterously one-sided.) Obama’s enforcement actions often seem tepid (the ITC recommended 55% tariffs on Chinese tires; the administration went with 35%) and suspiciously timed (they have a knack for proliferating during election years and when the administration is trying to pass trade legislation in Congress).2 And while Froman says the right things about getting tough on state-owned companies abroad, we won’t where we stand until the final TPP agreement sees the light of day.

What we do know, based on leaked text of negotiations, is that U.S. officials are hard at work on priorities other than U.S. jobs. Many of them look like the priorities of the financial sector, as well as big energy, chemical, and pharmaceutical companies. For example, Froman’s team, like the U.S. trade reps that came before him, is pressing to make it harder for countries to restrict the flow of capital across their borders, regulations that helped insulate the likes of Malaysia and Chile from recent financial crises, but which are unpopular on Wall Street. The U.S. negotiators also favor provisions that would make it easier for companies to challenge a variety of financial, consumer, and environmental regulations in foreign countries, and which could help, say, European banks to chip away at Wall Street reform in this country.3 Froman made a point of saying last week that such criticisms of U.S. trade policy were 20 years out of date. And it's true that, relative to his predecessors, he has softened these sorts of demands.4 But the proposals he's pushing reflect the same basic model the U.S. government has employed for years. They're part of what kicked up such hard feelings around NAFTA in the 1990s.

And then there’s the matter of currency manipulationthat is, countries artificially depressing their own exchange rate to boost exportswhich is quite possibly the most pernicious way foreign countries gain advantage over Americans. Domestic manufacturers have spent years agitating to put safeguards against the practice into the trade agreements we sign. Most recently, the big automakers backed a provision that would suspend the benefits of TPP for a year if a member country manipulates its currency. The Obama administration has repeatedly resisted these ideas, arguing that it’s up to the Treasury secretary to police currency manipulation. Currency is a top priority for the President and the Treasury Department,” says Froman. “They have been working aggressively on this issue.” In fact, while the Obama Treasury has had some limited success nudging China to boost the value of its currency, it’s an issue the department has waded into rather meekly, and with great angst.

Even with this substantive baggage, the public face of U.S. trade policy could go a long way toward signaling an administration’s good faith. After all, Congress must frequently cast key voteslike on fast track authoritylong before the deals themselves are finalized, in which case all it has to go by is the administration’s word. But there’s little about Obama’s top trade officials that would give them much credibility among trade skeptics. Froman’s predecessor, Ron Kirk, had a disconcerting habit of suggesting that the decline of U.S. manufacturing jobs was desirable. Froman is more circumspect, but there’s not much in his backgroundchief of staff to Treasury Secretary Bob Rubin in the late ‘90s, later a Citigroup executivethat suggests a particular passion for manufacturing. In his previous Obama administration incarnation, Froman was a top White House official working on the so-called pivot to Asia, suggesting at the very least that his interest in trade has more to do with geopoliticslike containing Chinathan U.S. jobs.

Contrast Froman with, say, Ron Bloom, a former investment banker who spent years working for the United Steelworkers union, where he helped revive dozens of steel mills facing liquidation. Bloom joined the Obama administration in 2009 to help negotiate the auto bailout and then, for his troubles, was promoted to White House manufacturing czar, a position that afforded him remarkably little authority to go along with his lofty title. Had Obama appointed Bloom rather than Froman as his second trade representative, the administration would have had instant credibility on the left and within the manufacturing community. Someone like Bloom could have looked at Harry Reid with a straight face and assured him he wouldn’t regret approving fast track authority.

Of course, had Obama installed Bloom at USTR, neoliberal trade mau-mau-ers like Gary Hufbauer and Carla Hills would almost certainly have hyperventilated about looming protectionism. And their complaints would almost certainly have been nonsense. In an era of rising globalization agita, the strategy that maximizes your chances of expanding trade is the strategy that takes the skeptics’ anxieties most seriously. If only someone had informed the president.

Noam Scheiber is a senior editor at The New Republic. Follow @noamscheiber

Note: I added language clarifying that Froman continues to negotiate in hopes of making another push in Congress, and clarifying the nature of Wyden's opposition to fast-track, shortly after this piece was posted. 

1

The big exception is Daniel Patrick Moynihan, who opposed NAFTA as chairman under Clinton.

2

USTR insists that the timing is coincidental—that the trade actions run on their own schedule and that the agency brings them as soon as they’re ready.

3

Froman argues that the provisions, known as investor-state dispute settlement (ISDS), won't imperil financial reform because the jurisprudence for the ISDS process is all based on U.S. law. So a foreign company that brought a claim under the ISDS process, which is adjudicated by a tribunal of arbitrators, would have the same burden of proof as if it sued in U.S. courts. Nothing gained, nothing lost. This is technically true, but it's unclear that a tribunal would interpret and apply the law the same way as a U.S. court.

4

Unlike in the 1990s, trade agreements negotiated by the United States now allow other countries to restrict the flow of capital for "prudential" reasons--which is to say, if there's a direct threat to the stability of their banks. For example, the Korean trade agreement reads: "A party shall not be prevented from adopting or maintaining measures for prudential reasons including for the protection of investors, depositors, policyholders, or persons to whom a fiduciary duty is owed... Or to ensure the integrity or stability of the financial system." But, as page 36 of this Peterson Institute report explains, we still require our trading partners to allow capital to flow "freely and without delay" in other circumstance, even though the consensus in the economics profession, epitomized by a famous about-face at the International Monetary Fund, is that capital controls can be an important tool for managing a country's economy. 

 

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