Tag Archives: free trade

The Domestic Politics of the Trans-Pacific Partnership

President Obama’s free trade agenda suffered a setback yesterday after the Senate was unable to reach the 60 votes needed to close debate on legislation granting President Obama fast track negotiating authority. The bill, supported by the White House and Congressional Republicans, would have made approval of the Trans-Pacific Partnership—a free trade deal encompassing 14 countries and widely seen as a counterweight to Chinese influence—a foregone conclusion. But sharp divisions between President Obama and Congressional Democrats, including Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), scudded the motion.

At issue are concerns over the scope of the agreement and protections afforded for workers and the environment. Congressional Democrats, leery of the deal in light of what they see as a mixed record for NAFTA and other free trade agreements, are demanding increased protections. They are also Congressional Republicans oppose such measures, while the White House claims they are unnecessary.

What do you think? Would the Trans-Pacific Partnership be beneficial or detrimental to the US economy? Would you support measures proposed by Congressional Democrats to include increased protections for workers and the environment as a precondition for approving the new deal? Why?

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Fast Track Authority and Free Trade

The Trans-Pacific Partnership is a new trade deal that encompasses and accounts for 40 percent of the world’s economy. Proponents contend that the deal will increase US exports, drive down import costs, protect intellectual property rights, and establish minimum environmental and labor standards for participants. Opponents contend that the deal would undermine the influence of labor in the United States.

President Obama has sought to fast-track the new deal under a provision known as trade promotion authority. The move has created interesting alliances on both sides, with Congressional Republicans wanting to grant President Obama the authority. On the other side, liberal Democrats in Congress have found a partner in the Tea Party, promoting a populist message opposing the deal.

What do you think? What impact will the TPP have on the US economy? What are the benefits and the drawbacks? Should the deal be fast-tracked? Why?

Promoting Free Trade

 

Chinese Premier Li Keqiang (L, back) and Swiss President Ueli Maurer (R, back) attend a signing ceremony after their talks in Bern, Switzerland, May 24, 2013. (Xinhua/Ma Zhancheng)

Chinese Premier Li Keqiang (L, back) and Swiss President Ueli Maurer (R, back) attend a signing ceremony after their talks in Bern, Switzerland, May 24, 2013. (Xinhua/Ma Zhancheng)

China and Switzerland signed a bilateral free trade agreement on Friday, marking the first such agreement between China and a Western country. Trade flows between the two countries currently account for about $26 billion a year, mostly in watches, medicines, textiles, and dairy products.

Although the agreement must still be ratified by the Swiss parliament, the official signing ceremony took place during Chinese Preimier Li Keqiant’s visit to Switzerland last week. Li said that, “This free-trade deal is the first between China and a continental European economy, and the first with one of the 20 leading economies of the globe…This has huge meaning for global free-trade.”

The new agreement adds fuel to the discussion about the relative importance of multilateral versus bilateral trade agreements. When the World Trade Organization came into being in 1995, there was much celebration of its role in reducing global trade barriers. Now, almost 20 years later, the organization seems stuck in the past. It’s been unable to make progress on key issues like agricultural subsidies, and has not successfully concluded a round to talks since it was established…this despite promises to do so in Seattle (1999), Doha (2001), Cancún (2003), Geneva (2004), Paris (2005), Potsdam (2007), and so on. In the wake of its failure, countries seem more inclined to pursue regional and bilateral trade agreements instead.

The advantage of multilateral agreements is that they encourage the establishment of a more equal playing field and generally achieve a wider scope of liberalization. But they are difficult to successfully conclude, as the track record of the WTO suggests. Bilateral agreements, by contrast, permit countries to reach agreements and make progress on liberalizing international trade. But they are not without their critics.

In a 2011 speech celebrating the conclusion of the Korea-US Free Trade Agreement (KORUS), Secretary of State Hillary Clinton observed that, http://www.state.gov/secretary/rm/2011/07/169012.htm

“there is now a danger of creating a hodgepodge of inconsistent and partial bilateral agreements which may lower tariffs, but which also create new inefficiencies and dizzying complexities. A small electronics shop, for example, in the Philippines might import alarm clocks from China under one free trade agreement, calculators from Malaysia under another, and so on—each with its own obscure rules and mountains of paperwork—until it no longer even makes sense to take advantage of the trade agreements at all.”

Interestingly, Clinton called in the speech not for a return to the World Trade Organization or global negotiations, but to regional agreements like the Trans-Pacific Partnership.

More radical critiques of bilateral trade deals focus on the potential inequality between negotiating partners. According to its critics, the US Trade and Development Act (previously known as the African Growth and Opportunities Act, AGOA) was essentially a series of bilateral agreements between the United States and a number of developing countries across Africa that forced African countries to agree to develop stricter intellectual property systems than would otherwise have been required under the WTO agreement—and to refrain from criticizing US foreign policy—in exchange for lower tariffs on textile exports to the United States. By wielding its bilateral muscle, the United States was able to garner greater concessions from its trading partners than it might have been able to in a multilateral negotiation.

But as a result of the (ongoing) failure of the WTO, it seems likely that such bilateral and regional agreements are the wave of the future.

What do you think? Are multilateral trade agreements preferable to bilateral agreements? Take the poll or leave a comment below and let us know what you think.

Free Trade, Neo-Mercantilism, and the “Rules” of International Trade

President Obama shakes hands in the Oval Office with Xi Jinping, the current Vice President (and presumptive next President) of China.

President Obama welcomed Xi Jinping, China’s “president in waiting,” to the White House this week for a high profile visit.  Obama warned the visiting leader that China must play by the rules of international trade, a comment reflecting American concerns about Chinese currency manipulation, intellectual property transgressions, and other barriers to free trade.  But economic analyst Clyde Prestowitz questions the wisdom of Obama’s “lecture” in his latest blog post:

“It sounded right and fair and slightly tough as it was carefully crafted to do by top White House political advisers, and the president may even believe it. But he shouldn’t have said it.”

Why shouldn’t Obama have criticized China for not playing by the rules?  Prestowitz argues that there are no universally agreed upon rules for international trade; rather, there are (at least) two different games being played simultaneously, by different actors, with different sets of rules.  Some states embrace economic liberalism, or free-market capitalism, which emphasizes comparative advantage, free trade, and limited government intervention in economic affairs.  Others–particularly those who are not benefiting from the trend toward greater globalization and free trade–favor mercantilist policies, which emphasize national wealth and the protection of domestic industries from foreign competition through tariffs and other trade barriers.  Prestowitz spells out which parts of the world are playing each game: 

“The global economy is, in fact, sharply divided between those who are playing the free trade game and those who are playing some form of mercantilism. Of course, there is a spectrum of attitudes and policies, but roughly speaking the Anglo/American countries, North America, and parts of Europe are playing free trade. Most of Asia, much of South America, the Middle East, Germany and parts of Europe are playing neo-mercantilism. It’s like watching tennis players trying to play a game with football players. It doesn’t work, and insisting on playing by the rules doesn’t help, because both sets of teams are playing by the rules — of their game.”

What do you think?  Are America and Europe really playing by their own rules of free trade?  Is free trade or mercantilism (or some combination of the two) a better approach for achieving prosperity?  Does America have the right to tell China how to play the game of international trade?

A Coming Trade War With China?

The U.S. Congress is considering legislation that would retaliate against China for manipulating its currency to the detriment of U.S. jobs.

The United States runs a $273 billion annual trade deficit with China, meaning it imports much more than it exports to the rising Asian power.  The Economic Policy Institute (EPI) recently estimated that this U.S.-China trade deficit cost the U.S. 2.8 million jobs between 2001 and 2010, with all 50 U.S. states affected by job losses in the manufacturing and services sectors.  As EPI notes, “increases in U.S. exports tend to create jobs in the United States, and increases in imports tend to lead to job loss.  Thus, a growing trade deficit signifies growing job loss.”

American leaders have increasingly blamed this trade deficit on China’s unwillingness to “play fair” when it comes to trade by keeping its currency’s value artificially low relative to the dollar.  While a weak currency doesn’t sound like a good thing, it makes a country’s exports cheaper abroad and it makes other countries’ imports more expensive at home.  This means goods and services produced in China are more competitive both in China and abroad, which creates jobs and economic growth in China and harms competing countries’ economic prospects.

In retaliation for China’s currency manipulation, the United States Congress is now considering legislation that would impose tariffs (essentially a tax) on Chinese imports.  China has claimed that such action would violate the rules of the World Trade Organization, which focuses on lowering trade barriers worldwide, but Congressional supporters of the legislation dispute that.  Proponents claim these steps could ultimately create up to 2 million American jobs.  The Senate is in favor of the bill but House leaders have blasted it as “dangerous” and President Obama appears unenthusiastic but noncommittal.  For its part, China has warned that such action could lead to a trade war, which would not be good for America’s economy.  In  New York Times editorial last week noted economist Paul Krugman downplayed the risks of a trade war:

“And the reality of the unemployment disaster is also my answer to those who warn that getting tough with China might unleash a trade war or damage world commercial diplomacy. Those are real risks, although I think they’re exaggerated. But they need to be set against the fact — not the mere possibility — that high unemployment is inflicting tremendous cumulative damage as we speak.”

What do you think?  Should the United States get tough on China for its currency manipulation?  Why is President Obama hesitant to join his fellow Democrats in supporting this legislation?  What will be the economic and political consequences if the U.S. imposes tariffs on Chinese imports?

Five Stories You Might Have Missed

It’s been an interesting week for the U.S. economy. According to figures released on Thursday, the U.S. trade deficit jumped by 16.3 percent to $32 billion in June, a figure sharply higher than the $27 billion that had been forecast. The dramatic increase in imports was fueled by the “Cash for Clunkers” program, which led to a dramatic increase in auto imports. Meanwhile, the Commerce Department reported that the poverty rate had increased from 12.5 percent in 2007 to 13.2 percent in 2008. The poverty rate, which is defined as the number of people with an annual income of less than $11,200 (or less than $22,000 for a family of four), increased as a result of the global economic downturn. Home foreclosures also remain near their record high level. The troubled status of the U.S. economy led the Federal Reserve to indicate that it would be unlikely to raise interest rates in the first half of next year.

In news from outside the U.S. economy last week:

1. A trade dispute between the United States and China may be headed to the World Trade Organization for resolution. The United States last week imposed a new duty on tires manufactured in China, less than one week after it also imposed higher tariffs on Chinese steel piping. A spokesperson for the Chinese government condemned the move as protectionism, warning that “a chain reaction of trade protectionist measures that could slow the current pace of revival in the world economy.” Observers fear that the Chinese could respond with higher tariffs on U.S. agricultural and automotive exports, potentially sparking a trade war. But in an interesting editorial in the Financial Times, Clyde Prestowiz argued that the imposition of higher tariffs on Chinese exports to the Untied States could potentially help the push for free trade.

2. With the German election just a couple of weeks away, campaigning is in full force, and observers are already working through the numerous possible coalition arrangements. But in perhaps the most interesting development to date, German Finance Minister Peer Steinbrück last week called for the imposition of a new global tax on international financial transaction, the proceeds of which would be used to repay governments for the cost of fiscal stimulus packages and bank rescue operations. While not dismissing the idea out of hand, German Chancellor Angela Merkel called the proposal “electioneering.” Steinbrück’s call follows a similar proposal made by the Chair of the British Financial Services Authority, Lord Turner, and could make for interesting discussions at the upcoming G20 summit.

3. The counting process in the Afghan elections continues to drag on. Although incumbent President Hamid Karzai now has enough votes to win the disputed presidential election outright, according to the most recent results of the Independent Election Commission, widespread irregularities have led to calls for partial recounts. On Sunday, the IEC agreed to move forward with discussions on a recount, but it stopped short of spelling out precisely what votes would or would not be included. The Electoral Complains Commission, a body established by the United Nations to observe elections and investigate allegations of fraud, noted “clear and convincing” evidence of fraud and vote rigging in southern provinces which went heavily towards Karzai.

4. The first high-level contact between the government of Zimbabwe and the west took place on Sunday, as the European Union’s Commissioner for Humanitarian Aid and Development and the Swedish Prime Minister (who also holds the European Union’s rotating presidency) met with representatives of the Zimbabwean government in Harare. The meeting is the first high-level contact since the European Union imposed sanctions against Zimbabwe in 2002. While the European Union delegation remained noncommittal regarding the future direction of contact with the Zimbabwean government, stating only that “We’re entering a new phase. The [power-sharing agreement in Zimbabwe] was an important step forward, but much more needs to be done. The key to re-engagement is the full implementation of the political agreement.” The status of the power sharing arrangement in Zimbabwe remains uncertain, as President Robert Mugabe and his rival, Prime Minister Morgan Tsvangirai, continue to struggle over the distribution of political authority within the country.

5. The government of Guatemala last week declared a “state of calamity” in response to the widespread hunger gripping the country. The World Food Programme estimated that the country would require an immediate shipment of 20 tons of food the worst affected areas in order to stave off starvation. Alvar Colom, Guatemala’s president, said that global climate change was affecting the El Niño, causing a massive drought in the northeastern portion of the country. But Colom was also critical of the high level of inequality in the country, observing that “There is food, but those who go hungry have no money to buy it.” Critics also note that poorly defined land rights, narcoviolence, and alleged corruption have also undermined food production. According to the World Food Programme, half of all children under five in Guatemala suffer from malnutrition.

And in a bonus story for this week:

6. After more than three months since the general election, the political situation in Lebanon remains cloudy. On Thursday, Saad Hariri, the leader of Lebanon’s pro-Western majority, resigned as prime minister designee, despite performing well-above expectations in June’s elections. According to Hariri, the country’s parliamentary minority blocked efforts to develop a coalition government, leaving the country in a period of political uncertainty.

Five Stories You Might Have Missed

President-elect Barack Obama is moving forward with his transition.  According to most observers, he’s been meticulous in his vetting but has taken a pragmatic rather than partisan approach in selecting his cabinet.  Many of the most important positions have not yet been filled, but speculation is that Tim Geithner will be named Treasury Secretary and Hillary Clinton will be named to State.  A number of names have also been floated for other key positions in the administration.

Here’s five stories you might have missed during the extensive speculation about Obama’s presidency:

1.  The French left appears to be in disarray after Saturday’s leadership contestMartine Aubry narrowly won the contest fort the position, but Segolene Royal, the party’s candidate in the last presidential election, refused to concede defeat and demanded an immediate revote.  Observers fear that the leadership contest could result in the collapse of the French Socialist party.

2.  The increase in piracy off the coast of Somalia is having a dramatic impact on global trade.  Last week, pirates seized a Saudi oil supertanker carrying an estimated $100 million worth of crude oil.  The attack was a high-profile illustration of the dangers associated with shipping near Somali waters.  But Somalia is located along the Suez-canal transit path, one of the world’s busiest canals and part of a key shipping route between Europe, the Middle East, and Asia.  Shipping companies are now re-routing traffic around the Cape of Good Hope in Southern Africa to avoid the pirate infested water, adding to the cost of shipping.

3.  President Bush and President-elect Obama advanced competing economic plans this week.  President Bush appealed to the global community to embrace free trade, expressing his disappointment in Congress its refusal to approve new free trade agreements with Colombia, Panama, and South Korea before adjourning.  President-elect Obama announced his intention to develop a new public works program, echoing Franklin Roosevelt’s New Deal program which helped to bring the United States out of the Great Depression.  The program would focus on job creation, particularly in the areas of construction and the green economy.

4.  The status of forces agreement between the United States and Iraqi signed last week faced its first real challenges, as thousands of protestors backed by Shia cleric Moqtada al-Sadr took to the streets on Friday in protest.  The rally of at least 10,000 peple demanded the immediate withdrawal of American forces from Iraq.  However, al-Sadr’s group does not appear to have the ability to defeat the agreement. 

5.  Local elections on Sunday in Venezuela are projected to presenet a challenge to incumbent president Hugo Chavez.  The president’s party rode a tidal wave of support in 2004, when it won all but two governorships in the country.  But opinion polls suggest he could lose between six and nine seats, undermining the president’s ability to deepen his revolutionary transformation of Venezuela.