Economics, International economy

Trade Policy Adrift

The U.S. trade agenda, embodied in three pending agreements, lurched forward yesterday. In recent weeks, it had run aground, wedged between Democrats who were skeptical of the agreements and Republicans who were skeptical of the sweeteners attached to those agreements to lure back the Democrats. How, one wondered, could the Obama administration craft a compromise that would gain enough support to move forward?

They took an approach that only an economist could love: they assumed an agreement and shoved off. The major sticking point had been the extent to which they would revive the expanded portions of the Trade Adjustment Assistance (TAA) program that had expired earlier this year. Democrats generally backed a full renewal of the program. A substantial group of Republicans wanted TAA left at its current, more modest levels. In the end, the administration roughly split the difference.

That was always the most likely outcome, but the hope was that it would emerge in a media spray, with all the major congressional players lining up behind the microphones to take turns praising the breakthrough. That was not how the week played out.

First, the top Democrat on the House Ways and Means Committee, Sander Levin (D-Michigan), held a press conference to announce his opposition to the free trade agreement with Colombia. He disliked the placement of a labor “action plan” outside the body of the agreement.

Then, the White House decided to stick its compromise TAA plan inside the legislation for the Korean agreement. This led Senate Minority Leader Mitch McConnell (R-Kentucky) to declare:

Speaking for myself, I’ve never voted against a trade agreement before. If the administration were to embed a Trade Adjustment Assistance into the Korea trade agreement I would be voting against it.

Senator Orrin Hatch (R-Utah), the ranking member of the critical Senate Finance Committee, said:

This highly partisan decision to include TAA in the South Korean FTA implementing bill risks support for this critical job-creating trade pact in the name of a welfare program of questionable benefit at a time when our nation is broke. This is a clear breach of Trade Promotion Authority and threatens the ability of American exporters and job creators who stand to benefit from the largest bilateral trade agreement in more than a decade. TAA should move through the Congress on its own merit and should stand up to rigorous Senate debate. President Obama should send up our pending trade agreements with Colombia, Panama, and Korea and allow for a clean vote.

In a statement of administrative action, the White House justified its approach:

The provisions extending (TAA) may be included in the bill because they are “necessary or appropriate” to implement the Agreement, as required by Trade Promotion Authority… previous trade agreement implementing bills enacted under Trade Promotion Authority, or “fast track,” have included similar trade-related provisions. For example, the NAFTA implementing bill included provisions to expand TAA benefits and make wholesale changes to U.S. customs law. As with TGAAA renewal, these provisions were not strictly required to implement the relevant trade agreement but addressed matters closely related to those agreements.

You know you’re in trouble when you’re citing NAFTA as an example of how to unify everyone in support of trade.

Could this be a crafty strategy to just please the majority party in each body, the Senate Democrats and House Republicans? There are reports that House Ways and Means Committee Chairman Dave Camp (D-Michigan) approved of the substance of the TAA approach. But a spokesman for House Speaker John Boehner yesterday wrote:

We’re pleased the President may finally send us the three job-creating trade agreements we’ve requested.  But we have long said that TAA – even this scaled-back version – should be dealt with separately from the trade agreements, and that is how we expect to proceed.

Nor do questions about the administration’s approach stop there. Trade experts Sallie James and Scott Lincicome have questioned the legality of some of the funding mechanisms included in the bill.

If this appears to be a slapdash solution, created in a rush, that’s because it is. When these agreements were first signed, back during the Bush administration, they would have given U.S. firms preferential access into these markets. Now, after years of dithering, the scramble is to avoid having U.S. firms disadvantaged in the markets. Our trading partners spent the intervening years negotiating agreements with trade rivals such as Europe and Canada. Some of those are about to come into force and the administration is racing to pass the U.S. versions to level the playing field.

The looming deadlines and the fractious politics may excuse some of the administration’s graceless approach, but not much. After a year and a half of doing little or nothing on trade, the administration announced its plan to move ahead with the Korea agreement one year ago. Since then, the only significant change in the political landscape was the Republican takeover of the House in the 2010 elections, a change which significantly eased the challenge of passing trade agreements. The administration has had a long time to solve this problem.

There are multiple dangers to a clumsy solution. First, it risks failure. That would send a disastrous signal around the world about the potential for U.S. trade leadership. Second, even if the three agreements squeak through after a bloody and divisive battle, it could be a Pyrrhic victory. It would offer little hope for significant future trade endeavors like the Trans-Pacific Partnership or an agreement at the World Trade Organization.

The U.S. trade agenda is now moving forward, but navigating amongst dangerous shoals. The perils and prospects will be taken up tomorrow at a live-streamed AEI session headlined by Senator Hatch, “Are We Falling Behind on Trade?” This will also feature Sallie James of Cato and Howard Rosen of the Peterson Institute, duking it out over TAA in the undercard.

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