Wednesday, September 16, 2009

Is Obama Mimicking George W. Bush on Trade?

. Wednesday, September 16, 2009

I'm a bit late to the party, I know (I've been busy), but apparently there's a trade skirmish going on that could escalate. I don't know... something about tires and chicken? Here's a bit of a recap: Ben Muse gives 11 reasons why this is bad, DeLong thinks Obama is doing something stupid, Emmanuel is practically gleeful here (and here and here), IELPB has had about 10 posts on the topic in the past half-week, and Drezner's freaking out.

That's just a slice of the running commentary, so what could I add to the discussion at this point? Maybe a bit of context. In 2001, during his first year in office, George W. Bush also raised tariffs in a similarly reckless and illegal way. Drezner noted this on his blog, but argued that this time it's different for two reasons:

1. Bush raised tariffs on a sector (steel); Obama raised tariffs on a country (China).

2. Bush didn't have general protectionist leanings, so it was never likely that widespread protectionism would be a feature of his regime; this is not true of Obama (or at least we don't know that it's true).

So why did Bush raise steel tariffs in 2001? He never wanted to, but doing so got Congress to give him fast-track negotiating authority in the Doha round of WTO talks. As Drezner notes, the Bush administration knew that the tariffs would be ruled against in the WTO, so they weren't actually having to compromise anything (and he should know; he was working in U.S. Treasury at the time). Instead, they were making an end-around Congress and public opinion. Pretty clever.

Why can't Obama do the same thing? Drezner says it's because he's more wedded to Big Labor than Bush was. Really? Big Labor is always going to vote for Obama against any Republican, while Bush knew that his re-election fight would be difficult, so appealing to voters in Rust Belt states could mean the difference between winning and losing. Like W.J. Clinton, Obama likely has more latitude than a Republican in a similar position would have; like W.J. Clinton, Obama could probably get more done on trade than any Republican facing an a Democratic Congress.

If he wants to. He may not, of course. I've expressed frustration at his lack of attention paid to trade so far, and I've previously tried to parse his mixed signals on trade. Supposedly he'll give a speech on trade on the 17th that could clarify things, but he hasn't been consistent on trade over the past few years, and I don't expect him to start now.

What I do think is that Obama very much values expert advice, and his approach to economic issues is mostly technocratic. Surely Summers and Geithner and Goolsbee are yelling into his ear on this. In fact, both Geithner and Goolsbee have been sent to reassure nervous trading partners before. And remember how Obama was for "Buy American" provisions in the stimulus bill before he was against them? He's been cagey on trade for awhile, and I think there's probably a reason for that: his supporters think that NAFTA was a mistake and that China is killing them. Obama doesn't share that belief, but he can't/won't say that (though he will hint at it). Especially not until something gets done on health care.

Which makes me think that there may be more to this than is immediately obvious. Perhaps Obama wants to signal to Big Labor that he's on their side, but do so in a way that doesn't handcuff him.

The wild card here is China. In 2001, the U.S. was taken to the WTO and smacked down by the Dispute Settlement Court. In fact, I think they were banking on that. This time, China started dispute settlement proceedings but didn't wait for the completion of that process; it retaliated immediately. Obama might not have been counting on that. But now Obama is facing more pressure to revoke the tariffs: those adversely affected by China's retaliatory tariffs, and those who generally prefer an open trading system (and/or don't want to anger China just now). In other words, Big Labor might be on his side, but Big Agriculture won't be.

In short, I'm not sure how this will play out just yet, but I don't expect a wide-ranging trade war between China and the U.S. (sorry Emmanuel). That's the M.A.D. of international trade, and there's just too much at stake for either side to push the button. Doesn't mean they won't butt heads or test each other from time to time, but a return to mercantilism just isn't on the table.

Is Obama Mimicking George W. Bush on Trade?




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