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Jewish World Review Jan. 13, 2009 / 17 Teves 5769 Only Obama can rehabilitate trade By Jonathan Rauch
http://www.JewishWorldReview.com |
On New Year's Day, another do-or-die deadline in the international trade talks passed. Not that anything happened. Or that much of anyone noticed. Or was surprised. Or cared.
In November, leaders of the G-20 major economies announced they would "strive to reach an agreement this year" on issues stalling the Doha Round of world trade talks. In December, the head of the World Trade Organization announced that they had failed. Reported Agence France-Presse, "The United States and Brazil immediately began trading accusations over who was to blame
for the lack of a breakthrough, following a familiar pattern set by countries each time a meeting fails." Translation: yawn.
The Doha Round has been going on, and off and on and off, for seven years. The talks have crashed through so many deadlines and promises that their credibility is nearly shot. "The trade community here has underestimated how debilitating and devastating the last couple of years have been," says Claude Barfield, a trade expert at the American Enterprise Institute.
Just to get as far as they did, the Doha negotiators had to whittle down the agreement to something more like a twig than a tree trunk. One recent (sympathetic) analysis by Antoine Bouet and David Laborde of the International Food Policy Research Institute estimates that the Doha deal would increase world economic growth by one-tenth of 1 percent. That isn't nothing, but neither is it a difference that many people would notice.
Meanwhile, the American public has turned increasingly hostile to trade. President-elect Obama's campaign was at best ambivalent about it. The Democratic Party is divided by it.
Reading that rap sheet, Obama will be tempted to conclude that multilateral trade isn't worth the trouble. Why bother?
The answer is that Obama made three meta-promises in last year's campaign, promises that defined his candidacy, transcending specific plans and programs. First, revive the economy and raise middle-class incomes. Second, reduce the power of special interests. Third, reach across partisan and ideological lines to solve problems. If he knows what's good for him, he will do his best to keep those promises. Trade, provided it's framed correctly, serves all three.
In the short term, of course, Obama needs to focus on unfreezing credit and getting past the recession. But after that? He needs a long-term growth program, a post-bailout blueprint for American and global prosperity.
Sixteen years ago, when Bill Clinton entered office in the shadow of the 1991-92 recession, he realized he needed a long-term growth plan. Making one of the toughest calls of his presidency, he plumped for a politically controversial but economically farsighted deficit-reduction package. As the economy recovered and the budget swung into balance, the gamble paid off handsomely.
For Obama, who is in no position to tighten fiscal policy, trade liberalization is today's best analog to Clinton's gamble. "If Obama thinks that Doha could contribute to an economic recovery and expansion that will be in full flight as he's running for re-election, he'll do it," says Robert Shapiro, a Washington-based economic consultant and a veteran of the Clinton administration's Commerce Department. "Just like Bill Clinton raised taxes because he was convinced that would be the effect."
In 2007, Shapiro notes, almost one-third of everything produced in the world was exported across a border, up from less than one-fifth as recently as 1990. America, he adds, is one of the world's two most globalized countries (the other is China). Like it or not, globalization, meaning cross-border commerce, now drives the world's economic growth.
Access to emerging economies' markets may prove especially important if, as some observers fear, damaged balance sheets depress demand in the major developed countries for years rather than months. "When you're in serious trouble, having access to markets is everything," says former Rep. Jim Kolbe, R-Ariz., who is now a senior fellow at the German Marshall Fund of the United States. "Smoot-Hawley" — the notorious tariffs of the 1930s — "should tell us that."
Though previous trade agreements have picked much of the low-hanging fruit, many economically damaging subsidies and trade barriers remain. "Global elimination of all barriers to trade in goods and services would raise global income by $2 trillion and U.S. income by almost $500 billion," writes Robert Krol, an economist at California State University (Northridge), in a recent Cato Institute paper.
True, the Doha package comes nowhere near eliminating all trade barriers. It leaves whole sectors, notably services and investment, off the table. Nonetheless, for all its limitations, Doha's benefit-to-cost ratio is impressive. Last year, in a project called Copenhagen Consensus 2008, eight economists, including five Nobel laureates, drew up a list of the 30 most cost-effective solutions to world problems. Doha came in second, behind Vitamin A and zinc supplements for children, and far ahead of anything to do with global warming.
According to a Copenhagen Consensus paper by economists Kym Anderson and L. Alan Winters, the benefits of implementing Doha are anywhere from 17 to 80 times greater than the costs, depending on how you figure. "The net economic and social benefits of reducing most government subsidies and opening economies to trade are enormous relative to the costs of the adjustment," they conclude. If you want to stimulate long-term economic growth and productivity — Obama's meta-promise No. 1 — a global trade deal is a good way to do it.
Of course, trade creates losers. Some of them are the sorts of coddled corporations and favored lobbies that Obama has promised to dislodge. The long-term benefits of trade liberalization are as much political as economic: Reducing subsidies and trade barriers weakens entrenched interests. If you want to loosen the grip of special interests — Obama's meta-promise No. 2 — a multilateral trade deal is a good way to do it.
Others losers, however, are ordinary workers. Trade does not destroy jobs on net, but it does move jobs around. For many U.S. workers, job-training programs, unemployment compensation, and (especially) health insurance are too fragmented and inflexible. The health insurance system is especially perverse: Lose your job and you lose health coverage, just when you need it most.
Obama "cannot pass Doha without a package of proposals to help people compete better," Shapiro says. Nowadays, many free-marketeers have come to agree with him. For example, in a recent paper calling for new trade-liberalizing strategies, AEI's Philip I. Levy writes, "None of this will be possible unless American anxieties about trade are addressed through stronger programs for education, retraining, and a better social safety net." Those sound a lot like Obama's priorities.
With the Left worried about economic insecurity and the Right about sustaining free trade, a convergence is in sight. If you want to reach across partisan and ideological lines — Obama's meta-promise No. 3 — merging the international free-trade agenda with the domestic economic security agenda is a good way to do it.
Writing in the Financial Times, National Journal's Clive Crook argues that Obama can't realistically do much more about trade than try to keep a lid on protectionism. Perhaps. But it is possible to imagine a much more ambitious approach, one that both plays to Obama's strengths and, over time, strengthens him.
First, Obama would publicly announce that concluding the Doha Round is a goal for his first term (though not for his first year, when too much else is going on). "The deal is a do-able deal," says Rod Hunter, a senior fellow with the Hudson Institute and a former trade adviser in the Bush White House. "The question is whether Obama can marshal the political impetus for it."
Second, the president would make clear that the United States remains committed to trade liberalization at home and abroad, putting an end to his seeming ambivalence, much as Clinton did in embracing balanced-budget orthodoxy in 1993.
Third, he would couple trade liberalization, which conservatives want, with improvements in the safety net, which liberals want. And he would argue the case in tandem, integrating his domestic and international economic agendas as no previous president has quite managed to do.
Rehabilitating trade requires not just negotiating new agreements but also building a new consensus. Clinton began that work but was, shall we say, distracted. President Bush never tried, but then, in fairness, he was the wrong man for the job. "Half the ears were shut no matter what he said," Hunter says. For Obama, on the subject of trade, the world is all ears.
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JWR contributor Jonathan Rauch is a senior writer and columnist for National Journal. Comment by clicking here.
© 2008, Jonathan Rauch
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