In 2011, the United States’s sleepy free trade agenda finally got a shot of caffeine, but if the U.S. wants to seriously bolster its economy in 2012, policymakers ought to anchor their boats to the quay of an aggressive free trade agenda.
By signing deals with South Korea, Colombia, and Panama, the U.S. made good on half-decade-old promises to bring these nations into its free trade circle, and with Russia’s accession to the World Trade Organization (WTO), nearly all major nations are now part of the pro-free trade club. The gains from these moves are not insignificant; the free trade agreement with South Korea alone should generate almost 400,000 jobs and an extra $13 billion in exports.
But the U.S. has some serious problems with its trade agenda, and politicians should seek solutions to them sooner rather than later. The U.S. is no longer charting new waters in its trade promotion agenda by offering bilateral trade agreements to nations eager to gain broader access to U.S. markets, and the U.S. is certainly not leading on free trade questions of utmost international importance, such as water security or weapons trafficking.
The Obama administration’s greatest trade victories are the recently signed free trade agreements (FTAs), Russia’s accession to the WTO, and the anticipated Trans-Pacific Partnership, yet these victories ring a bit hollow. The three FTAs were all agreed upon under the Bush administration thanks to the incessant prodding of former U.S. Trade Representative Susan Schwab. By taking several years to sign them, Obama undermined his free trade credentials and did a disservice to American exporters and consumers.
So too with Russia’s accession to the WTO. The U.S. has still not repealed the Jackson-Vanik Amendment, the portion of U.S. law that prevents Congress from normalizing trade relations with Russia. Consequently, when Russian markets open to the world in the summer of 2012, the U.S. will be left behind, unable to offer more favorable trading terms and unlikely to receive favorable terms in exchange.
Meanwhile, the Trans-Pacific Partnership, which should have eliminated all tariffs between signatories by 2015, has yet to formalize agreements on some major facets of free trade, including technical barriers to market access, intellectual property agreements, and sanitation measures. The main cause of the delays has been the Obama administration’s unwillingness to put muscle behind the agreements until very recently. Indeed, many prudent free trade steps had been taken by early members like Chile, New Zealand, and Singapore, but then the U.S. got involved and hogtied negotiations in a web of international red tape.
A historically weak U.S. dollar has made the resurgence in U.S. manufacturing a bright spot in the cloudy U.S. economy, but even large-scale currency devaluation has not been enough to ignite an export boom because businesses have found the U.S. resolve for free trade to be lacking in more than a few respects. Producers like General Electric, Boeing, and Caterpillar have been forced to navigate a confusing regulatory system to get their products to foreign markets, and wheat producers have seen a drop in their exports to non-FTA nations as other wheat-producing countries have concluded trade agreements of their own with traditional markets.
To be sure, some blame lies with competitive mechanisms employed by other major nations to disrupt a rise in U.S. exports. China, for example, is notorious for its subsidies to domestic manufacturers, its disregard for intellectual property law, and its currency manipulations. These moves, and others like them, make it very difficult for U.S. companies to compete with their foreign counterparts. The solution to these problems, however, is not a retreat to isolationism and saber-rattling; rather, such problems are best thwarted through engagement that holds foreign governments accountable for their anti-market practices.
This has been the strategy of the International Trade Administration’s Office of Intellectual Property Rights, which over the past year has been involved in more than 60 cases of intellectual property right theft by foreigners. Forcing trade partners to comply with trade agreements, the office has been successful in reducing incidences of intellectual property theft by upping the ante for counterfeiters abroad.
To resuscitate the trade agenda, the Obama administration and Congress should approach trade with a sensible strategy that values small-scale victories as part of a broader agenda. Easy gains are available from eliminating all tariffs below 3 percent and adopting a uniform code for rules of origin with all our trading partners. Additionally, the U.S. ought to claim ownership of vital global trade issues like illicit weapons trafficking, capital flows, and sanitation guidelines. The U.S. should assist smaller, poorer nations in their accession to existing mechanisms like the WTO by offering favorable bilateral trade opportunities as templates for future integration.
With so much low-hanging fruit available as food for the economy, it’s hard to see why Congress and President Obama have not made a more concerted effort to advance the free trade agenda. Perhaps policymakers should add trade to their New Year’s resolutions.
Daniel Hanson is a researcher at the American Enterprise Institute. His research focuses on sovereign wealth management, trade policy, the euro crisis, and other topics of international economic interest.
