Lawrence J.

Haas

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January 20, 2009

Obama Needs a Narrative on Free Trade

No two names are more closely associated with misguided economic policy than Sen. Reed Smoot and Rep. Willis C. Hawley, authors of the protectionist Smoot-Hawley Tariff Act of 1930, which helped convert a deep downturn into the Great Depression.

Raising tariffs on more than 20,000 imported goods, the law prompted other nations to retaliate against U.S. goods, cutting U.S. trade by more than half. Closing markets for U.S. goods, Smoot-Hawley helped drive unemployment from 8 percent when it was passed to 25 percent in 1933.

More than 75 years later, President Obama and a Democratic Congress are pushing a huge package of tax cuts and spending increases to provide the necessary fiscal stimulus to address what’s widely considered the most serious economic downturn since the Great Depression.

That may be necessary, but it’s hardly a sufficient response to our economic woes. The new Democratic majority should focus as much attention on the dangerous state of global trade, in which the United States and other nations are retrenching at a particularly precarious time.

Specifically, President Obama should use his extraordinary communications skills to rebuild a national consensus for expanded trade. That will not only help jumpstart the economy, it also will help him fulfill his pledge to restore American leadership across the globe.

The case for expanded trade is straightforward. Trade opens markets abroad, providing more opportunities for American businesses to sell their goods, thus creating high-paying jobs at home.

“Our country is $1 trillion per year richer as a result of its integration with the global trading system over the past half century,” the bipartisan Trade Policy Study Group wrote in a December report to the new president and Congress. In a $14 trillion economy, that’s not small change.

But in a downturn, anti-trade sentiments grow. Americans, seeking to protect their jobs, pressure lawmakers to create barriers to competition. The same occurs abroad, making the downturn worse.

Trade is already shrinking around the world due to the weak economy. The World Bank predicts that global trade will fall 2.1 percent this year, marking the steepest slide since World War II.

Signs of protectionism abound. The Doha Round of global trade talks remains moribund. Western and developing nations are deadlocked over barriers to trade in agriculture, with the former unwilling to force their farmers to compete more fully with those of the latter.

Consequently, the United States and other nations have cut scores of regional or bilateral trade deals, with more than 400 now in place. By balkanizing global trade, such deals raise new obstacles to a global agreement and threaten the authority of the World Trade Organization.

Meeting in November, leaders of the world’s largest economic powers agreed they must avoid protectionist steps that would further threaten the global economy. They are acting otherwise, however.

After that meeting, Russia announced that it would raise duties on imports, including cars. In addition, Chinese President Hu Jintao warned that other nations may take similar steps.

U.S. efforts so far to jumpstart its own economy only nourish those sentiments. What we view as vital efforts to bolster our financial and auto sectors look, from abroad, like old-fashioned protectionism.

Meanwhile, the president’s fast-track authority to speed trade deals through Congress lapsed in 2007, and Democrats seem disinclined to restore it any time soon. Both Obama and his opponent in the Democratic primaries, Hillary Clinton, cast doubt on the virtues of free trade, promising to unilaterally reopen the North American Free Trade Agreement (though Obama has since backed away from that pledge).

Thus, Obama assumes office in the face of a growing protectionist tide at home and abroad. To reassure the world of his free-trade intentions, the new president should call for a successful conclusion for Doha and urge Congress to give him the fast-track authority that he will need.

But the challenge goes beyond trade negotiations. Obama must craft a new narrative of free trade, one that convinces Americans that the path to economic prosperity lies with more trade, not less.

For his narrative to be convincing, his trade-related agenda must be broad. Obama must address the short-term dislocation that trade can generate by pushing hard for universal health care coverage as well as more comprehensive trade adjustment assistance and unemployment compensation.

The Spanish philosopher George Santayana warned that “those who cannot remember the past are condemned to repeat it.” When it comes to trade, that warning could not be timelier.

© 2009 North Star Writers Group. May not be republished without permission.

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