A trade fix for Obama's stimulus
He can't afford to equivocate on free trade. US exports can help end this recession.
The last thing this US recession needs is a wall of trade barriers in the name of protecting jobs. It's unclear, though, if Barack Obama, in his early meetings with leaders of Mexico and Canada, will try to "amend" NAFTA, as he promises. If anything, the economy needs more trade, not less.
Mr. Obama's package of economic incentives, or "stimulus," won't ensure a strong recovery. It may only ease the recession. The best locomotive for job creation lies in US exports, which requires the incoming president to end his equivocal stance on trade – reflected in his cabinet nominees. He can start by leaving the North American Free Trade Agreement alone.
A third of everything produced in the world is now traded across borders, up from one-fifth two decades ago. More nations rely on trade than ever, reflected in a fourfold explosion of open-trade agreements during the same period.
Such economic reality, however, is easily forgotten in many countries when domestic industries, such as Detroit carmakers, ask for handouts or import tariffs during a recession, suggesting they've lost their edge against foreign brands.
In China, India, Europe, and many other places, leaders are scrambling to protect or boost industries with trade-distorting moves. It is as if a key lesson of the Great Depression – which was prolonged by protectionist steps such as America's Smoot-Hawley law – are simply being ignored.
Obama's few provisions on trade in his plan reflect mainly the interests of unions and industries that don't want to face foreign competition. Besides changing NAFTA in some vague "fair trade" way, Obama would force poor nations to raise wages if they want a trade pact with the US. He would use taxpayer money to subsidize companies that keep jobs in the US rather than abroad. The subtle message: Americans aren't innovative and productive enough. Let's live in a gated economy.
Such steps have consequences. Other nations will take similar moves, often out of reprisal, creating a self-fulfilling downward spiral in trade. That will hurt the leading trade nation – the US. Obama's trade stance reflects that feeling of reprisal rather than the long history of American leadership in opening borders to the flow of goods and services.
The worthy part of Obama's trade agenda lies in the beefing up of federal help for laid-off workers whose US employers can't compete globally. He would increase spending on a range of "transition" programs, such as retraining for skills in more competitive industries.
Without a US leader pushing for free trade, the world will slip back to protectionist ways. Bill Clinton recognized that by pushing NAFTA and the World Trade Organization. Obama now needs to push the bilateral trade pacts still pending in Congress, call for a conclusion of the so-called Doha round of global trade talks, and persuade China to stop subsidizing its exports by manipulating its currency. Congress also must renew presidential authority to negotiate trade pacts.
The US will emerge sooner from recession if its export businesses don't face import barriers in other nations and if American workers can move faster into competitive industries. Should that be the centerpiece of Obama's plan?