Obama’s First Trade Priority Is Helping Displaced U.S. Workers

But the outlook for pending free trade agreements remains murky at best.

By Andrew C. Schneider, Associate Editor, The Kiplinger Letter

December 17, 2008

Barack Obama and the 111th Congress will move quickly to expand Trade Adjustment Assistance (TAA), which provides help for workers displaced by trade agreements. It will most likely be included as part of a big economic stimulus plan that Democrats hope to pass in January. They'll enlarge TAA to cover service workers as well as manufacturing employees. In addition, they'll extend the benefits to those displaced by trade with countries that don't have free trade pacts with the U.S., such as China. And they'll beef up funding to states to pay for job training programs.

The TAA expansion largely reflects changes pushed in the current Congress by Senate Finance Committee Chairman Max Baucus (D-MT) and House Ways and Means Committee Chairman Charles Rangel (D-NY). Rangel's bill (H.R. 3920) passed the House of Representatives in October 2007. But the legislation stalled in the Senate after President Bush threatened to veto it, arguing that it would create an expensive new entitlement. Now the coast is clear. "Compared to what else is happening by way of fiscal stimulus, what Baucus wants is small potatoes," says Gary Hufbauer, a trade expert at the Peter G. Peterson Institute for International Economics.

But Obama won't reopen the North American Free Trade Agreement (NAFTA) or other ratified free trade pacts, as he suggested he might while campaigning for the Democratic nomination. Such moves would lead the U.S.' trade partners to present their own wish lists of changes to the treaties, which would almost certainly cause the pacts to unravel. At most, the new president will review existing agreements and try to negotiate for side agreements.

The outlook for the free trade agreements awaiting ratification remains murky. Democrats will balk at passing the South Korea-U.S. FTA without additional protocols to lower Korean nontariff barriers to U.S. autos, given Detroit's fragile health. Colombia stands a slightly better chance, but Bogotá will have to do more to convince the Democrats that it is punishing soldiers and paramilitary men tied to crimes against labor organizers.

Odds are that both agreements will pass eventually, for both political and economic reasons. A formal rejection of the FTAs at this stage would risk damaging relations with countries that are close U.S. allies in volatile regions of the world. Ratifying the agreement with South Korea would open up the largest new free trade area to the U.S. since NAFTA. Colombia already enjoys duty-free exports to the U.S. under the Andean Trade Promotion and Drug Eradication Act, so most of the benefits of the Colombia FTA would flow to U.S. exporters. All the same, it's unlikely that Congress will take up either bill until late 2009 or early 2010.

By contrast, the FTA with Panama will pass Congress next year with little problem. Congress had been reluctant to consider the Panama FTA as long as Pedro Miguel González Pinzón -- a fugitive from U.S. justice wanted for the murder of an American serviceman -- was serving as president of Panama's National Assembly. González left office at the end of August, but Democrats remained unwilling to hand Bush any victory on trade in the months leading up to the U.S. elections.

A fresh grant of trade promotion authority (TPA) will be a very low priority, a waste of political capital that the new White House will prefer to save for other fights. Obama and Congress will have far more urgent concerns to deal with first -- confirmation of the new Cabinet appointees, the big stimulus package, the Iraq and Afghanistan wars and health care reform, to name just a few. Moreover, Obama doesn't plan to introduce any new free trade agreements in his first term. In the unlikely event of a breakthrough in the Doha Round of World Trade Organization talks, he'd be able to muster enough congressional votes to win passage even without TPA.

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