What's Stalling U.S. Trade Policy
To help create more jobs, the U.S. needs to reduce its outsize trade deficit and promote more exports, but that isn't in the cards -- no matter how November's elections turn out.
Don't look for any dramatic new U.S. trade policy in 2013, no matter which party captures the White House and Congress in the November elections.
President Obama has made some modest gestures to bolster the U.S. trade picture, but he has yet to propose any sweeping new plans, and it’s unlikely that he’d be able to get them through Congress if he did. Meanwhile, Republican presidential candidates avoid talking about trade at all. Congress is gridlocked, with scant support for trade bills of any sort.
Indeed, there’s little on the drawing board that is both politically palatable and legal. Under global trade rules, Washington can’t impose harsher measures, such as subsidizing U.S. exports or taxing foreign imports. Setting a fixed value for the dollar wouldn’t violate trade rules, but would wreak havoc in financial markets.
Economists say that by far the best tonic for America’s trade ailments would be to bring the current 35% corporate tax rate -- a major factor in companies’ decisions to move their production abroad -- into line with the 25% average for other industrialized countries. But that’s difficult to do in the face of a huge budget deficit.
Another fix might be to use U.S. clout to breathe new life into the Doha Round -- dormant negotiations for a broad new global trade pact that would lower tariffs on industrial goods, limit worldwide subsidies for farm products and write new rules for services. But Democrats are dead set against granting the White House the needed negotiating power.
The last big steps to improve the nation’s trade posture came during the Reagan administration, which pushed down the value of the dollar, streamlined the tax system and deregulated key industries. Reagan also started a push for the landmark Uruguay Round global trade pact, which helped U.S. corporations gain access to foreign markets.
During the late 1990s and early 2000s, both parties followed lackluster trade policies. Although the Clinton administration pushed through the GOP-spawned North American Free Trade Agreement and helped get China into the World Trade Organization, it passed up opportunities to get Congress to renew “fast-track” trade negotiating authority. President George W. Bush started his first term by imposing quotas on steel imports, then quickly withdrew them in the face of opposition at home. He did little more in the trade arena than set up broad economic talks with China to keep a lid on bilateral trade disputes in the face of rising protectionist sentiment in Congress.
President Obama started out promoting more U.S. exports but never followed up with legislation to help do the job. He eventually completed and pushed through Congress the Bush-era trade pacts with South Korea, Colombia and Panama. All three are narrow in scope, however, and aren’t expected to yield much in new exports or jobs. His proposed Trans-Pacific Partnership, designed to reduce trade barriers with Asia, is still in flux, and probably wouldn’t begin to bear fruit until 2014 or later. And while the Interagency Trade Enforcement Center he unveiled last January is starting to press China and other trading partners to end unfair trade practices, it isn’t likely to produce significant results anytime soon.
The rest of Obama’s trade effort has been to impose narrow-interest protectionist measures, such as setting punitive tariffs on low-end tire imports. That won him political points with unions, but failed to create more jobs at home as he promised when he ordered the penalties. And he has sought to penalize U.S. firms that produce abroad.
The overall U.S. trade deficit narrowed a bit following the 2007-2008 recession, as imports plunged and, eventually, U.S. exports began to grow, though from a much smaller base and at a disappointing pace. Now, however, both imports and exports are expanding at more or less the same pace, and because imports are already so much larger than exports, the overall deficit has begun to widen again.
Reagan’s sweeping policies helped American companies do more business abroad and bolstered corporate balance sheets. But it’s becoming clear now that they did relatively little to encourage U.S. companies to keep production at home, and that’s where the jobs -- and the biggest benefits for the U.S. economy -- are.
The most promising sight on the horizon is that no matter who wins the presidency, the country is moving toward a consensus that it’s time to do more to spur exports and, possibly, to make the U.S. a better place for companies to come (or stay) and do business. Unfortunately, there’s little in the campaign to suggest that any new trade policies building on that consensus will emerge after Inauguration Day 2013.