President Obama recently declared this week “World Trade Week.” His announcement was yet another hollow attempt to appear favorable towards free trade. Unfortunately, President Obama’s actions paint a gloomier picture. There are three pending free trade agreements (Colombia, Panama, and South Korea) already negotiated, waiting for congressional action. Yet the president has not pushed these agreements through Congress. Obama’s ambitious goal of doubling our nation’s exports will be quite difficult if he keeps to the sidelines on trade policy progress.
Read an op-ed by me and Brian McGraw in the National Review about the U.S.- Colombia Free Trade Agreement.
In Friday’s Christian Science Monitor, Howard LaFranchi discusses increasing tensions between the U.S. and Colombia over the pending free trade agreement. According to LaFranchi, Colombian Trade and Tourism Minister Luis Plata is worried about the U.S’s current trade agenda. Mr. Plata brought his concerns to Washington last week, meeting with the National Foreign Trade Council on Wednesday and the Office of the U.S. Trade Representative on Thursday.
In his meetings, Mr. Plata argued that the U.S. should act quickly to pass the Colombia FTA. He laid out three main points:
- U.S. exports to Colombia are falling.
- Neighbors in the hemisphere – from Canada to Brazil and Argentina – are happily taking up the slack.
- Once market share is lost, experience shows, it becomes difficult to regain.
House Majority Leader Steny Hoyer (D-MD) has said that pending free trade agreements with Colombia, Panama, and South Korea will likely NOT be voted on this year—despite the urging of some Republican leaders. According to the Associated Press,
Reps. Dave Camp and Kevin Brady, top Republicans on the Ways and Means Committee, said last month that “the best way to promote exports is to act on the pending trade agreements and open new markets in which we can sell American-made goods and services. The president has admitted these agreements could create over 250,000 American jobs, yet Democrats in Congress refuse to work on, let alone pass, a new trade agreement.”
The agreement with Colombia was signed by President Bush and has been in limbo since 2006. As millions of Americans struggle to provide for their families, President Obama and Congress have again and again neglected opportunities to make free trade agreements a priority.
Passing the three FTAs could help create American jobs while giving consumers access to more choices and inexpensive goods. U.S. Trade Representative Kirk and President Obama need to heed Minister Plata’s advice about the Colombia agreement. Moreover, President Obama needs to think seriously about the potential long-term consequences of holding America back from the closer relationships that free trade provides. The world is moving forward in globalized trade relations; the United States cannot afford to be left behind.
International trade lawyer and free trade blogger-libertarian, Scott Lincicome, outlines the ups and downs of President Obama’s stance on trade in yesterday’s Daily Caller.
Lincicome applauds the administration’s early free trade stance in spring 2009, but his tone quickly changes as he reviews more recent events. He claims that “[t]he White House abandoned overt free trade actions and speeches in order to secure needed health care votes from anti-trade Democrats.” Lincicome hits the nail on the head. It is clear that over the past year, the Obama administration has prioritized insider politics over the creation of sound trade policy.
Lincicome argues that Congress and the president need to pass pending free trade agreements, resolve current trade disputes with Mexico and Brazil, and pass the three pending free trade agreements, instead of focusing narrowly on the export only initiative (aka National Export Initiative, or NEI) which is currently floating around Capitol Hill. According to Lincicome, the NEI is “a one-sided, non-controversial program which seeks to expand US exports through a timid combination of margin-tweaks that most economists believe will have little effect on US trade flows.”
As noted last week, an export-only approach like the NEI ultimately hurts the U.S. and global economy. Read more about NEI here.
Cato Institute’s Dan Ikenson had a timely opinion piece in Friday’s Wall Street Journal. He deconstructs the popular argument that China’s “undervalued” currency is a significant cause of the U.S. trade deficit.
As Ikenson points out, U.S. consumers continue to purchase Chinese goods and will continue purchasing goods from China regardless of an “appreciating renminibi.” In other words, forcing China to appreciate its currency will not alleviate the U.S.-China trade deficit. Additionally, Ikenson asserts that if Congress imposes sanctions on China due to its questionable monetary policy, the U.S. economy will suffer. He writes:
..Between July 2005 and July 2008 the renminbi rose 21% against the dollar, to $.1464 from $.1208, where it had been pegged since 1997. But the trade deficit, according to the trade statistics compiled by the U.S. Census Bureau, nevertheless increased to $268 billion from $202 billion over that period.
Textbooks say that the Chinese should increase purchases of American products when the renminbi’s value increases against the dollar — and indeed they did by $28.4 billion. But exports to China were already increasing rapidly before the currency began to appreciate, rising by $19 billion between 2002 and 2005, according to the Census Bureau.
…U.S. imports from China between 2005 and 2008 actually increased by a whopping $94.3 billion, or 39%.
By focusing on undervalued Chinese currency, Congress ignores any viable concerns over U.S.-Chinese trade relations. These suggested sanctions will do little to address U.S. trade deficit with China and could quite easily hurt U.S. business and consumers by a potential U.S.-China trade war.
Trade policy that focuses only on exports while ignoring or taxing imports is likely to be counterproductive, but isn’t likely to be adopted by the U.S. The office of the U.S. Trade Representative (USTR) recently released the 2010 National Trade Estimate (NTE) report. NTE is an annual report that analyzes trade barriers over the past year and proposes potential actions for the coming year.
This year’s report endorses President Obama’s plan to focus on increasing exports while largely ignoring imports. When announcing the NTE findings to Congress this week, USTR Ambassador Ron Kirk said,
“The Obama Administration is following through on its commitment to call out and break down barriers to American exports worldwide. This year, we’ve gone beyond obligatory reporting to focus on some of the toughest hurdles America’s farmers, ranchers, manufacturers, and service providers face when they try to sell overseas. USTR will take the information in these new reports, as well as in the National Trade Estimate itself, and use all the tools that we have to get these markets open to American products.”
This is all well and good; but what about increasing imports? Every day, Americans enjoy the luxury of affordable products from around the globe. An increase in imports would greatly benefit the average American consumer through providing greater choice and lower prices for consumers, while encouraging competition and innovation, which leads to higher quality goods and services.
The Obama Administration is focused on removing the trade barriers that other countries have against U.S. exports. Yet American trade barriers against foreign imports are equally harmful to American businesses and consumers. In fact, our protectionist policies against imports can affect our long-term plans for American exports. Actions against China, for example, in relation to tire imports, may lead to retaliation. U.S. tariffs on imported ethanol and quotas for sugar imports don’t help the U.S. trade relationship with Brazil and other countries. Clearly, the U.S. wants the world to play fair with them, but also wants to keep its own protectionist measures up–even at the expense of the American people and the global economy.
Free trade agreements can allow individuals from nations involved in a trade pact to trade freely without the hassle and counterproductive measures of high tariffs and other restrictive barriers, which significantly hurt economies. Additionally, free trade may ease tensions between nations (militarily speaking) and even help deter terrorism.
Coincidentally, Brazil decided to do all of the above. Brazil as well as Argentina, Paraguay, and Uruguay (the Mercosur bloc) agreed to a free trade agreement with Israel, which will become the first non-Latin American member of Mercosur. Brazil believes trade with Israel will “swell” to $3 billion in the next five years from its current level of less than $1 billion.
Additionally, Brazil’s president, Luiz Inacio Lula da Silva, plans to visit Iran in May. This comes after a visit to Israel to discuss trade and peace in the region. President Lula amplified the peace and stability talk by saying, “…that he hopes he can serve as a peacemaker in the region.”
What does a free trade agreement have to do with peace in the region?
1. A strong economic relation between Brazil and Israel helps promotes stability due to the possibility of severe economic loss.
2. Brazil clearly wants peace, economic stimulation and prosperity to drive Israel and Iran away from potential conflict by visiting both nations with economics in mind.
3. Iran does not want to lose Brazil as an ally, and Israel will not want to lose Brazil as an economic trading partner, so Brazil may be able to play a stronger role in “brokering” better relations between the two countries.
Not only do free trade agreements enable open dialogue and cross-cultural exchange between nations, they also create new economic opportunities in the developing world. Perhaps the U.S. should take a look at free trade agreements with nations to promote not only economic growth but also liberty, prosperity, and peace as side effects.
Brazil’s March 8 announcement to place tariffs on many U.S. imports in the next 30 days is due to America’s irresponsible protectionist policy on cotton. The U.S. provides subsidies to U.S. cotton producers in order to compete on the global market with lower prices, which the WTO deemed unfair last year in the dispute dating back to 2002. Since then the U.S. has taken no steps to reduce cotton subsidies, and the WTO granted permission to Brazil to retaliate. Brazil’s retaliation includes huge tariffs on cotton (up to 100% from 6%-35%), cars (up to 50% from 35%) and other goods such as wheat up to 30% from 10%. Even though Brazil is not a large importer of U.S. goods, both U.S. and Brazilian consumers will suffer from rising prices, which harm consumers even more during poor economic times. Additionally, U.S. producers affected by the tariffs will lose market share in Brazil which ultimately means more layoffs in the U.S. Thank you, President Obama and U.S. Trade Representative Kirk for continuing protectionist policies that hurt U.S. consumers, U.S. business and U.S. employees, and harm developing countries’ cotton producers who can’t compete with heavily subsidized cotton growers.
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