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Topic: free trade

On Free Trade, Was Obama Looking for a Way Out?

Last week, I wrote about a particular bind President Obama had gotten himself into over his expansion of executive authority. Because he had established such a robust record of flouting duly-passed legislation and usurping congressional authority, not even Democrats in Congress trusted him to follow the law. This wasn’t a problem on many issues, because the president and Democrats in Congress agree on so much and congressional Democrats made it clear they believe the ends always justify the means when it comes to progressive rule making.

But it would be a problem on trade, because there the president wanted what’s known as fast-track authority to negotiate a trade deal that Congress could not amend. Democrats are generally opposed to trade despite the broad consensus on its economic benefits, so they wouldn’t easily fork over their authority to the president. Despite Obama’s plea in the State of the Union for the trade authority, Harry Reid immediately confirmed that no, Democrats wouldn’t give Obama free rein on trade. But it’s unclear just how much of a rebuke to the president this really is.

News reports took the basic outlines of the story at face value: Obama wanted trade deals, Reid said no, so this is a blow to the president’s economic agenda. But it’s not so plain. Yesterday Politico reported that Reid went to the White House for a long meeting with the president–and trade didn’t even come up:

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Last week, I wrote about a particular bind President Obama had gotten himself into over his expansion of executive authority. Because he had established such a robust record of flouting duly-passed legislation and usurping congressional authority, not even Democrats in Congress trusted him to follow the law. This wasn’t a problem on many issues, because the president and Democrats in Congress agree on so much and congressional Democrats made it clear they believe the ends always justify the means when it comes to progressive rule making.

But it would be a problem on trade, because there the president wanted what’s known as fast-track authority to negotiate a trade deal that Congress could not amend. Democrats are generally opposed to trade despite the broad consensus on its economic benefits, so they wouldn’t easily fork over their authority to the president. Despite Obama’s plea in the State of the Union for the trade authority, Harry Reid immediately confirmed that no, Democrats wouldn’t give Obama free rein on trade. But it’s unclear just how much of a rebuke to the president this really is.

News reports took the basic outlines of the story at face value: Obama wanted trade deals, Reid said no, so this is a blow to the president’s economic agenda. But it’s not so plain. Yesterday Politico reported that Reid went to the White House for a long meeting with the president–and trade didn’t even come up:

The majority leader returned to the Capitol about 75 minutes after a scheduled 2:30 p.m. meeting with the president and told reporters his opposition to fast-tracking trade pacts through Congress was not broached during his huddle with Obama.

“We’re on the same page with everything,” Reid said, rejecting a reporter’s question on whether the Democratic leader is in Obama’s “doghouse” after voicing disapproval of the trade legislation.

Asked whether they discussed trade, Reid curtly replied “no.”

So just how important does the president consider free trade–an economic boon but which unions don’t love–to his agenda if he won’t even broach the subject with Reid? A clue can probably be found in past coverage of Obama administration trade deals, which tend to embrace the same contradictions.

Take, for example, this October 2011 Washington Post story on the passage of free-trade agreements with Colombia, South Korea, and Panama. The headline is: “Obama gets win as Congress passes free-trade agreements,” and the story tells us that “The South Korea deal has the potential to create as many as 280,000 American jobs” and is “widely hailed as the most consequential trade pact since the North American Free Trade Agreement was ratified in 1994.”

But later on in the story we get some more information about why the deals were signed nearly three years into Obama’s term:

The pacts were first negotiated under President George W. Bush but were updated by Obama to include more guarantees for labor and human rights and environmental protections. The pacts were recently held up in a dispute between Obama and congressional Republicans over renewing the worker assistance program.

During Obama’s bid for the Democratic presidential nomination, he tended to underscore the risks that free trade posed for U.S. workers and the environment rather than potential benefits.

So Obama really isn’t very high on free trade and campaigned against it. George W. Bush did the work of putting together the deals and the Democrats stalled it for years, finally conceding when Obama realized he was “facing a tough bid for reelection with unemployment stuck at 9.1 percent.”

Obama is, in fact, no fan of free trade. But the benefits are well known across the board. So a perfect situation for Obama is to have complete authority over the deals so he can better choose who to protect and which companies and industries to favor without getting a bipartisan deal in Congress that would be more sensible and economically beneficial but less to Obama’s liking.

This is what he’s asking for now, and what he was denied. He doesn’t seem too upset about it, probably because he isn’t. It’s possible that the president has decided that now, unlike with numerous controversial bills, he’s just going to let Harry Reid run the show. But that would be a change of pace for a president who thinks Congress is mostly cosmetic, a passé throwback to a time before the Lightbringer arrived.

And it’s unlikely. If Obama really wanted free trade he would press on, involving Congress grudgingly but elevating free trade over his own absolute power. It’s possible, then, that when Obama doesn’t treat free trade as a priority for him it’s because it isn’t.

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Obama Still Needs Congress

“Sure, economists disagree among themselves about a number of public policy issues, but not about the desirability of free trade,” Cato’s Daniel Griswold wrote in 2009. Griswold was remarking on a survey of economists that gave further credence to the existence of a solid consensus on the benefits of free trade. That consensus, along with basic principles of economic liberty, has buttressed conservative and libertarian support to the point where the right is broadly pro-trade.

The left isn’t, in part because unions support protectionist trade barriers and liberals can’t resist the chance to tax something. That puts President Obama in a bind: he’s somewhere between congressional Democrats and Republicans on trade, so he wants a new trade deal but doesn’t want it subjected to Republican amendments or a Democratic veto. What he wants, then, is Trade Promotion Authority, also known as fast-track powers to strike a trade deal that would be ratified by Congress but not subject to amendment.

In this, he is obviously dependent on Republicans, since they are more likely to want a trade deal with either our European or Pacific allies. But supporting the president’s trade authority isn’t the same thing as supporting free trade. Normally, Obama would appear to have the upper hand: the more serious the reservations Democrats have about his trade plans, the more beneficial Republicans might see such a trade deal. In that, divided government and the two parties’ gap in support for trade would seem to work in Obama’s favor. But what if Democrats and Republicans both have the same concerns?

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“Sure, economists disagree among themselves about a number of public policy issues, but not about the desirability of free trade,” Cato’s Daniel Griswold wrote in 2009. Griswold was remarking on a survey of economists that gave further credence to the existence of a solid consensus on the benefits of free trade. That consensus, along with basic principles of economic liberty, has buttressed conservative and libertarian support to the point where the right is broadly pro-trade.

The left isn’t, in part because unions support protectionist trade barriers and liberals can’t resist the chance to tax something. That puts President Obama in a bind: he’s somewhere between congressional Democrats and Republicans on trade, so he wants a new trade deal but doesn’t want it subjected to Republican amendments or a Democratic veto. What he wants, then, is Trade Promotion Authority, also known as fast-track powers to strike a trade deal that would be ratified by Congress but not subject to amendment.

In this, he is obviously dependent on Republicans, since they are more likely to want a trade deal with either our European or Pacific allies. But supporting the president’s trade authority isn’t the same thing as supporting free trade. Normally, Obama would appear to have the upper hand: the more serious the reservations Democrats have about his trade plans, the more beneficial Republicans might see such a trade deal. In that, divided government and the two parties’ gap in support for trade would seem to work in Obama’s favor. But what if Democrats and Republicans both have the same concerns?

That is where the president has found himself on the issue as of late, and it’s a mostly ignored but somewhat fascinating consequence of Obama’s obsession with usurping Congress’s authority. At the Weekly Standard, Irwin Stelzer explains:

Start with the particular president who is requesting this authority. He is no George W. Bush, to whom Congress granted such authority. President Obama has made it clear that he will enforce those parts of any legislation or treaty that suit him, de facto amend legislation without seeking congressional approval, and write regulations that order nonenforcement of laws he does not like. Congress refused to pass his Dream Act, so he ordered the authorities to treat illegal aliens as if it had; enforcement of Obamacare’s employer mandate at the date specified in the law became inconvenient, so he unilaterally postponed it; he has decided not to enforce the federal law against the sale of marijuana. There’s more, but you get the idea.

It is therefore not unreasonable to suppose that a provision in one of these trade pacts that benefits some industry or company that later fails to toe the presidential line or pay financial obeisance to Democratic campaign committees will disappear in a haze of bureaucratic rulings. In short, whatever the theoretical benefits of free trade, they must be weighed against increasing this president’s ability to exercise even more extralegal power over American businesses. One example: The Asia deal might include a concession from Japan to ease imports of made-in-America vehicles. It is not beyond imagining that the president will interpret that to apply only to the green vehicles of which he is so fond.

The discussion about the president’s plans to announce in his State of the Union address that he will continue taking executive actions in lieu of recognizing the existence of Congress has, appropriately, centered on the legality of the proposed actions. That is, can the president do that?

Another interesting question, and one raised by Stelzer’s piece, is: even if the president can take such action, should he? We often speak about the president’s executive actions as if the only downside to them is if they get overturned later on by the courts. But the trade conundrum in which the president finds himself suggests there’s another possible downside: neither party trusts him to follow the law.

This is a damaging assessment, and it is one that is generally independent of public opinion. And that is potentially more of an obstacle to Obama anyway. He is no longer running for reelection, so public support only gets him so far. And there are only so many actions the president can take on his own. At yesterday’s White House briefing, Jay Carney said the president would work with Congress where he can, and do the rest on his own: “this is not an either-or proposition. It’s a both-and.” Congress, Democrats and Republicans alike, don’t seem to agree.

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Absent in Two Places at Once

While President Obama was forced to remain in Washington so he could make periodic announcements that, like General Franco, he is still not negotiating, the meeting of the heads of state of the Trans-Pacific Partnership proceeded in Bali, Indonesia without him. Today a “senior administration official” on the trip held a special background briefing, telling reporters about the “very productive” TPP meeting. The SAO reported that:

“You had virtually all the leaders there. President Humala had to leave early and the Sultan of Brunei had to leave early. But otherwise you had all the leaders there. Secretary Kerry served as the head of – took the President’s place and played a very important role in the meeting both in terms of presenting the U.S. perspective but also in helping to lead the discussion with Prime Minister Key of New Zealand. … [W]e’ve been making a lot of progress … we’ve really been moving the ball forward …”

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While President Obama was forced to remain in Washington so he could make periodic announcements that, like General Franco, he is still not negotiating, the meeting of the heads of state of the Trans-Pacific Partnership proceeded in Bali, Indonesia without him. Today a “senior administration official” on the trip held a special background briefing, telling reporters about the “very productive” TPP meeting. The SAO reported that:

“You had virtually all the leaders there. President Humala had to leave early and the Sultan of Brunei had to leave early. But otherwise you had all the leaders there. Secretary Kerry served as the head of – took the President’s place and played a very important role in the meeting both in terms of presenting the U.S. perspective but also in helping to lead the discussion with Prime Minister Key of New Zealand. … [W]e’ve been making a lot of progress … we’ve really been moving the ball forward …”

That produced this colloquy, regarding the impact of the absence of the U.S. president:

QUESTION: How much of the meeting today – I mean, do you think anything was lacking because the President wasn’t there? … [W]ould you have made more progress on something if the President had been there?

SENIOR ADMINISTRATION OFFICIAL: Certainly it was regrettable that he wasn’t able to be there, and – but we were very fortunate to have Secretary Kerry serving in his place. And I think we were able to maintain the momentum of this last week’s set of meetings, together with the other leaders who are similarly focused on doing so, as we are.

In other words, no.

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The Missing Pivot

So much for the vaunted “Pacific pivot.” When Barack Obama came into office, he vowed to reverse the Bush administration’s focus on the Middle East by “rebalancing” toward East Asia and the looming menace of China. The argument of the incoming administration was that the previous administration had lost sight of the bigger strategic realities as a result of the post-9/11 aftermath.

It turns out it’s not so easy to disengage from the Middle East–or to double down on the Far East. Look at what happened this weekend, or rather what didn’t happen.

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So much for the vaunted “Pacific pivot.” When Barack Obama came into office, he vowed to reverse the Bush administration’s focus on the Middle East by “rebalancing” toward East Asia and the looming menace of China. The argument of the incoming administration was that the previous administration had lost sight of the bigger strategic realities as a result of the post-9/11 aftermath.

It turns out it’s not so easy to disengage from the Middle East–or to double down on the Far East. Look at what happened this weekend, or rather what didn’t happen.

On the one hand, Obama ordered commando raids in Libya and Somalia. This comes after weeks, even months, of near-total focus in Washington on Syria and Iran–not on China or North Korea. On the other hand, Obama decided to not to go on a planned swing through East Asia. This included skipping an Asia Pacific Economic Summit meeting in Indonesia. Secretary of State John Kerry went instead, but he simply doesn’t carry the same diplomatic megawattage as the president. Obama’s absence left China’s leader, Xi Jinping, as the top dog.

Obama’s absence had more than symbolic import. It probably slowed the process of completing negotiations on the Trans-Pacific Partnership, a free-trade zone that includes most of the major countries of East Asia but excludes China. More broadly, Obama’s absence no doubt causes wavering nations such as the Philippines, Indonesia, Malaysia, Vietnam, and many others, which fear China but live in its shadow, to doubt how much they can rely on a putative alliance with the United States.

The president’s absence suggests that dysfunction and deficits at home are preventing American engagement in the broader world. That impression is not necessarily true; if Delta Force and SEAL Team Six could travel abroad this weekend, even as the government is partially shuttered, so too President Obama could have traveled. He just didn’t want to, because he figured it would be bad politics to leave the country during a major budget crisis. It would certainly hamper, in a cynical interpretation, his efforts to lay all the blame on the Republican side, or, to adopt a more charitable explanation, to negotiate a way to end the crisis.

That’s an understandable political calculation, and one that most presidents no doubt would have made. But it comes at a strategic cost in the very region of the world that Obama claimed he would pay more attention to.

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Free Trade and EU Cultural Protectionism

Talk of a U.S.-European Union free trade agreement has been building for some time, getting a boost from lagging Western economies and the obvious benefits of opening up new global markets for expanding companies. But negotiations could very well end before they begin. The issue, as is often the case with large free trade deals, is protectionism.

Despite the fervent hopes of the utopian Eurocrats, the EU isn’t one large country–it’s 27 of them, each with its own industries it would like to protect from free trade. Additionally, the protectionist sticking point is not merely a technical or financial issue, but one sensitive enough to threaten the entire project: culture. France is concerned about what boils down to Yankee cultural imperialism. The Wall Street Journal reports:

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Talk of a U.S.-European Union free trade agreement has been building for some time, getting a boost from lagging Western economies and the obvious benefits of opening up new global markets for expanding companies. But negotiations could very well end before they begin. The issue, as is often the case with large free trade deals, is protectionism.

Despite the fervent hopes of the utopian Eurocrats, the EU isn’t one large country–it’s 27 of them, each with its own industries it would like to protect from free trade. Additionally, the protectionist sticking point is not merely a technical or financial issue, but one sensitive enough to threaten the entire project: culture. France is concerned about what boils down to Yankee cultural imperialism. The Wall Street Journal reports:

As television and movies are increasingly delivered over the Internet, France particularly opposes talks that might limit how European governments impose taxes on technology companies to fund those subsidies.

“The feelings and imagination of each nation are expressed through these services,” Henri Weber, a French member of the European Parliament, told reporters. “Each country has the right to support its creators and authors. This has nothing to do with trade and commerce.”

It actually has everything to do with trade and commerce, and it does not bode well for this trade deal if the nations involved cannot agree on the meaning of the word “trade.” It also calls into question France’s definition of European Union. But that’s part of the illogic of the EU project in the first place, and why it has faltered so predictably. There is no such unified concept as “Europe.” It is a continent of countries each with its own distinct language, culture, and–this one’s important too–national borders.

The EU was supposed to do its best to eliminate those borders in theory if not reality by enabling migration and trade across the continent. But then it turned out that European countries weren’t so keen on the migration part, and now don’t seem to have much desire for trade either. That doesn’t mean they don’t or won’t trade–it just means the creation of the EU hasn’t done much to change the way they do so. They want to trade as individual nation-states, not part of a single unified entity.

There is another rather humorous contradiction in the French objection as well. Industries only need government protection when they cannot thrive on the open market on a level playing field. Sometimes this is done to create jobs to ease worries about outsourcing in a globalized world. Other times it is done to protect important national-security information, as with weapons manufacturers and defense contractors. But the French concern is about culture: that is, the people of France prefer American culture by and large, even though they don’t like saying so. They vote with their wallets. The Journal explains:

U.S.-produced content accounts for more than 60% of TV and radio programs and movies across Europe, despite a patchwork of state subsidies that supports—and possibly protects from extinction—the kind of work that stands little chance of receiving Hollywood backing, becoming a global hit or even turning a profit.

Even in France, the most popular television shows are some of the same U.S.-made police fare that has become the meat-and-potatoes of American prime-time television, including the Mentalist, Criminal Minds and CSI: NY. Medical dramas—such as House and Grey’s Anatomy—also rank near the top.

One French film executive told the Journal frankly that if they had to compete on a level playing field many of the independent French films would never make it to the screen. Many of the films shown at the Cannes festival were, apparently, beneficiaries of government subsidy. The Journal closes by explaining what essential French culture would be lost to the world:

Hollywood studios might be unlikely to back a good number of them, including this year’s winner, La Vie d’Adèle, a love story that features an extended scene of graphic lesbian sex, Mr. Lamassoure said.

And what kind of heartless capitalist monster would seek to deprive audiences of such tasteful French pornographic cinema? Surely they can understand the desire to scuttle an entire free trade agreement over the threat posed by boorish American hillbillies and their inability to grasp the cultural gift that is extensive French nudity.

But of course France isn’t alone in wanting to protect its favored industries. Other European states are supporting France on this because they can’t wait to open the floodgates of protectionism. Neither can the U.S., which has been reminding European negotiators that American companies should be excepted from the rules if European companies are. Fair is fair.

And France’s intransigence can derail the trade talks even without others in their corner because EU rules give each country veto power over the process even before it begins. Demanding preconditions based on veto threats available to 27 countries sets a fairly dangerous precedent. It also makes it clear that the cause of free trade is ill served by the EU, which is a union in name only.

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Texas Public Policy Is Case Study

Labor-related immigration to the United States has always been driven by basic economics. Border security is certainly essential to any country’s obligation to safeguard its homeland, but the volume of immigration from Mexico was a blaring message from the labor market that even (sometimes especially) self-described free marketers chose to ignore.

Hopefully those politicians will heed the lessons in a new report, mentioned approvingly here by Michael Barone at the Washington Examiner, that net illegal immigration from Mexico is now zero–that is, immigration has tapered off and is now below replacement levels. Barone says he cannot vouch for the exact numbers in the report, but he thinks “they’re very much in the ballpark.” Falling birthrates in Mexico and an American recession have contributed to the change, but they do not seem to be the main drivers. Here’s Barone:

For some years I feared that Mexico could not achieve higher economic growth than the United States since our economies have been tied so tightly together by NAFTA since 1993. But in the past two years, Mexico’s growth rate has been on the order of 5 percent to 7 percent. It’s looking like Mexico’s growth rate is tied not to that of the United States but to that of Texas, which has been a growth leader because of its intelligent public policies which have prevented public employee unions from plundering the private sector economy.

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Labor-related immigration to the United States has always been driven by basic economics. Border security is certainly essential to any country’s obligation to safeguard its homeland, but the volume of immigration from Mexico was a blaring message from the labor market that even (sometimes especially) self-described free marketers chose to ignore.

Hopefully those politicians will heed the lessons in a new report, mentioned approvingly here by Michael Barone at the Washington Examiner, that net illegal immigration from Mexico is now zero–that is, immigration has tapered off and is now below replacement levels. Barone says he cannot vouch for the exact numbers in the report, but he thinks “they’re very much in the ballpark.” Falling birthrates in Mexico and an American recession have contributed to the change, but they do not seem to be the main drivers. Here’s Barone:

For some years I feared that Mexico could not achieve higher economic growth than the United States since our economies have been tied so tightly together by NAFTA since 1993. But in the past two years, Mexico’s growth rate has been on the order of 5 percent to 7 percent. It’s looking like Mexico’s growth rate is tied not to that of the United States but to that of Texas, which has been a growth leader because of its intelligent public policies which have prevented public employee unions from plundering the private sector economy.

Remember when a certain Texas governor was warning fellow Republicans that education and a strong economy were better solutions than a fence? Though the symbiotic economic relationship between Texas and Mexico is long established, and Mexican reforms in the mid-1990s have helped keep the peso stable, recent trade between the two has increased and been a boon to both countries:

Three Texas customs districts, Laredo, El Paso and Houston, rank among Mexico’s top four trading partners. Collectively, they accounted for roughly $235 billion in trade between Texas and Mexico from January to September 2011, according to United States Census data analyzed by WorldCity, which tracks global trade patterns. The figures show an increase over 2010 despite the American recession and unprecedented violence in Mexico because of warring drug cartels.

One more time: an increase over 2010 despite the American recession and unprecedented violence in Mexico. Texas has been a job creator and engine of growth during a recession and global economic downturn in two countries, stabilizing immigration levels along the way and buttressing the argument for free trade. Of course, it’s worth noting that to produce this economic success story, Texan public policy is just about the polar opposite of that of the Obama administration. If nothing else, the first Obama term has at least given us a tidy case study.

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