Whose Trade Policy Will Prevail?-Is Obama a “De Facto” Protectionist?
By Dr. Tony Magana
Although President Obama publicly criticizes protectionism policies he has yet to articulate a coherent and consistent trade policy. Within the Democratic party a deep division is developing between those who are pushing for extending free trade initiatives and opponents who who seek to institute radical protectionism. Congressmen Henry Cuellar of Texas and Mike Michaud of Maine seem unavoidably headed for a confrontation on the future of American trade policy. Whose side will the President take?
On June 24, 2009 Congressman Mike Michaud (D-ME) introduced a bill called “Trade Reform, Accountability, Development and Employment (TRADE) Act,” (H.R. 3012) which is nothing less than a direct assault on the economic vitality of the American export industry and by definition on the future economic well being of the United States. The Congressman is the Chairman of the House Trade Working Group which is determined to implement protectionist revisions into America’s trade policy.
The new legislation would stipulate all existing trade agreements become null and void then mandates their renegotiation with some non-negotiable terms always included. All future trade accords will beseech the inclusion of a “Buy American” provision which protects domestic production, a mandate that foreign government follow labor and environmental standards as determined not by their elected governments but by the U.S. government, and throws out patent protections for American drug makers allowing the special import of foreign low cost generic drugs.
Under the Constitution, the President has the authority to negotiate treaties and the Senate the duty to ratify them. Now the liberal left in Congress wants to covertly and radically alter the Constitution without going through the formal process of amendment. Instead of the President negotiating trade treaties, the new legislation establishes a “special super congressional committee chaired by the Ways and Means and Finance Committee chairs to work with the President” on formulating treaties.
The money and political muscle behind the new initiative is not surprising -a coalition of rust belt groups, labor unions, and liberal social activists. This alliance falsely blames America’s economic decline as primarily driven by bad trade decisions which led to a decline in domestic manufacturing and ever increasing trade deficits. They are scheming that the perpetuation of politically convenient myths about trade will allow organized labor to become the predominant factor in American politics.
Recently a symposium was held by the libertarian CATO Institute where their Associate Director for the Center for Trade Policy, Daniel J. Ikenson, reviewed these myths.
While it is true that overall jobs in manufacturing peaked in 1979, the years since that time have seen significant evolvement in the economy. Gone are the days where America was the only major consumer in the world of major goods. The emergence of India and China into modern economies with populations more than several fold larger than the United States has transformed this equation forever. The new reality is we cannot prosper in a world of protectionism.
Protectionism was tried at the beginning of the Great Depression following the stock market crash at the end of the 1920s. There is essentially universal agreement among historians and economists this historical blunder prolonged the duration, delayed the recovery, and increased the intensity of the economic woes of the time.
Ikenson points out that in the emerging world economy the role of the United States in manufacturing has not declined but undergone a positive metamorphosis. While it is true that America no longer produces many low cost and low tech items that is not the whole story. The future for America and the best promise for America has been and will continue to be the conversion of manufacturing from low tech and low added value items to high tech and high added value items.
Americans complain that simple every day items like tools are made in foreign countries but they fail to appreciate that while those jobs have left, high tech items like computer components are the real catalysts for economic prosperity. Outsourcing of simple manufacturing has only been responsible for 3% of America’s recent job loss. The replacement of low tech and low value added manufacturing with high value added industry relatively increases jobs and the overall gross domestic production of the country many fold more than older conventional manufacturing.
Another common myth surrounds the concept of trade surplus and trade deficit. The Japanese economy has had a trade surplus for many years but still has been saddled with “anemic” growth in their domestic economy. Most of the trade deficit experienced by the United States is due to oil imports rather than the importation of relatively low tech goods. It is good for China to make low tech and value added items but it is even better for the United States to make high tech and value added items.
The liberals pushing protectionism claim that a major failure of trade agreements has been their lack of enforcement. They cite the fact that there was a dramatic reduction in trade disputes brought up in the setting of NAFTA and WTO agreements during the last Bush administration as compared with the Clinton administration.
Advocates for free trade including not only the CATO Institute but also a leading Democrat, Congressman Henry Cuellar of Texas, who represents one of America’s most important trade zones extending between Laredo and McAllen Texas on the border with Mexico see the decrease in disputes as a positive sign. The Congressman points out that the initiation of trade agreements forms the foundation for an interdependent relationship between nations which fosters dialogue and cooperation. Once both countries are benefiting there is a tremendous incentive to avoid disputes and act in mutual interest.
On his website, Congressman Michaud makes some very incorrect and important deceptions about the Hispanic community and trade. He openly claims that Latinos are for protectionism and support the new legislation but nothing could be further from the truth.
Congressman Cuellar is not a signatory or supporter of the protectionist trade bill. Instead he has formed a Pro-Trade Caucus and unabashedly opined that protectionism should have no place in the “Democratic Creed”.
The growing commerce with Latin America has seen the development of a vibrant Hispanic business sector. As Congressman Cuellar frequently points out, the thousands of American companies who do business with Latin America are more often than not small to medium size businesses. Many of these concerns are Hispanic owned or contain Hispanics in major positions of management. The familiarity with culture and language not only helps foster business cooperation but also allows these Hispanic entrepreneurs to be positive role models for Latin American development. Their businesses function as unofficial ambassadors of good will and influence for American interests in the region.
Research performed by the University of Houston and others has shown that one of the key ingredients contributing to the explosive growth of Hispanic businesses in the Southwest United States has been a symbiotic relationship between native born Hispanics and newly arrived immigrants. In a very real sense, this symbiosis is extended when these companies participate in international trade with Latin America.
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Congressman Cuellar has become a principal voice for trade policy. He is quick to point out that he does not believe in absolute unconditional free trade. His approach to trade however is quite different then what is being espoused by Congressman Michaud.
During a recent symposium, Cuellar outlined his trade philosophy. America he says is in a new era of trade that requires a new bi-partisan approach. He recalled that as a Democrat in the minority during the Bush administration he was often excluded from discussion by the Republicans and warns that the new Democratic majority needs to avoid the same mistake.
The beginning a good trade policy begins with the recognition of the sovereignty of a potential trading partner. He says “why should we know whats better for those countries than their own elected officials.”
Rather than be confrontational at the outset, the goal should be to establish a good working dialogue which allows the partner nations to work to their mutual interest. This approach is substantiated when one compares the current status of trade with nations that are in free trade agreements versus those without says Cuellar. Overall in 2008, trade with the United States grew by 18% within which a $10.3 billion surplus was created with the fourteen nations who have free trade agreements with the U.S. representing a 158 percent increase against only a 7 percent increase with non-free trade agreement nations.
The effect of fostering trade he is proud to say has transformed his home district on the Texas-Mexican border and says those who advocate a turn back to protectionism will be making a mistake.
During his Presidential campaign, Obama was very critical of the current Secretary of State, Hillary Clinton’s support of NAFTA and promotion of trade. Since his election he has been very obtuse about what are his true intentions. During the G-20 summit in Europe and in comments about protectionist measures included in the Democratic cap and trade legislation he voiced misgivings about the appropriateness of the timing of restrictions on trade. The President seems to be complaining about the degree of protectionism and the timing of its application rather than making a frank and clear statement against a policy of protectionism.
This week Ikenson and Scott Linicicome, an international trade attorney, complained in article for the CATO Institute that Obama’s lack of a trade policy is “de facto protectionism” and subversive to the economic and foreign policy well being of the nation.
Obama appears to have muzzled his new trade representative, Ron Kirk, the former mayor of Dallas who liberal Democratic critics felt was too pro-trade and Secretary Clinton in that they have made essentially no public statements about trade for months of any substance.
Under pressure from unionized labor interests and truckers, the President unilaterally violated the NAFTA agreement by stopping a program to develop the ability of Mexican trucks to operate on American highways. At the time Obama promised to quickly come to a new agreement but instead has essentially taken no action which invited the Mexican government to impose $2.4 billion in duties against American products and will likely result in the United States government paying in excess of $6 billion dollars in damages of taxpayer money to Mexican truckers.
Many are wondering why the handling of Canadian truckers has been so different compared to Mexican truckers. Concerns about creating appropriate insurance allowing Canadian trucks to drive on American highways was handled expeditiously by the Obama administration with an announcement this week that all problems had been solved.
The additional financial costs, fuel costs, and time delays of unloading semi-tractor trailors on the Mexican borders results in $8.4 billion of price increases that American consumers and industrial buyers have to pay for Mexican imports. The result has been the American government has added almost another $20 billion dollars to the national debt for the sake of a few politically placed labor unions.
If the the warnings of Congressman Cuellar are ignored, low income Americans can expect to pay higher prices for food, clothing, and housing. The ill conceived no trade policy advocated by Congressman Michaud will irrevocably damage the future of the United States as a meaningful trading partner with the emerging democracies of Latin America and Asia. As the true intention of the liberal left to create new era of protectionism is recognized by other nations a flood of counter protectionist reactions will occur. Just as it did in the 1930s, this reaction will only damage the economy by reducing the number of exports, raising the prices of imports, and inevitably drastically lower employment.
The dream of many American small business innovators and their descendants to become major contributors in world commerce will be shattered by the misguided principles of protectionism and labor cronyism.
If Obama is really committed to developing trade then he must stop the delay and push for the acceptance of free trade agreements with Panama, South Korea, and Columbia as recommended by his fellow Democrat, Congressman Cuellar. Some have called Congressman Cuellar, the most educated man in the Congress because of his multiple graduate degrees in International Business and Law, it is time for the President to listen to voice of intelligent reason offered by Cuellar and clearly disavow Congressman Michaud and his anti-trade agenda.
Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin
Copyright 2009, Dr. Tony Magana. Some rights reserved.
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