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Trade

A sorry story of American trade


Sep 19th 2011, 13:28 by G.I. | WASHINGTON
WHEN experts try to ferret out the causes of Americas lost decade, international trade is often cast as the
villain. It may in fact be the victim. In the last decade Americas commitment to openness has flagged, and
with it, its trade prowess and its appeal as a destination for investment. As international trade and
investment have historically been major drivers of productivity, employment, and innovation, this
declining engagement with the world may be an important contributor to the malaise that afflicts the
economy.
That, at least, is the upshot of an impressively detailed if troubling new report from the Council on Foreign
Relations. America, it concludes, risks being left a bystander as the rest of the world integrates further.
The report was produced by a task force headed by Andy Card, the former chief of staff to George W.
Bush, and Tom Daschle, former Democratic Senate leader. Its project leaders are Edward Alden of the
Council and Matthew Slaughter of Dartmouth College. Task force members include academics, think
tankers, and labour and corporate representatives with an interest in trade.
Americas share of world exports has slipped more than that of most developed countries over the last
decade while its share of direct investment has plummeted precipitously. Meanwhile, the number of exportrelated American jobs has stagnated and multinational companies are now expanding payroll overseas
while cutting it in America, the reverse of their traditional pattern.
Conventional wisdom portrays footloose multinationals as the cause of these economic problems. The
Council report instead fingers a growing ambivalence in America to openness. Trade has become
increasingly politicised. Congress is increasingly reluctant to grant Trade Promotion Authority, or TPA
(which enables a president to negotiate a trade pace that Congress can accept or reject but not amend).
After lapsing in 1994 it was renewed in 2002 by a single vote. Many of the deals George Bush pursued
were deeply divisive, including the Central American Free Trade Agreement, and threewith Korea,
Colombia and Panamahad not been voted on by the time Barack Obama came into office. Mr Obama has
not made trade a priority and moved forward on the three leftover FTAs only after reopening negotiations
to obtain further concessions, in effect violating the spirit of TPA.
Meanwhile, the rest of the world has raced ahead. Korea and the European Union now have a bilateral
trade agreement. Brazil and Argentina will soon be joined by Canada in striking new deals with Colombia,
to the detriment of American agricultural exports. Asian countries have concluded or are negotiating 300
trade deals among themselves that exclude America. All these negotiations matter for reasons beyond mere
sales:

The United States cannot afford to be left behind, in part because such negotiations often establish the basis
for product and other regulatory standards. By allowing the EU, in particular, to gain a first-move
advantage, U.S. companies may find themselves forced to conform to European regulatory standards if
they are to sell into the worlds fastest growing markets.
The federal government is also lackadaisical in its practical support for trade. Less than 2% of its capitalgoods exports received government export financing, compared to 3% to 8% in Germany, France and
Canada. Meanwhile, America does seem to be on the losing end of the trade-dispute system. The World
Trade Organisation is a marvel of international economic diplomacy but the report notes that Americas
frequent victories there are often pyrrhic because years may elapse before the WTO passes judgment, by
which time other countries unfair practices have already done their damage on American industry. What is
the solution? The authors propose an ambitious National Investment Initiative alongside Obamas
National Export Initiative. This would break down various domestic barriers to attracting foreign
investment, the source of high-paying jobs, investment and innovation. Given their diagnosis of the
problem this is a reasonable and ambitious prescription. But their vision involves promoting many
individual policies that stand little chance in todays polarised political world, such as reducing the
corporate income tax rate, ending the taxation of foreign-source income, encouraging more high-skilled
immigration and spending more on infrastructure.
A warmer welcome will await their advice that America more aggressively punish other countries for
unfair trade practices, either through the WTO or through its own authority to launch anti-dumping and
countervailing duty cases, which has atrophied. This, they say, should be paired with efforts to open up
foreign markets. This might have the benefit of persuading Americans, who have turned hostile to free
trade, that they will not be played for chumps from further liberalisation. But while this might bring
temporary breathing room to embattled industries, I doubt it will provide much lasting relief. Bringing
more trade cases would push America onto shakier legal ground, increasing the odds it would lose, or
provoke retaliation, or both. That would not leave the world better off.
More promising are the reports recommendations for approaching trade policy differently. The political
capital invested in TPA has been wasted on too many small-bore trade deals that dont materially alter
Americas economic fortunes. Better, they say, to focus energy and capital on big ticket deals with major
countries like India and Brazil. America should pursue more liberalisation in high-end services, where it is
especially competitive, if not through the WTO then through a comprehensive services agreement with
Japan, the EU and Canada. This is one policy on which Mr Obama and his Republican adversaries might
actually find some common ground.