Obama cannot lead from behind on trade

Barack Obama's ambitions for the Trans-Pacific Partnership talks are unlikely to be fulfilled unless he takes a firmer stance both at home and abroad.

FT.com

By a quirk of history, the 20th anniversary of the North American Free Trade Agreement coincides with a crisis over US healthcare. This time it is about Obamacare’s rocky debut. In 1993, the crisis was over Hillary Clinton’s healthcare plan. When push came to shove, Bill Clinton chose Nafta – it squeaked through Congress while Hillarycare fell apart. President Barack Obama also wants to push through a big trade agenda. Yet it is by no means clear he has Clinton’s appetite for taking the risks necessary to pull off serious deals. Continuing to tiptoe around the issue is unlikely to serve him for much longer.

On paper, Obama has set his sights very high. Together the Trans-Pacific Partnership talks (TPP) and their transatlantic counterpart (TTIP) amount to the most ambitious US trade agenda since Nafta and the Uruguay Round in the 1990s.

The latter two were passed during the early stages of America’s most robust business expansion since the second world war. Today’s trade talks come amid a far more insipid recovery and the slide in US middle-class incomes. In contrast to Mexico, where Nafta’s anniversary is being celebrated unabashedly, nobody in Washington is lighting any candles.

Obama’s most immediate hurdle is on Capitol Hill. Negotiators in Asia and Europe are hoping he will get fast-track negotiating authority from Congress in the coming weeks – without it the talks are unlikely to proceed very far. Obama’s current stance is to avoid mentioning fast track in the hope such reticence will make it easier for Republicans to say yes. As expected, most Democrats are opposed. Passivity may be Mr Obama’s wisest path, particularly with his disapproval rating stuck at 55 per cent. But it will only get him so far. Leading from behind is no strategy for negotiating with other countries.

To achieve the ends you must will the means. If Obama is to advance the 21st-century trade agenda he originally set out, he will need to be willing to dismantle America’s 19th-century era protections. That would mean spending political capital on fights with powerful US domestic lobbies – and his stock is dangerously low. America’s TPP partners, such as Vietnam, Malaysia, Australia and New Zealand, want to break down high US barriers on textile, apparel, dairy and sugar. The US still imposes miserly import quotas on each of these sectors. Tariffs leap as high as 66 per cent on footwear.

Likewise, most TPP economies have built walls to keep out US business services – America’s strongest area of comparative advantage. According to a report by the Council on Foreign Relations’ Ted Alden, the equivalent tariffs on US business service exports average 66 per cent in China and 44 per cent in Mexico – compared to just 8 per cent and 5 per cent respectively on US goods. China is not yet a participant in TPP. But Obama will have little hope of improving access for US services in the Asian Pacific region if he cannot offer big concessions in return. Even Clinton baulked at taking on the US textile and sugar lobbies.

A good deal with Europe would also require Obama to risk showdowns at home, mostly with his own party. Popular liberal Democrats, including Elizabeth Warren, the Massachusetts senator, have made it clear they would oppose a financial services deal with Europe if it involved dilution of the Dodd-Frank Wall Street reforms. That in turn emboldens Europe to dig in its heels on food safety, where it has tougher standards than the US. The same applies to privacy. It does not help that Germany, the key European player, is still smarting over Edward Snowden’s revelations, particularly a leaked document suggesting that Angela Merkel’s mobile phone was tapped from 2002, three years before she became chancellor. Here again, Obama will get nowhere unless he takes up a position on the front line. Sidelining privacy, food safety and financial services would rob any deal of its potency.

Slippage is already apparent. Officials caution that the informal mid-2014 deadline to conclude TTIP negotiations is now likely to be pushed back to 2015. A moment of truth for the Pacific talks may be closer. It did not help that Obama cancelled his Asia trip in October during the US government shutdown.

On the plus side, US opinion is much more realistic nowadays about the give and take of globalisation. In contrast to fears of the “giant sucking sound” that almost derailed Nafta in 1993, Americans today seem grimly resigned to global integration. According to a poll last week by Pew Research and the CFR, 52 per cent said the US “should mind its own business internationally” – the highest level of isolationism since the question was first posed half a century ago. Wars are very much off the menu. Yet a remarkable 77 per cent said that boosting global trade would be good for the US. The backdrop is there for Obama to push ahead.

But the public’s receptiveness is by no means a blank cheque. The poll also highlighted a huge gap between ordinary Americans and the 2,000 members of the CFR it canvassed – as good a cross-section of the US elite as you can find. More than eight out of 10 Americans said “protecting jobs” should be the main US priority. Only 29 per cent of the CFR’s members agreed. To sell big trade deals beyond Washington’s beltway, the president will need to convince the 99 per cent that they would benefit too. Presumably Obama thinks they would. The sooner he starts making that case the better.

Copyright The Financial Times Limited 2013.

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