America’s Free-Trade Abdication

The indifference and apathy that one finds in Washington from both the Congress and President Barack Obama on the Doha Round of world trade talks, and the alarm and concern expressed by statesmen elsewhere over the languishing negotiations, mark the end of the post-1945 era of American leadership on multilateral free trade.

Evidence of anxiety outside the US has been clear to everyone for almost a year. German Chancellor Angela Merkel and British Prime Minister David Cameron were concerned enough to join with Turkey’s President Abdullah Gül and Indonesia’s President Susilo Bambang Yudhoyono in appointing Peter Sutherland and me as Co-Chairs of a High-Level Trade Experts Group in November 2010. We held a prestigious Panel at Davos with these leaders in January 2011, where, on the occasion of our Interim Report, we gave full-throated support to concluding Doha. But there was no response from the US government.

In September, former British Prime Minister Gordon Brown, former Spanish Prime Minister Felipe González, and former Mexican President Ernesto Zedillo reminded G-20 leaders that in November 2009, at their first meeting in London, they had expressed “a commitment to …conclude the Round in 2010.” And, two weeks ago, the UN met again on the Millennium Development Goals (MDGs). Goal 8 is about instruments such as trade and aid, and MDG 8A commits the UN member nations to “[d]evelop further an open, rule-based, predictable, non-discriminatory trading and financial system.”

But, while practically every country today has embraced preferential Free Trade Agreements, the recent leader in this proliferation is the US. There, Congress and the president apparently have plenty of time to discuss bilateral FTAs with South Korea, Colombia, and Panama, as well as the regional Trans-Pacific Partnership (TPP), but none for negotiating the non-discriminatory Doha Round, which is languishing in its tenth year of talks.

Indeed, it is notable that, while Obama’s State of the Union address in January 2010 at least mentioned Doha, his address in January 2011 did not. Obama confined himself to promoting the pending bilateral agreements with Colombia and other emerging-market countries.

Obama’s regrettable retreat from support for the Doha Round is the result of many factors and fallacies. These were highlighted in an “Open Letter to Obama” that I organized and released, over the signatures of nearly 50 of today’s most influential trade experts worldwide, urging a presidential shift in policy towards Doha.

America’s president is captive to the country’s labor unions, who buy the false narrative that trade with poor countries is increasing the ranks of the poor in the US by driving down wages. In fact, however, there is plenty of evidence for the rival narrative that rapid and deep labor-saving technological change is what is putting pressure on wages, and that imports of cheap labor-intensive goods that US workers consume are actually offsetting that distress.

Again, Washington lobbyists have bought into the absurd claim of trade experts such as Fred Bergsten that the gain from Doha, as it stands now, is a paltry $7 billion or so annually. This ignores the far greater losses that a failed Doha Round would entail, for example, by undermining the World Trade Organization’s credibility as the principal guarantor of rules-based trade, and by leaving trade liberalization entirely to discriminatory liberalization under preferential bilateral agreements. Again, someone needs to tell Obama that imports create jobs, too, and that his emphasis on promoting US exports alone is bad economics.

Most of all, Obama is badly served on trade by his senior colleagues. Secretary of State Hillary Clinton, for example, was opposed to trade liberalization when she ran against Obama for president, and advocated a “pause” in free-trade negotiations. She also misinterpreted the great economist Paul Samuelson as a protectionist, when he said nothing of the kind. She has never recanted.

Likewise, now that Warren Buffett is considered to be Obama’s most trusted economic adviser, it is worth recalling that back in 2003 he produced the astonishing prescription that the best way to reduce the US trade deficit was to allow no more imports than it could finance from its export earnings. An amused and alarmed Samuelson drew my attention to this nutty idea. While Buffett’s prescription of higher taxes for America’s wealthy is entirely desirable, will Obama realize that a genius in one area may be a dunce in another?

What we need today is for the world’s leading statesmen to stop pussyfooting and to unite in nudging Obama towards a successful conclusion of the Doha Round. That alone would provide the counterweight to the forces that pull him in the wrong direction. It is still not too late.

Jagdish Bhagwati is University Professor of Economics and Law at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations.

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