Blogs & Comment

Obama the free-trader? Yes, and it's probably good politics: Erica Alini

Middle-class promise

The second-term Obama administration has discovered free trade. The White House is reportedly very eager to reach an agreement on the Trans-Pacific Partnership, a complex negotiation that involves about a dozen Asian nations, the U.S. and Canada among others. So eager, in fact, that pro-trade groups worry Washington risks bagging only a half-baked deal for the sake of making a self-imposed deadline. U.S. Trade Representative Michael From, the new face of Obama’s trade agenda and one of the president’s law-school pals, has also been busing talking shop with the Europeans. The so-called Transatlantic Trade and Investment Partnership, which stole Canada’s thunder as we were trying to close our own FTA with the EU, aims at cutting trade-limiting red tape.

And yesterday, the president was speaking to lawmakers about granting him Trade Promotion Authority (TPA), which allows the White House to require Congress to vote on trade agreements with a straight yes-or-no vote. This serves to ensure that the ratification process doesn’t end up reversing concessions the White House has made to other countries at the negotiating table.

Just to give you an idea of how the Administration felt about free trade during the first term, no one has bothered to renew TPA legislation since 2007.

So why the sudden conversion to the virtues of free-flowing goods and services? It might be that the politics of free trade in the U.S. are changing.

Trade liberalization has long been seen, with reason, as the silent force that weighed down manufacturing wages, shuttered factories and sent work overseas — for all the net benefits it provided to society at large, it also left entire communities reeling. That trend, however, might be reversing. Average factory pay in China is rising by 15 to 20 per cent per year, according to the Boston Consulting Group (BCG). At the same time, median incomes in the U.S. and other industrialized countries are roughly where they were some 30 years ago. The wage gap between the emerging and the developed economies, in other words, is shrinking.

The U.S., though, seems in a better position to take advantage of this than most other rich countries, thanks to a few competitive advantage. Labour costs in certain U.S. states, for one, are much lower than anywhere else in the developed world; U.S. productivity has been growing very fast since the financial crisis; and the shale boom means cheap energy for U.S. factories.

We might already be seeing the signs of this shift taking hold. The U.S. deficit on trade in manufactured goods shrunk to $225 billion in the first half of 2013, from $227 billion a year earlier, according to the Wall Street Journal. As the Journal notes $2 billion difference might not seem like much, but it comes after a decade in which Uncle Sam kept losing market share to China, South Korea and others. By 2020, forecasts BCG, “higher U.S. exports, combined with production work that will likely be ‘reshored’ from China, could create 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.”

In other words, free trade could go from being a jobs buster to being a jobs creator.

Admittedly, the coming of a U.S. manufacturing renaissance isn’t guaranteed. Similar prophecies have proved wrong before and doubters point out that electricity bills for American factories will rise if the U.S. starts selling its growing supply of natural gas abroad and lifts current curbs on gasoline exports.

Still, the notion that exports can create jobs seems to have sunk in with some groups you’d normally lump together with the anti-free trade crowd.

The National Association of Manufacturers, for example, raves about the economic benefits of trade liberalization on its website. “Ninety-five percent of the world’s consumers live outside the United States,” its website says, adding that free-trade agreements make for “a proven, practical way of eliminating foreign trade barriers and creating new markets for American products.” The organization also cites a U.S. Census Bureau finding that U.S. manufacturers ran a $50 billion surplus with FTA partner countries, but a $820 billion with the rest of the world.

Another example: In 2010 the United Autoworkers and the United Food and Commercial Workers unions spoke out in favour of the U.S.-South Korea Free Trade Agreement, arguing that it would “grow more jobs.” According to Susan Ariel Aaronson, a professor of international affairs at George Washington University, it was the first time since 1988 that the labour movement had publicly supported an FTA.

The White House, with its big promise to help create jobs and raise incomes for the middle class, might have taken note.