The Obama administration has now unveiled its first positive trade policy initiatives. One seeks to negotiate a Trans-Pacific Partnership between the United States and key Asian countries. The second aims to double US exports over the next five years.
Obama trade policy had previously been deterred by the strong backlash against globalization and especially the divisions within the Democratic Party over "lost jobs" and "runaway plants." Careful studies at our Peterson Institute for International Economics show that the trade globalization of the past 60 years has indeed generated adjustment costs of about $50 billion per year in the United States. This cost is swamped by net gains of over $1 trillion per year to the economy from that globalization, but it underlines that new trade efforts must contribute to US job creation and minimize adverse effects on workers and others.
It would be sheer folly for the United States to remain on the sidelines while the world's other major traders increasingly discriminate against us.
The two Obama initiatives clearly meet those tests. The export effort is obvious: Every $1 billion of foreign sales creates 6,000 to 10,000 high-paying jobs. There are two highly cost-effective methods to expand US exports, neither of which has any budgetary cost and are thus much more attractive than further fiscal stimulus initiatives.
The most important by far is to make sure that the exchange rate of the dollar is not overvalued in terms of underlying US competitiveness. Every 1 percent fall in the dollar improves the US trade balance by $20 billion to $25 billion, generating 100,000 to 250,000 jobs. This means assuring the speediest possible rise in the currencies of China and several of its immediate neighbors, which are now undervalued by 25 to 40 percent. This correction alone would cut the US trade deficit by more than $100 billion and create up to 1 million new jobs.
Another attractive option is to sharply reduce our own export controls, as the president has begun to do. These measures seek to protect US national security but instead undermine it by boosting our foreign debt and weakening our economy. They largely ignore the ready foreign availability of many products that we continue to restrain, the folly of restricting sales unilaterally in the absence of an effective multilateral regime, and the need to permit trusted countries and foreign nationals to access our products and processes. Without jeopardizing national security, we could readily expand exports by $30 billion to $50 billion annually (and thus create another 200,000 to 500,000 jobs) by substantially liberalizing the export control regime.
President Obama's other positive trade initiative, negotiation of a Trans-Pacific Partnership, will protect the United States from increasing foreign discrimination against US exports as Asian countries conclude preferential trade agreements among each other and with the European Union. Pacts are already in place among the 10 countries of Southeast Asia and the three trade powerhouses of Northeast Asia (China, Japan, and Korea). These deals will eventually produce an East Asian free trade that deters at least $25 billion of US exports and compels American firms to service their Asian markets from their Asian-rather than American-factories. The growing links between this Asian bloc and the existing European bloc, via trade deals already being worked out by the European Union with Korea and India, will increase their adverse effects on the United States. The creation of an Asian economic bloc, inevitably dominated by China, could also carry important negative implications for US foreign policy and even national security.
It would be sheer folly for the United States to remain on the sidelines while the world's other major traders increasingly discriminate against us. Obama thus seeks to reduce barriers with an initial group of Asia Pacific countries (Vietnam, Singapore, Brunei, Australia, New Zealand), along with two Latin American countries (Chile and Peru), and should make every effort to engage additional important Asians (most promisingly Malaysia, Japan, and Korea) as soon as possible. The administration should complement its two positive initiatives with a third: submission to Congress of the free trade agreements with Korea, Colombia, and Panama (in that order of importance) that were negotiated by the Bush administration. The same overriding consideration applies here as with the Trans-Pacific Partnership: The partner countries are concluding preferential compacts with our chief competitors, including Canada in these cases, that will destroy US jobs unless we implement similar deals.
The arguments against all three are bogus: American auto companies will export very few cars to Korea whatever changes could be negotiated in that country's policies, murders of trade unionists in Colombia are reprehensible but have nothing to do with the trade agreement, and Panama's tax policies are likewise unrelated to trade barriers.
These agreements represent low-hanging fruit that the administration and Congress should seize to round out a trifecta of trade policies that will create good US jobs and strengthen our economy when we need it most.