The Policy Setting
Trade will need to be addressed at a very early stage in the new Administration and Congress for at least four reasons.
First, trade is an essential component of the policy response to the global financial and economic crisis. It was the Smoot-Hawley tariff in the United States, and similar steps abroad, that converted the depression of the early 1930s into the Great Depression. Markets would be further shaken by any indications of protectionism in the current economic climate yet pressures in that direction are already being observed in various countries, including our own. By contrast, the world responded to the tragedy of 9/11 by launching the Doha Round of multilateral trade negotiations to reduce barriers to international trade across the globe. The G-20 summit in Washington on November 15 and the APEC summit in Lima on November 22 adopted standstill pledges to avoid new restrictions for the next twelve months. The world will be looking for early indications of US policy in this area.
Second, one of your highest priorities is quite rightly a reversal of the serious erosion of US foreign policy and global standing over the past eight years. Trade is so central to most other countries, especially poor countries that depend on it for development, that trade policy is tantamount to foreign policy for many of them. A cooperative US stance on trade will thus be essential to achieve your broader international goals. Resuming thetraditional US leadership on trade will probably be necessary if we are to restore our global standing.
Third, your planned initiative on global warming—through both domestic legislation and international negotiations—is particularly relevant in this context. Both will necessarily include a major trade component because our efforts to controlemissions of greenhouse gases must not unduly disadvantage US firms and workers in global markets. But your climate change policies will have such profound and lasting effects on our overall foreign policy, as well as on our economy, that you will need to deal with their trade dimensions without triggering external repercussions that would jeopardize both the global warming strategy itself and your effort to restore America's world role.
Fourth, you will need to address trade and our nation's role in the world economy more broadly as part of your fundamental effort to restore the confidence and optimism of the American people. Our country is $1 trillion per year richer as a result of its integration with the global trading system over the past half century and the improvement in our trade balance has provided all US economic growth over the past year. Yet globalization is widely viewed as one of the primary sources of job insecurity, stagnant real wages and growing income disparities in the United States. These conflicting pressures must be confronted, honestly and effectively, both to deal with their profound consequences for our society and to restore a stable foundation for US engagement with the rest of the world.