Six months into his presidency, Barack Obama has failed to grasp the nettle on trade and investment policy. This column says Obama has been weak and indecisive in the face of deep divisions within the Democratic Party over international economic policy. His deference to Congress has resulted in poor policymaking.
On VoxEU site earlier this year, Jagdish Bhagwati presciently labelled US President Barack Obama “The Lithium President” – “Surrounded by rising protectionism and near-xenophobic sentiments… President Obama has kept a low, indeed an invisible, profile.” Bhagwati urged the President to utilise “his remarkable oratorical gifts…to take a bold, comprehensive overview and confront the real danger that the open economy might unravel in terms of trade, multinational investment and immigration…” (Bhagwati 2009)
Six months into his presidency, Obama has notably failed to heed the urgent pleas of Bhagwati and others to grasp the nettle on trade and investment policy. And indeed, his style of presidential leadership and the deep divisions within the Democratic Party over the issues of international economic policy and the effects of globalisation may preclude such boldness. Faced with huge problems stemming from the global financial crisis and a deep recession, as well as the challenge of reforming the US health care system and framing a climate change policy, President Obama and his key advisers have decided that the best course of action is to hang back and delegate large decision-making authority to Congress.
Some, such as Norman Ornstein (2009), the astute political analyst at the American Enterprise Institute, have defended the President’s tactical decisions, arguing that given the fact that Congress is “dysfunctional” because of defects in both major parties, the President will more likely achieve his goals by letting congressional leaders sweat the details and only intervening at crucial decision points on major issues.
Despite Ornstein’s keen political senses, I doubt the wisdom of this reticent leadership on the evolving domestic agenda: hanging back on the stimulus package produced a bill loaded with pork barrel projects and less than optimal stimulus elements; climate change, as passed by the House of Representative, is a noxious concoction of corporate welfare and border retribution measures; and now the President is facing the supreme test on health care, where Congress seems descending into chaos, not least because the President thus far has refused to disclose the administration’s real programmatic bottom line.
The cost of presidential deference to Congress on trade
With regard to trade policy, three notable incidents demonstrate the downside of presidential deference to Congress.
- The “Buy American” provisions that ended up in the stimulus package.
The administration was aware of the movement afoot to include this protectionist measure, but the President waited until the House passed a bill before intervening. By then, it was impossible to stop the rule altogether, so the upshot was a late, weak amendment to the final bill stipulating that in implementing the Buy American rule, the US must live up to its international obligations. As it has turned out, this promise had little practical significance, and so state and local governments have been busily (in order to be sure to get the money) turning down proposals that cannot guarantee the use of American manufactured products, including all parts and components. Canadian local and provincial governments are moving to retaliate, and, more ominously for US exporting companies, the Chinese have announced an identical rule.
- The acquiescence to a congressional provision in an appropriations bill that killed a pilot program to allow Mexican truckers to make international deliveries to the US.
This provision became law despite an earlier ruling by a NAFTA panel against the US and the threat (since implemented) by Mexico to impose $2 billion retaliation against US goods and services. Once again, the President stood back and then could only lamely promise to have the transportation and state departments attempt to fashion some kind of remedy – we (and Mexico) are still waiting for details.
- Several weeks ago, the House passed climate change legislation that includes provisions for future punitive border tariffs against imports from nations deemed not have put in place adequate climate change rules (by US unilateral standards).
The bill strikes directly at presidential authority and discretion by severely limiting the President’s ability to mitigate the draconian measures through invocation of the national interest. In this case, Congress would have to agree before changes were made. President Obama spoke out against the provision just after the climate change bill passed the House. But in a now familiar pattern, he faces a fait accompli, and though he can work with allies in the Senate to restore some leeway, it is likely that some form of border retaliation will remain in the final bill.
Other areas of hesitation
And so it goes in the broader arena of trade policy – on the pending FTAs with key US allies, Colombia and Korea, the President and his trade officials first promised to move forward “sooner rather than later,” but they recently have signalled that it may be next year before action is seen. Similarly, with the centrally important WTO Doha Round, the President keeps reiterating that he wants a deal – but he has expended no political capital to back up his strong affirmations thus far. And over the past several weeks in Geneva, US officials have warned that it will be well into 2010 before real progress can be expected.
The bottom line
The bottom line is that on trade policy President Obama faces a deeply divided party with a strong anti-global element concentrated among House Democrats. Left to their own devices, congressional Democrats – particularly in the House – will create endless mischief. At some point, President Obama, like President Clinton, will have to decide whether to take on these anti-global Democratic interests groups and whether he will make Clinton’s final decision that, on trade, the Democratic Party and the US must “compete not retreat.” So far, Obama has looked weak and indecisive because he has yet to make that decision and commitment.
•Bhagwati, Jagdish (2009). “The Lithium President: Fight protectionism with more passion,” in Richard Baldwin and Simon Evenett (eds), The collapse of global trade, murky protectionism, and the crisis: Recommendations for the G-20, A VoxEU.org Publication, 5 March 2009.
•Ornstein, Norman (2009). “Is Obama Too Weak in Dealing with Congress?”, Roll Call, July 8 2009.