America in the World

Obama accused of "economic vandalism" for protectionist moves

Last week we reported Barack Obama's decision to impose 35% tariffs on imported Chinese tyres. The Obama administration's protectionist instincts are the subject of a damning editorial in The Economist magazine:

"The tyre decision needs to be set into the context of a string of ominously protectionist policies which started within weeks of the inauguration with a nasty set of “Buy America” provisions for public-works contracts. The president watered these down a bit, but was not brave enough to veto. Next, the president stayed silent as Congress shut down a project that was meant to lead to the opening of the border to Mexican trucks, something promised in the NAFTA agreement of 1994. Besides these sins of commission sit the sins of omission: the president has done nothing at all to advance the three free-trade packages that are pending in Congress, with Colombia, Panama and South Korea, three solid American allies who deserve much better. And much more serious than that, because it affects the whole world, is his failure to put anything worthwhile on the table to help revive the moribund Doha round of trade talks. Mr Bush’s tariffs, like the Reagan-era export restraints on Japanese cars and semiconductors, came from a president who was fundamentally committed to free trade. Mr Obama’s, it seems, do not."

Read the full piece here.

China accuses Obama of "rampant protectionism"

Last week China accused Barack Obama of "rampant protectionism" after the American President imposed a new duty of 35% on Chinese tyre imports.  US labour unions - a key part of the Democratic Party's coalition - had sought the tariffs.

Writing for The Financial Times, Charles Freeman accuses the Obama administration of "calculated cynicism" in its new protectionist attitude toward China:

"The levying of new tariffs on imports of Chinese tyres is not particularly heartening. To be sure, China is no angel in international trade matters. As everywhere, China’s domestic politics complicate Beijing’s economic policies and bedevil efforts of international negotiators to ensure a level playing field in cross-border trade. But this particular White House decision, taken through a process that is widely despised in China as uniquely discriminatory against that country, is no mere slap on the wrist for run-of-the-mill Chinese perfidies. This decision provides fodder for nationalist interests in China that will not just push for tit-for-tat retaliation against US economic interests, but play into a broader trend within China to roll back market-opening reforms. That could result in a back-and-forth battle of retaliatory trade measures which, given the importance of US-China trade relations to global commerce, will provide cheer to only the most parochial of interests worldwide."

America takes another step away from free trade

The jury is still out on the 'Buy American' provisions in Washington's recent stimulus bill.  EU and Canada anxiety was placated by assurances that the provisions would be made compliant with America's obligations under international trade agreements.  But faith in America's willingness to be compliant will be shaken by Congress' decision to ban Mexico's trucks.  The decision is a snub to a 2001 court judgment that the trucks were entitled to use American roads under the North American Free Trade Agreement.

The ban was a victory for one of the most powerful members of the Democratic Party's coalition - the International Brotherhood of Teamsters labour union (which represents American truckers).

Mexico retaliated by, reports Bloomberg, slapping $2.4bn of import tariffs on 90 goods from 40 US states.

Brazilian President Luiz Inácio Lula da Silva told the Wall Street Journal that a rising wave of protectionism by rich nations like the USA threatened the world's emerging economies.  He vowed to lobby Barack Obama to adopt a free-trade deal with Colombia.  It is encouraging to see a developing world leader adopt such an enlightened stance.

Mexico cannot afford the extra economic damage that America's protectionism means.  The Mexican state is already struggling to afford a war with its increasingly powerful drug cartels.  Foreign Policy magazine recently reported the scale of Mexico's law enforcement challenge:

"The outgunned Mexican law enforcement authorities face armed criminal attacks from platoon-sized units employing night vision goggles, electronic intercept collection, encrypted communications, fairly sophisticated information operations, sea-going submersibles, helicopters and modern transport aviation, automatic weapons, RPG’s, Anti-Tank 66 mm rockets, mines and booby traps, heavy machine guns, 50 [caliber] sniper rifles, massive use of military hand grenades, and the most modern models of 40mm grenade machine guns."

The Bush administration had been increasing aid to Mexico's security services.  The Obama administration risks taking relations in the other direction.

Final stimulus bill retains 'buy American' language

Hat tip to David Akin of the National Post for recording what Congress passed within its stimulus bill on favouring American producers:

"SEC. 1605. USE OF AMERICAN IRON, STEEL, AND MANUFACTURED GOODS. [PDF - see page 489]

(a) None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.*

(b) Subsection (a) shall not apply in any case or any category of cases in which the head of the Federal department or agency involved finds that applying subsection (a) would be inconsistent with the public interest;

(2) iron, steel, and the relevant manufactured goods are not produced in the United States if sufficient and reasonably available quantities and of a satisfactory quality; or

(3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.

(c) If the head of a Federal department or agency determines that it is necessary to waive the application of subsection (a) based on a finding under subsection (b) the head of the department or agency shall publish in the Federal Register a detailed written jurisdiction as to why the provision is being waived.

(d) This section shall be applied in a manner consistent with United States obligations under international agreements.

[The Joint Explanatory Statement indicates:]

Section 1605 provides for the use of American iron, steel, and manufactured goods, except in certain instances. Section 1605 (d) is not intended to repeal by implication the President's authority under Title III of the Trade Agreements Act of 1979. The conferees anticipate that the Administration will rely on the authority under 19 U.S.C. 2511 (b) to the extent necessary to comply with U.S. obligations under the WTO Agreement on Government Procurement and under US free trade agreements and so that section 1605 will not apply to least developed countries to the same extent that it does not apply to the parties to those international agreements. The conferees also note that waiver authority under section 2511 (b) (2) has not been used."

* This was all there was until Canada and the EU protested at the implications for free trade.

70% of Britons likely to be less favourable to Obama if he presides over protectionist measures

The European Union and Canada have both publicly warned at the consequences for world trade of provisions in America's draft economic recovery bill that would require all stimulus-funded infrastructure projects to only buy US iron, steel and manufactured goods.

John Bruton, the European Commission's representative in Washington, wrote to the Secretary of State, Hillary Clinton, and Treasury Secretary, Timothy Geithner, warning that the current 'buy American' stimulus provisions risk initiating "a spiral of protectionist measures around the globe that can only hurt our economies further."  Canada's Ambassador to the United States worries that "if Buy American becomes part of the stimulus legislation, the United States will lose the moral authority to pressure others not to introduce protectionist policies."

The leader of Republicans in the Senate, Mitch McConnell of Kentucky, has also attacked provisions that have the public backing of Vice President Joe Biden:

"I don't think we ought to use a measure that is supposed to be timely, temporary and targeted to set off trade wars. The entire world is experiencing a downturn in the economy. I think it's a very bad idea."

There was always a danger that a Democrat takeover of Washington would have serious consequences for trade.  The unions that are such a powerful force in the Democrat party have consistently campaigned against jobs being shipped overseas.  Democrats in Congress are keen to revisit the North American Free Trade Agreement and have opposed free trade pacts with South American states.

A poll of British voters carried out for the London Centre for the Study of Anti-Americanism in August last year found that protectionism was the greatest threat to Obama's popularity.  70% said they were likely to think favourably of him if he introduced measures that stopped some UK companies enjoying access to American markets.

Popularity can never be the primary objective of US foreign policy

President-Elect Barack Obama has always been confident of his ability to tackle anti-Americanism.  He said this in November 2007, campaigning in Iowa:

"The day I'm inaugurated, not only will the country look at itself differently, but the world will look at America differently."

Early reaction to his election has indeed been very positive. We noted some of the warm response last week.

But popularity shouldn't be the primary objective of US foreign policy as Jeff Jacoby noted in Sunday's Boston Globe:

"Great nations have great interests in the world - interests that cannot always be secured through patient negotiation or Security Council resolutions. As the foremost military power, the United States must at times be "the world's reluctant sheriff," using force to maintain order or defend liberty. President Obama may speak more softly than his predecessor, but he will still be carrying a very big stick. Like other presidents, he will be loudly condemned when he uses it."

Many thought anti-Americanism - a plague that has beset every recent US administration and, for that matter, every 'top dog nation' in history - had suffered a terminal setback on 9/11.  It hadn't, of course.  Anti-Americanism resumed because of America's assertive response to those attacks and also because that response was often pursued incompetently and ineffectively.

Barack Obama's foreign policy options divide into four broad categories. We list them below with some example policies:

RIGHT FOR THE WORLD, RIGHT FOR ANTI-AMERICANISM

• An and to aggressive interrogation techniques including waterboarding and the closure of Guantanamo Bay.
• The continuation of the Bush administration's Africa policies which have included large increases in aid spending - particularly against malaria and HIV/AIDS.

RIGHT FOR THE WORLD, WRONG FOR ANTI-AMERICANISM*

• Perseverance in Iraq until the benefits of the surge are safeguarded.  Many in Europe and the Middle East will be disappointed at a measured withdrawal of forces but a precipitate exit would not just endanger Iraq's transition to stability but, in the medium term, contribute to a lack of confidence in American power.
• A surge of troops into Afghanistan and greater commitment of European soldiers to the task of defeating the Taliban.

WRONG FOR THE WORLD, RIGHT FOR ANTI-AMERICANISM

• Submission to the UN. The world will initially appreciate multilateralism but many will come to resent the lack of action that results from prolonged summitry.

WRONG FOR THE WORLD, WRONG FOR ANTI-AMERICANISM*

• Anti-free trade policies as supported by many US Democrats and union leaders. UK Prime Minister Gordon Brown is urging the President-Elect to resist protectionism.

* When we say "wrong for anti-Americanism" we only mean in the short-term. Policies that are "wrong for the world" - pursued for a long enough period - will progressively undermine confidence in US policy and power.

McCain and Obama criticised for economic isolationism

Daniel Drezner of the Fletcher School of Diplomacy writes for the National Interest on the second of this year's three Presidential debates, which took place in the early hours of Wednesday morning (UK time). He concludes his column by criticising both John McCain and Barack Obama for scepticism of engagement with the world on an economic level.

"What was odd was that [their] hopeful vision of America’s role in the world clashed badly with their rhetoric on the global economy. When talk turned to economics, the rest of the world was viewed as a scary, scary place.

"Both candidates lamented the fact that the United States was borrowing so much from China (Obama added Saudi Arabia for good measure). Obama stressed that he wanted to offer incentives, “so that you can buy a fuel efficient car that’s made right here in the United States of America, not in Japan or South Korea.” McCain warned against returning to the protectionist policies of the Great Depression, but he also warned that some of the $700 billion trade deficit, “ends up in the hands of terrorist organizations.” The candidates fell over each other stressing the need to develop energy independence—which most energy specialists believe is little more than a pipe dream.

"Some of these economic security concerns are valid, but the tone of the responses suggested a mismatch between the candidates’ vision of world politics and the world economy. They see the United States playing a positive role in security issues. On the global economy, however, the language was much more zero-sum.

"Foreign economic policy is related to foreign policy—it’s hard to get cooperation on matters of high politics while claiming that other actors in the world are economic threats. Both candidates recognized the relationship between a strong military and a strong economy. It was surprising, then, that neither John McCain nor Barack Obama realize that economic isolationism will cost them goodwill in dealing with the trouble spots of the world."

Experts divided on which Presidential candidate is better for Canada

CTV News reports the way in which the foreign policy views of most Canadians may come into conflict this November with their economic interest in continuing free trade with America.

"On pocketbook issues, the sensible thing to do would be to hope for a McCain presidency," said Greg Anderson, a U.S. foreign policy expert at the University of Alberta's political science department.

Faced with an economic downturn and the Wall Street investment meltdown, a Democratic president would be more likely to build protectionist walls around the U.S. economy -- which would have dire effects on Canadian industry, Anderson told CTV.ca.

Anderson also notes Obama's energy adviser's attack on Alberta's oil sands and contrasts Obama's willingness to regulate industry more - likely forcing Canada to do the same - with McCain's "more resistant" approach to red tape.

However, the article notes that "many Canadians, including NDP Leader Jack Layton, have a blatant crush on presidential hopeful Barack Obama", and suggests foreign policy is the reason. Stephen Clarkson of the University of Toronto argues that Canadians should prefer the dovish Obama to the hawkish McCain:

"Somebody who is still pursuing a Bush approach to global affairs is going to continue the disaster, which affects Canada as well as everybody else."