by Fran Smith
November 6, 2008

With the election of Senator Barack Obama as the nation’s next President, special interests are positioning themselves to push the new president to back up his pre-election positions on international trade with action.  On November 5, AFL-CIO policy director Thea Lee told Reuters that Obama will have to move on the domestic policy front—preserving jobs and shoring up the economy—before taking any action on trade.

Other trade commenters have said that Obama could likely move quickly to end tax breaks for companies that outsource jobs overseas, perhaps reopen the North American Free Trade Agreement (NAFTA) to add enforceable labor and environmental standards and to change NAFTA’s investment provisions. He also may back actions to declare China’s currency “manipulation” as an unfair subsidy, and launch extensive trade adjustment assistance programs for workers. 

All of these trade possibilities and others are outlined in the Democratic platform. (The AFL-CIO’s Thea Lee took credit for drafting the platform’s trade language, at a recent American Enterprise Institute conference.)

Meanwhile, according to reports, Asian countries are worried about whether the new president will carry out some of the trade policies he promoted during his campaign, such as renegotiating the U.S.-Korea Free Trade Agreement to provide more for U.S. car manufacturers, pushing for China to loosen currency controls, stepping up duties on Chinese imports.

However, while Obama will not be able to completely renege on these campaign promises—labor, environmental, and anti-globalization special interests won’t allow that—it is likely that other forces and priorities will temper many of these proposed trade policies. Chief among these considerations, of course, is the ongoing financial crisis and the specter of a long and deep recession.

Also, while oil prices have dropped significantly from their historic highs, fuel costs remain an important issue—one that could negate Obama’s promises on NAFTA. If the Obama Administration reopens NAFTA, how will Canada and Mexico retaliate? As the United States’ two biggest oil suppliers, will they want to reopen agreements that govern the continuation of oil imports even when there’s a supply disruption from other areas? Canada’s trade minister has already said that oil will be on the table if NAFTA is reopened. A new administration is not likely to risk that.

It’s likely that Obama will focus on economic stimulus packages, job creation schemes, and creating a larger “safety net” for workers who ostensibly lose their jobs because of trade. 

In foreign policy, the new president will have to focus on improving relations with neighbors, allies, and emerging world powers. Trade relationships help open the door for that. Latin America, with many countries going increasingly leftist, has a few strong U.S. allies, most prominently Mexico and Colombia. Turning against those countries with new trade demands would foment more anti-Americanism and play into the hands of populist demagogues like Hugo Chavez of Venezuela.

Likewise, in Asia. Major trading countries in the region—including Japan, South Korea, Indonesia, China, and Singapore—have free trade agreements concluded or under negotiation with each other through both regional and bilateral trade pacts. Asia-Pacific countries are setting up the structure for greater economic integration that the U.S. is ignoring in most cases. 

The new President cannot ignore such developments, since to do so would set up the U.S. as more isolationist than many of its major trading partners. In recent years, the sustained growth of U.S. exports has been one of the only positive economic developments in a faltering economy. If closer ties with trading partners are not negotiated, the U.S. stands to lose out on increased economic growth through trade.

Increasingly too, the U.S. cannot foist labor and environmental provisions on major emerging economies, as it was able to do with smaller and poorer countries. That will not stop labor unions and environmentalists from pushing to include even more side issues in trade agreements.  Carbon border taxes will be a hot issue that trade protectionists and environmentalists will pursue for different goals—to set up trade barriers against developing countries and to address climate change, respectively—with politicians likely to join this chorus citing the competitiveness argument in favor of carbon tariffs.

Besides the economic and geopolitical need for the U.S. to be involved in bilateral, regional, and multilateral trade negotiations, a strong counterbalance to anti-trade proposals could be the need for developing countries to improve their economic situations through increased trade—an argument that President-elect Obama and many of his supporters could fine appealing.

Underlying all arguments, however, should be the defense of more open trade as benefiting consumers. Too often, consumers have been neglected in the mercantilist assumptions that frame most trade debates—“Exports good, imports bad.”

And it is not just conservatives and libertarians making the case for freer trade. The Progressive Policy Institute has defended more open trade and the lowering or elimination of tariffs.  The progressive group Third Way has taken on the Lou Dobbs protectionists by launching its own defense of more open trade.

The Obama Administration will face enormous pressure from interest groups to make good on campaign promises on trade. More than ever, free trade supporters need to promote the benefits of open trade for people in the U.S., and in both developed and developing countries around the world. There may be some breathing room to do just that, as other economic issues and concerns may push aside the trade debate.

President-elect Obama has a formidable group of economic advisors on his team. In the country’s economic interests, they may be less likely to push ahead quickly on divisive and misguided trade initiatives that would harm our fragile economy and isolate the U.S. from its international interests.