Ian Fletcher

Obama clearly doesn't get it yet on trade agreements.

Despite the fact that every major American trade agreement since NAFTA has worsened America's trade balance, he actually seems to think he can improve America's export performance by going for more, starting with a free-trade agreement with South Korea.

So it's worth taking a hard look at why America's trade diplomacy is so chronically dysfunctional. I mean, if the trade agreements our government signs are so disadvantageous to the U.S., why does it sign them in the first place?

The obvious answer is, of course, special interest pressures. Realpolitik in the name of the national interest is a joke; what we have is multinational corporations headquartered in the U.S. passing themselves off as American and calling the shots.

Even worse, many of the largest American companies are now so dependent on their overseas operations, and thus so vulnerable to pressures by foreign governments, that they have become outright Trojan horses with respect to American trade policy. As former congressman Duncan Hunter (R-CA), for years one of the outstanding critics of trade giveaways in Congress, has put it.

For practical purposes, many of the multinational corporations have become Chinese corporations.

At some point, the nationalists and the capitalists in the Republican party will necessarily come to blows over this. Tea Party, are you listening?

The more profound answer, however, is that our government signs these treaties simply because it does not take their dangers seriously. Why? Because of its underlying economic assumptions about the universal benevolence of free trade. This is the deeper kind of special-interest corruption: when special interests are so entrenched in a society that the society has lost the power to distinguish their interests from those of society at large. The universities where America's diplomats, economists, politicians, and journalists are trained are, of course, funded (and their boards of trustees filled with) the same corporate interests which also lobby directly for "free" trade. So what do you expect?

This corruption is often quite subtle, as befits a rich developed nation. It is not Soviet-style indoctrination. For example, the naïve assumptions about economics that our trade diplomats have rarely consist in outright intellectual fanaticism about the economics of free trade. That is easy enough to find in academia and the strange wonderland of the editorial pages, but quite rare in our trade negotiators and diplomatic service generally. Instead, there is usually a hazy, almost undergraduate, sense that "economics says free trade is best" which renders our trade negotiators helpless in the face of corporate pressures for more trade agreements.

This helplessness is worsened by inexperience and a lack of institutional memory about past negotiations. And when our trade negotiators work to open foreign markets, they usually do so willy-nilly, with no sense that some industries are more strategic than others. This assumption is profoundly wrong, as it ultimately comes down to the idea that all industries are alike in their value for our economic future. This was epitomized by an infamous (and subsequently denied) comment by Michael J. Boskin, George H.W. Bush's chairman of the Council of Economic Advisers:

It doesn't matter whether America exports computer chips, potato chips, or poker chips! They're all just chips!

This is, of course, nonsense, as has been pointed out even by mainstream establishmentarian economists like Laura D'Andrea Tyson, chairwoman of Bill Clinton's Council of Economic Advisors, who observed that:

The composition of our production and trade does influence our economic well-being. Technology-intensive industries, in particular, make special contributions to the long-term health of the American economy. A dollar's worth of shoes may have the same effect on the trade balance as a dollar's worth of computers. But...the two do not have the same effect on employment, wages, labor skills, productivity, and research--all major determinants of our economic health.

The Obama administration doesn't seem to grasp this. Apparently, it's just fine for America to sell Korea beef and they can sell us cars. Like a well-behaved colony, it's our job to be a captive market and supplier of raw materials.

More generally in our trade diplomacy, superficial attempts at hard bargaining occasionally reflect some well-organized industry that has managed to flag the attention of Congress, but are mainly just posturing. America's trade bureaucrats have little sense of loyalty to American industry or understanding that their efforts must ultimately be judged by quantifiable success in America's trade balances.

Supremely confident in its own brilliant trade performance, the U.S. government spends billions trying to help other nations improve theirs. In 2008, the United States spent $2.3 billion on its various Aid for Trade programs, and it remains official U.S. policy to be "the largest single-country provider of trade-related assistance, including development of trade-related physical infrastructure." The 9/11 attacks intensified this effort; apparently what Osama really wants is to export.

American efforts to negotiate reasonable trade agreements are often handicapped by the fact that some American politicians have an unrealistic idea of international law. International law is not like ordinary civil or criminal law because there exists no sovereign to compel the obedience of nations. Instead, it is analogous to the rules of a game of stickball being played by children on a vacant lot: its rules only mean anything insofar as they are enforced by the players upon themselves. Obviously, as in the case of stickball, the players will enforce certain rules, because that is the only way they can have a game. So international law is not a completely vacuous concept, as some cynics suggest. But the players also won't enforce any rule grossly to the disadvantage of any particularly powerful player.

This means that the Anglo-American legal framework Americans tend to take for granted simply does not exist internationally, and therefore that a trading model based upon neutral and consistent enforcement of legal obligations is not feasible. There is no way to take power politics out of trade, which means that there is no way to leave everything in the hands of a neutral and rational free market once we but construct the right international legal machinery--otherwise known as the WTO.

On some level, I have to assume that many of the big power players are well aware of this. But since this puppet show aggrandizes both the relentlessly power-accreting bureaucrats of the WTO and the multinationals, neither has any reason to let the cat out of the bag in public. So the game goes on, with a quasi-fictional legal order implementing fantasy economics.

And at the middle of it all, the president, who, despite being a serious scholar of such subjects as, say, constitutional law, appears to have no economic ideas of his own, seems blissfully unaware of all this. He just does what his Clinton-retread advisors tell him to do.

How appropriate that in the America of 2011, even our economic policy has been outsourced.

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Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn't Work, 2011 Edition: What Should Replace It and Why. | www.freetradedoesntwork.com