Home' Trinidad and Tobago Guardian : February 27th 2014 Contents FEBRUARY 2014 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG19
How to make the world US$600bn poorer
In July 2008 Sen Barack Obama then a candidate for the pres-
idency, declared before an adoring crowd in Berlin that "true
partnership and true progress (require) constant work and sustained
So it is with free trade. If not championed by leaders who
understand its broad benefits, it will constantly be eroded by
narrow economic nationalism.
Obama now appears to be surrendering to protectionists within
his own party. If he cannot drag Democrats back to their senses,
the world will lose its best opportunity in two decades for a burst
of liberalisation. It also will be a signal that America is giving up
its role as defender of an open global economy in the same way
that Obama has retreated in foreign policy.
Obama did little to promote free trade during his first term,
but has seemed bolder in his second. He launched America into
ambitious new deals with large Pacific economies and the European
Union, breathing new life into global trade talks. Momentum
built up, and the "constant work and sacrifice" paid dividends.
Members of the World Trade Organisation agreed on a package
of trade reforms in December, the first truly multilateral deal in
the organisation s 20-year history. Diplomats credit the White
House s new resolve for helping to bring stubborn parties to the
Progress suddenly seemed possible in other areas, such as lib-
eralising trade in services and information technology, and reducing
barriers to the exchange of "environmental goods and services,"
which would make it cheaper to curb carbon emissions.
The hitch is that Congress must approve trade agreements.
Previous presidents had the advantage of "fast-track" trade-pro-
motion authority, which let them present deals to Congress for
a simple yes-or-no vote. Without it, lawmakers can wreck carefully
negotiated deals with toxic amendments.
No country would engage in serious talks with America under
such circumstances. Fast-track is therefore essential, and elusive.
Congress last granted it in 2002, and it expired in 2007. The
Obama administration blithely asserted that Congress would
renew it, but many lawmakers, primarily Democrats, have signed
letters opposing it. Sen. Harry Reid (Democrat-Nevada), the
Senate majority leader, has all but ruled out a vote this year.
On February 14 Vice President Joe Biden told a gathering of
Democratic leaders that he understood their opposition. The
White House appears to have given up with scarcely a fight. A
fast-track vote before November s mid-term elections seems
Why panic about this? Tactically, it could simply be another
piece of Washington politicking. Some optimists claim that Con-
gress will return after the midterms ready to back fast-track,
providing that Obama allows some boilerplate language in the
bill chiding China for allegedly manipulating its currency. Others
wonder whether the trade deals are really so vital. Indeed, the
idea that they will not do much to help the economy is one
excuse for Democrats undermining their president.
In fact, the deals on the table are big. Reasonable estimates
say that the Transatlantic Trade and Investment Partnership and
the Trans-Pacific Partnership could boost the world s annual
output by US$600 billion, equivalent to adding another Saudi
Arabia. Some US$200 billion of that would accrue to America.
The actual gains could be even larger. The agreements would
clear the way for freer trade in services, which account for most
of rich countries GDP but only a small share of trade. Opening
up trade in services could help reduce the cost of everything from
shipping to banking, education and healthcare. Exposing pro-
fessional occupations to the same global competition that factory
workers have faced for decades could even strike a blow against
the income inequality that Obama so often decries.
The deal with the European Union was meant to be done
swiftly, perhaps in as little as two years, to keep politics from
mucking it up. Europe s leaders will now doubt America s com-
mitment, given how feebly Obama has fought for fast-track.
Trade skeptics, such as French farmers, are drooling. Chancellor
Angela Merkel of Germany, who already is furious about American
spying, may decide that a trade deal is not worth battling for.
The greatest risk of all is that the political momentum in
America, having swung against free trade, will be hard to reverse.
Some Tea Party Republicans oppose fast-track because they are
loth to grant Obama the authority to do anything. Democrats,
keen to brand themselves as the anti-inequality party, may find
economic nationalism an easy sell on the campaign stump --
and, once pledged to that cause in November, candidates will
not vote for the opposite in Congress.
For this Obama deserves some blame. He is far more ardent
in bemoaning inequality than in explaining why an American
retreat from the world would be the wrong way to address it.
He seldom mentions, for example, that cheap imports help the
poor by cutting their shopping bills, and so reduce inequality of
There is nothing inevitable about globalisation. Governments
have put up barriers before, with disastrous consequences during
the 1930s, and could do so again.
It therefore is alarming when America, the mainstay of an
open global economy, gives off isolationist signals. Only recently
Congress childishly refused to honour an agreed-upon increase
in America s financial commitment to the International Monetary
Fund. The Federal Reserve is pushing forward with new banking
regulations that could penalise foreign banks and further Balkanise
@2014 The Economist Newspaper Ltd. Distributed by the
New York Times Syndicate
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