By ignoring the role of politics, economists often get it wrong. How many trade specialists were prepared for the recent breakdown of the Doha trade talks, despite the obvious gains to be had on all sides from a new round of liberalisation?
The answer is almost everyone (Jagdish Bhagwati’s strategic optimism notwithstanding). Trade specialists are (sadly) well aware of the political constraints that shape trade policy.
The United States is the world’s “greatest importer,” says John McCain. That message certainly runs contrary to the usual.
After seeing Paul Krugman say that the collapse of Doha is less troublesome than the 2002 steel tariff, Brad DeLong starts the blame game:
I remember Glenn Hubbard, Larry Lindsey, Greg Mankiw, and company all saying that Bush had to impose his steel tariffs in 2002 as a price for getting fast-track authority so that he could successfully complete… the Doha Round.
When and where did they say it? Here’s a WaPo review of how it played out:
R. Glenn Hubbard, then chairman of Bush’s Council of Economic Advisers, drafted detailed analyses against the tariffs, including state-by-state job losses that he forecast for manufacturing…
then-Treasury Secretary Paul H. O’Neill expressed philosophical opposition to tariffs, but he was more interested in opening talks with allies on limiting steel production capacity abroad.
At a crucial meeting of the economic team, tariff opponents said they were abandoned. O’Neill sent his undersecretary for international affairs, John Taylor. Then-Budget Director Mitchell E. Daniels Jr. told Hubbard, who also has since left the administration, that he would back him, but left the meeting before Hubbard’s presentation. And Lawrence Lindsey, the famously opinionated chairman of the White House National Economic Council, decided his role was to facilitate the discussion, not express an opinion.
Perhaps most importantly, former Bush economic advisers said, Robert B. Zoellick, the U.S. trade representative, supported the tariffs, figuring that backing them would win congressional votes to give Bush “fast track” trade negotiation powers.
So we can indict Zoellick. And Lindsey and O’Neill can be blamed for being too passive. In fact, an article in the Sunday Times (“Steeling away,” 10 March 2002) makes it clear that Lindsey was on board:
“Instinctively, I am a free trader. But in the case of steel, the free-trade argument is tough to make. Tariffs are never my first choice, but the second, third and fourth choices weren’t too good either.”
And what about the electoral politics? “I’m sure that never entered the calculus,” says Lindsey, his broad smile giving him away.
Also blame Karl Rove and Commerce Secretary Donald Evans, who fought Hubbard, according to this NYT story.
Greg Mankiw was not in the administration at the time, and Factiva and Google return no relevant results for Mankiw + steel in 2002. When did he say something in support of the steel tariffs?
Blame Rove. Blame Zoellick. Blame Lindsey. Blame Evans. Indeed, Bruce Bartlett blamed them when the tariffs were imposed. But where’s the dirt on Glenn Hubbard and Greg Mankiw?
Reacting to a story that Barack Obama doesn’t think NAFTA is so bad after all, Juan Carlos Hidalgo says “he’s a politician after all,” as I noted (twice) back in March. Here’s Obama coming clean in Fortune:
Barack Obama is toning down his populist rhetoric – at least when it comes to free trade.
In an interview with Fortune to be featured in the magazine’s upcoming issue, the presumptive Democratic nominee backed off his harshest attacks on the free trade agreement and indicated he didn’t want to unilaterally reopen negotiations on NAFTA.
“Sometimes during campaigns the rhetoric gets overheated and amplified,” he conceded, after I reminded him that he had called NAFTA “devastating” and “a big mistake,” despite nonpartisan studies concluding that the trade zone has had a mild, positive effect on the U.S. economy.
Does that mean his rhetoric was overheated and amplified? “Politicians are always guilty of that, and I don’t exempt myself,” he answered.
Fred Bergsten’s concise explanation of why the US invented TPA, formerly “fast track”:
Our unique constitutional system – under which Congress is responsible for “foreign commerce” but the president has authority to negotiate with other governments – has required the creation of special procedures to mesh with the parliamentary systems of other countries where executive and legislative branches almost always work together. Without arrangements that assure reasonably prompt congressional action on agreements negotiated by the president, other countries legitimately fear that Congress will simply let deals languish, or insist on further concessions…
Current and former chief trade officials of three of the world’s largest trading entities have told me that, since the House action, the U.S. has lost all credibility. In other words, the “time out” proposed for trade policy by one of the major presidential candidates – a central goal of the opponents of globalization – has already been called.
John McCain pushed free trade in a recent speech.
Every once in a while, President Bush shows some promise. He’s opposing the farm bill:
“At a time of record farm income, Congress decided to further increase subsidy rates, qualify more people for taxpayer support and move programs toward more government control,” Schafer told reporters today. “The president will veto this bill.”
American farmers are suffering from rising food prices?!?!
“Rural America is struggling in the face of skyrocketing energy prices, an economic downturn and rising food prices,” Clinton said. “Saying no to the farm bill would be saying no to rural America.”
Hillary is making good on her promise to not “put [her] lot in with economists.”
HT: H&R
Barack Obama is a politician, so he’s oscillating between what he knows and what brings in votes, says David Brooks:
Barack Obama delivered a speech in Pittsburgh on Monday on the economic stresses facing American workers. In the speech, he devoted one clause in one sentence to the single biggest factor affecting the workplace: technological change. He then devoted 45 sentences to one of the least important: trade deals…
He wasn’t even talking about trade in general. He was talking about the Nafta- and Cafta-style trade agreements whose negative effects on the American economy are barely measurable. And, to make matters even more inconsequential, he wasn’t even taking a clear stand on such deals themselves…
He wound up in the no-man’s land between Lou Dobbs-style populism and Bill Clinton-style free trade. He made a series of on-the-one-hand/on-the-other-hand distinctions about which sort of trade deals he’d support and which he wouldn’t. It added up to a vague, watered-down version of economic light beer. In the end, he suggested a few minor tweaks in the U.S. tax code that would have a microscopic effect on outsourcing, and a few health and safety provisions which might have teenie-weenie effects on investment decisions. The ideas he sketched out in the speech aren’t dangerous. They’re just trivial.
We all know why Obama spoke the way he did on Monday. The forces transforming the American economy are big and hard to control. If you think your listeners aren’t sophisticated enough to grasp them, it’s much easier to blame those perfidious foreigners for all economic woes. It’s much more heroic to pretend that, by opposing Nafta, you can improve the lives of middle-class voters. Furthermore, these trade deals have become symbolic bogies for union activists. Instead of concerning themselves with the tidal waves washing overhead, they’ve decided to insist on bended-knee submission in the holy war against Colombia.
Similarly, from the Economist:
Democrats are enduring a six-week pause between their last primaries, on March 4th, and the next contest in Pennsylvania on April 22nd. This big rust-belt state has lost over 200,000 manufacturing jobs since 2001. So it’s just the kind of place where demonising trade with foreigners (particularly China) is likely to prove politically useful.
This hyperinflation of trivial trade deals has resulted in a big political conflict over a proposed PTA with Colombia that will have little to no effect on the US economy.
Please get over it!
Trade Diversion 