Prestowitz: Obama administration at odds with itself on trade policy – Foreign Policy (blog)

Repairing
and upgrading infrastructure and education, facilitating and investing in
production of more and cheaper energy, fostering domestic manufacturing and the
re-shoring of production and jobs, reforming how we do healthcare to cut costs
by paying for results rather than procedures, stoking R&D and innovation,
and fixing our broken immigration system are all important and largely (or
should be) bipartisan undertakings.

But does the
White House understand that it is operating in a global economy, have any idea
of what that is, or of how other countries conduct themselves in that
environment?

The
President announced that he is launching
talks to conclude a Trans Atlantic Free Trade Agreement (TAFTA) between the
United States and the European Union. This is a worthy initiative that I, along
with a few others, have been promoting for nearly twenty years. It’s worthy
because the EU is by far the world’s largest economy and the economic
relationship between the U.S. and the EU dwarfs any other. The United States
sells three times as much to the EU as it does to China, for example. Furthermore,
the EU’s attitudes and policies on international trade and investment are very
similar to our own and its markets most nearly match ours in terms of openness
to outsiders. EU wages are, if anything, higher than ours, as are its
environmental, health, and safety regulations. So there will be no race to the
bottom in a TAFTA. Nor are the euro and the pound sterling manipulated
currencies, and the EU anti-trust regime is fully as tough as that of the
United States. I believe a TAFTA could add 2 to 4 percentage points to U.S.
GDP. So far so good.

But then the
President reiterated a line from his inauguration address which said that the Trans
Pacific Partnership Free Trade Agreement that he is hoping to complete with
Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore,
Malaysia, and Vietnam (and possibly Japan) by October will level the playing
field and promote American exports and jobs. He essentially equated the two proposed
deals.

But they are
in no way comparable. For starters, the TPP is likely to undermine the North
American Free Trade Agreement (NAFTA) and the Caribbean Area Free Trade
Agreement (CAFTA) and result in the loss of more than a million jobs in Mexico
and the Caribbean, along with nearly 200,000 jobs lost in the United States.
This is because under NAFTA and CAFTA textile producers in the Caribbean and
Mexico who use U.S.-made fiber and yarn receive duty free access to the
American market. The only manufacturing industries in the Caribbean are based
on this deal, as is much of Mexico’s manufacturing industry. These deals were
done in the 1990s in part to mitigate illegal immigration and illegal
production and shipment of drugs to the United States. A TPP will remove the
tariffs on textile imports from much of Asia and take large chunks of the U.S.
market away from Caribbean and Mexican producers and give it to Vietnamese
producers that are heavily controlled and backed by their government, according
to studies by the Mary O’Rourke Partners Group of economic analysts.

But that’s
just a small part of the problem. The main part is that the TPP does not at all
address the issue of trade-related currency manipulation in which governments
actively adopt policies aimed at promoting their exports and reducing their
imports by lowering the value of their currencies. A good recent example is
that of Japan. Before being elected, the new Prime Minister Shinzo Abe called
for devaluation of the yen. Upon election he immediately began introduction
of policies and rhetoric aimed at reducing the value of the yen. Not
surprisingly, the yen has
devalued by nearly 30 percent over the past few weeks. That would far
outweigh any removal of a 5 percent tariff that might be achieved in a TPP
deal. Yet the TPP has nothing with which to combat this kind of currency
policy.

And it gets
a lot worse. On Monday, I received an urgent email from an old friend in Tokyo who
is a former top economist for Goldman Sachs. He had just seen on Bloomberg a
comment by Treasury Undersecretary Lael Brainard saying in answer to a question
about Tokyo’s recent actions that the administration supports
Abe’s policies to stimulate the Japanese economy. In other words, the Obama
administration apparently approves of Abe’s efforts to weaken the yen as a way
of subsidizing Japanese exports, many of which come to America, a country that needs
to reduce its trade deficit in order to keep economic growth and job creation
going.

Asked my
Tokyo friend: “Do these people have any brains? Who do they work for? Who?”

Well, they
all work for the president, and he hasn’t figured out yet that the TPP and
fiddling with currency values to promote trade surpluses and promoting
manufacturing in America don’t go together. So it was a good speech, but a very
mixed message.