Will the Midterms Thaw America’s Frozen Trade Deals?
As polls predict a shift in Senate control in this week’s midterm elections, policy-oriented analysts surveying the prospects for the next two years have consistently focused on trade. Could this be the moment when stars align and, after years of deferral, Republicans get their beloved open markets and President Obama gets his landmark foreign policy ...
As polls predict a shift in Senate control in this week's midterm elections, policy-oriented analysts surveying the prospects for the next two years have consistently focused on trade. Could this be the moment when stars align and, after years of deferral, Republicans get their beloved open markets and President Obama gets his landmark foreign policy successes through the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP)?
As polls predict a shift in Senate control in this week’s midterm elections, policy-oriented analysts surveying the prospects for the next two years have consistently focused on trade. Could this be the moment when stars align and, after years of deferral, Republicans get their beloved open markets and President Obama gets his landmark foreign policy successes through the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP)?
Dan Drezner surveys the hopeful prognostications in the Washington Post. John Hudson paints a similarly rosy picture here at Foreign Policy. Drezner concludes on a cautious note, however. He is already likely to owe me a nice dinner on the basis of a 2012 bet in which he was swept up in a fit of trade enthusiasm.
Dan is right to be cautious (with age comes wisdom). I would like nothing better than to see the president find common ground with a Republican congress and fulfill America’s commitments to opening global markets. Not only could completed agreements provide an economic boost, they would play an important role in bolstering and restoring America’s flagging foreign policy. But here are three reasons not to proclaim trade victory quite yet.
We’ve seen this movie before.
After the Democrats lost the House in the 2010 midterms, there were rampant expectations that President Obama would follow President Bill Clinton’s example after the 1994 midterms: he would find certain issues on which he could collaborate with Republicans. In 2010, the most likely candidates were fiscal issues, education, and trade. On trade, there were some obvious steps to take: three pending trade agreements with Colombia, Korea, and Panama that had been blocked since 2008. President Obama clearly needed Trade Promotion Authority (TPA) as well, since he had already engaged in talks for the TPP.
As it happened, there was never any great degree of bipartisan cooperation. On fiscal issues, Obama discarded the bipartisan Simpson-Bowles commission report, which came out just after the election. He fought with House Republicans for months over whether he could tackle only the Korea FTA. In the end, all three agreements passed in the fall of 2011, but only when Republicans insisted they move as a group. It was a bloody fight that left little appetite for further cooperation on trade. When Senate Republicans offered to put forward TPA for the president, Senate Democrats declined, saying the timing was not right. In the end, the President and Congress only managed to advance trade policy to where it had been in 2007, when the Korea agreement was initially signed under President Bush.
Obama ultimately chose a more contentious path than the one Clinton had taken. Clear opportunities for bipartisan cooperation were not taken.
How much is it worth to you, Mr. President?
Given that TPA would have empowered Obama to negotiate agreements he was already pursuing, we can ask — why would he turn it down when Republicans offered in 2011?
The answer is because there would have been a political cost to accepting it. From his time as a presidential candidate, President Obama has had to deal with a Democratic Party that was divided in its support of trade. He has deftly papered over this divide with promises of a "21st century trade agreement" that would remedy all the failings of previous approaches. So long as such promises remain vague, trade critics and trade enthusiasts in the president’s party can each hold out hope that the agreements will be to their liking. Once the president gets specific, however, with an actual TPA bill, there will be a political price to pay with disappointed supporters. This was why the president did not embrace TPA in 2011, nor when a bipartisan agreement was struck at the beginning of this year. In each case, trade progress would have come at the price of political support within the Democratic party. To date, the President has not been willing to pay that price.
Might that change after this week’s elections? After all, the President is not running for election any more. Nor does he have to worry about moves to maintain a legislative majority. What could hold him back?
Let’s get specific. I am told, by a knowledgeable source in the House, that the votes would likely be there to pass a clean TPA bill early next year. In fact, there is only one real threat that could derail it: if the President takes a major executive action on immigration.
What does immigration have to do with trade politics? TPA sounds as though it is granting the president additional authority. One can argue with that interpretation — it is really a voting rule that Congress applies to itself – but "authority" is right there in the name. If a significant number of House Republicans are incensed at perceived executive branch overreach, they will be unlikely to vote for a grant of additional authority. This would not matter so much if the president could contribute substantial Democratic votes, but there is too much opposition to trade among House Democrats; few thought they could provide even 50 votes, had TPA come up this year.
So would the president be willing to forego an executive move on immigration in order to make progress on trade? Of course, he could always work toward a legislative deal instead, but he has raised expectations about what he can do unilaterally and is under immense pressure to follow through.
Necessary, but not sufficient.
Finally, the prolonged debate over TPA can make it seem as though that authority is the main barrier to successfully completed deals. In fact, TPA was supposed to be the easy prerequisite. It is necessary for trade liberalization, but leaves most of the hard bargaining still to be done.
On TPP, there are questions about whether the United States is willing to make politically sensitive concessions on autos and sugar in order to win concessions from the Japanese on agriculture or the Australians on intellectual property rights. There are difficult issues such as rules governing state-owned enterprises, regulation, and currency (the last a rare topic that unites the Congress, but that divides the United States from all of its TPP negotiating partners).
The TTIP negotiations are no easier. The administration now has to negotiate with a brand new European Commission, having failed to conclude talks under the old one. The agenda consists almost entirely of difficult issues, such as financial regulation, agriculture, data privacy, and investor-state dispute settlement.
None of this is to belittle the importance of TPA — without it, nothing serious will happen. But even if it were passed and signed in January next year, that would leave relatively little time before a traditional "dead period" in American politics for tackling major trade agreements, the presidential election season.
A Republican capture of the Senate would make progress on the trade agenda more likely, but I’m still pretty confident Dan Drezner will be buying me dinner at the end of President Obama’s term.
Phil Levy is the chief economist at Flexport and a former senior economist for trade on the Council of Economic Advisers in the George W. Bush administration. Twitter: @philipilevy
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