Barack Obama’s Free Trade Fake-Out

Meet Barack Obama 2.0: free-trader extraordinaire.

The president has spent the past few months lobbying Congress for a new trade deal that would subject American workers to more global competition at a time when their bargaining power is already on the wane.

In case you’ve forgotten, this is the same President Barack Obama who, in version 1.0, campaigned on a promise to protect American workers, advocating subsidies for domestic manufacturing industries to make them more competitive. He even inserted a “Buy American” provision in the 2009 fiscal stimulus, requiring all government-funded projects to use domestically-produced materials.

That was protectionism, pure and simple, depriving the government of the ability to source competitively priced products from around the world, and increasing the cost to the taxpayer by coddling American companies. The measure was ultimately watered down because of threats of retaliation from major trading partners, but it made a comeback in the president’s proposed 2011 American Jobs Act (which then ran into opposition from both sides of the aisle in Congress and died).

But now, the president who pledged “to put American workers first” is pushing hard for the Trans-Pacific Partnership (TPP), a free-trade agreement being negotiated by 12 Pacific Rim countries that would subject American workers’ pay to market forces. The last few decades have seen entire industries relocate offshore — when was the last time you saw “Made in USA” on a T-shirt label? And yet Obama is touting TPP not only as a job creator but also as the most progressive trade agreement in history (perhaps because it would impose U.S. labor standards on developing countries and enforceable environmental-protection standards).

When Obama talks to businesses, he may emphasize a reduction in tariffs for textile manufacturers, for example, or increased access to foreign markets for services companies. But it’s jobs that are his major selling point to the American public. And this is misleading: There are benefits to free trade, to be sure. But under free trade agreements, jobs shift to areas where the U.S. has a comparative advantage. There is no way to guarantee a net increase.

This president and his supporters talk economics when it suits their political purposes. And even then, they tend to be off the mark.

A recent New York Times op-ed by former Obama Chief of Staff William Daley in support of the TPP is a case in point. Daley cites statistics showing that export-related jobs pay 18 percent more than similar jobs in the same sector. He bemoans the fact that the United States ranks 39th out of the 40 largest economies when it comes to exports as a share of gross domestic product (GDP). “Our success depends on how much of that new [overseas] wealth is spent on American products,” Daley writes.

I’m not aware of any principle, or law of nature, that equates prosperity with a certain ratio of exports to GDP. The United States is already the largest exporter by volume of commercial services and the second-largest exporter of goods, according to the U.S. Department of Commerce. It ranks among the wealthiest of nations in terms of more conventional measures of prosperity, such as per capita GDP, and manages to do so with exports accounting for just 13.5 percent of total output. Perhaps Daley would prefer an export-to-GDP ratio of 42 percent, like Zambia, where GDP per capita is around $2,000 a year.

Indeed, even China, that exporting powerhouse, is trying to shift to domestic sources of growth. Relying on exports means incomes rise and fall with exchange rates and business cycles in other economies; domestic demand is a function of domestic policy and hence, more predictable. Moreover, the benefits of trade derive as much from cheap imports — in some cases, intermediate goods used to manufacture finished products for sale at home and overseas — as exports.

Free trade provides consumers with the widest assortment of goods and services at the lowest possible prices. It is this idea that has underpinned support for unfettered trade over the years by economists of all political persuasions. Yet Obama is mainly trying to sell TPP on the basis of creating jobs and increasing exports. By contrast, organized labor is warning that both jobs and production will be shipped abroad if TPP is enacted. Nothing Obama says is going to convince the AFL-CIO, who know the score; free trade may increase the size of the pie, but the unions are more concerned about the people who may end up with a smaller slice.

That the TPP will make it to the president’s desk is by no means guaranteed. The Senate passed the trade promotion authority measure, better known as “fast track” — along with Trade Adjustment Assistance for affected companies and workers — in May, which would limit Congress to an up or down vote on TPP and other international trade agreements negotiated by the president. The House is slated to vote on TPA on Friday, June 12. But an unusual coalition of labor-friendly Democrats and Tea Party Republicans have aligned in opposition to either the trade deal itself (Democrats), or to granting negotiating power to Obama (Republicans). Obama is currently furiously lobbying for the measure on the Hill. [Update: This afternoon the House rejected Obama’s trade initiative after failing to approve the trade adjustment assistance, a major setback for the president’s efforts to strike a major trade deal before he leaves office.]

Still, the American public by and large thinks trade is good for the United States, even though only one in five Americans thinks trade with other countries creates jobs, according to a Pew Research poll. Maybe they have a better grasp of economics than Obama.

Or maybe they can see through the veneer and understand that trade isn’t about jobs per se. Any short-run dislocations, devastating as they may be, will eventually be offset by the positive contribution to the wealth of nations, and to this nation in particular.

So, bring on the TPP, and bring in the cheap imports.

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