issue: Trade

A Red Card for Airbus

Posted on by The Progressive Policy Institute

Referees often make costly mistakes, as we’ve seen in the World Cup. But the World Trade Organization (WTO), which umpires international commerce, got a big decision right yesterday. It handed the United States a thumping victory in a long-standing, high-stakes dispute with Europe over aircraft subsidies.

At issue were some $20 billion and below-market lending rates — known as “launch aid” – that several European governments had provided to aircraft manufacturer Airbus. The WTO deemed launch aid to be an illegal subsidy, upholding a September 2009 interim ruling.

The largess of European taxpayers was critical to Airbus’ development of several of the companies’ main commercial jets. Without such favorable financial assistance, the WTO’s ruling said, it “would not have been possible for Airbus to have launched all of these models, as originally designed and at the times it did.” In other words, without government subsidies, Airbus would have never have become the world’s number 2 player in the lucrative market for commercial airframes. U.S. Trade Representative Ron Kirk has said that the subsidies have done “great harm” to competing U.S. manufacturing firms, especially number 1 Boeing.

The ruling is welcome, not just for Boeing and American manufacturers but because it boosts the credibility of the rules-based global trading system, which lately has shown signs of fraying at the edges. If the rules aren’t enforced, trade will become a zero-sum game as countries resort to mercantilist and protectionist strategies to protect their economic interests. That in turn could bring global prosperity crashing down. The WTO’s decision is important too because it serves as a warning to other countries — China, Brazil, and Russia — who might or want to subsidize their own aircraft producers.

In an ironic twist, even the unions were on board in support of freer trade in the Airbus case. As Will Marshall and I wrote back in September (when the interim ruling was announced), “Although organized labor often has taken a skeptical if not hostile stance toward international trade, Boeing’s unions strongly backed the U.S. government’s decision to file the case in 2004. The unions realized that Boeing competitiveness was suffering and that only fair and enforceable trade rules would ensure it.”

The WTO has no mechanism for enforcing its rulings,  but rather provides the legal justification for the United States  to even the playing field. It would be best, of course, if Airbus and its European patrons bowed to the WTO’s judgment and end the illegal subsidies. It would be a tragic irony if Europe were to embrace an economic unilateralism even as President Obama has put the United States back on a course of multilateral cooperation. But if Europe won’t play by the rules, the United States has three options.

First, our government could levy tariffs on Airbus imports to the United States. Second, it could spread the pain by taxing other European imports. And third, Washington could subsidize aircraft production by U.S. firms.

The first is far and away the best choice — taxing Airbus limits the trade dispute to an isolated sector of the market, and avoids a broader trade war over other products. Government subsidies for U.S. firms are the least attractive option, because other companies in other sectors may lobby for money based on that precedent, further distorting trade.

I don’t expect Europe to just roll over and play dead. Though the EU hasn’t officially decided whether or not to appeal the ruling, and there is the possibility that some governments will just ignore the ruling and continue to subsidize production. That’s a big gamble of course, because it would just provoke more stringent U.S. tariffs on imports.

But for now, the good news is that the worlds’ trade ump is on the job, sending off those who break the rules.

Photo credit: Caribb’s Photostream

Is 100% American Content the Best Route for High-Speed Rail?

Posted on by The Progressive Policy Institute

The Obama administration’s determination to enforce 100 percent American content for high-speed train systems is roiling the rail supply industry, with some executives saying the rule would be “impossible” to achieve and others wondering how much it will slow down high-speed rail (HSR) development and add to the sticker price.

“We’re living in a global rail industry,” said an official at a large U.S. transportation manufacturer that depends on foreign parts. “Insisting on all-American content could mean losing 10 years in building our HSR supply chain.”

Karen Rae, deputy director of the Federal Railroad Administration, surprised rail advocates when she announced last month that the White House has decided to enforce the “domestic buying preference” provision of the Passenger Rail Investment and Improvement Act (PRIIA), which authorized $8 billion in HSR grants to state governments earlier this year.

Rae said at a conference sponsored by America 2050 that the administration had determined there was “enough excess manufacturing capacity in the country” to permit HSR equipment to be made of U.S. content. As a result, the administration did not anticipate issuing exemptions from the domestic buying rule, as permitted under Section 504(2) of PRIIA.

While Rae lauded the decision as a tool “to help reenergize manufacturing in the U.S.,” executives canvassed in the railway supply business say the provision could have the opposite effect.

“We could wind up getting 100 percent of nothing,” said one executive who exchanged candor for anonymity.

Things We Don’t Make Anymore

He and others say the biggest obstacle to American content is simply that this country does not produce some critical components. Take computer chips. They are not made in the U.S. There are American-owned suppliers, such as Intel, but the product itself is manufactured in Asia.

Computer chips are everywhere in modern rail cars, controlling the electric doors, regulating the heat and air conditioning, monitoring the mechanical and electrical systems, managing the P.A. systems and customer-information signs, to say nothing of Wi-Fi and other electronics that would be required in any HSR car order.

Outside of components, the sad fact is that there has not been a builder of passenger cars since Pullman-Standard Co. completed an order for Superliner cars for Amtrak in the 1980s and then went out of business.

In place of Pullman-Standard and other former U.S. manufacturing powerhouses, such as the Budd Co., a number of foreign-based companies have developed facilities to assemble rail cars.

The German giant, Siemens, builds light-rail vehicles (streetcars) from imported parts at a factory in Sacramento. Japan’s Kawasaki assembles commuter railcars in Lincoln, Neb., and New York City subway cars in Yonkers, NY.

French-based Alstom built Surfliner shells for the state of California in Brazil, shipped them to Baltimore and trucked them to a former railroad shop in Hornell, NY, for final assembly.

Bombardier built the shells for Amtrak’s Acela trains in Quebec and then shipped them across the border to a plant in Vermont for finishing. Talgo builds in Spain, but can do final assembly in the U.S.

Morrison Knudsen tried to break into the car-building business 20 years ago, but failed when projects like the proposed “Texas Triangle” HSR line collapsed.

In short, while there are many abandoned manufacturing plants in the U.S., it would take time to convert these plants into usable spaces for HSR equipment. Even more time and treasure would be required to develop a workforce capable of building technology that has more in common with modern aviation than lumbering freight trains.

What’s Consistent with the Public Interest?

China has offered to supply the equipment and engineers to help build California’s proposed HSR line between San Diego and Sacramento. If California accepted China’s offer, would the state have to repay the $2.25 billion it was awarded in PRIIA funding?

The language of the federal law is broadly written. In carrying out a rail project “funded in whole or in part with a grant under this title,” PRIIA calls for recipients to purchase “only unmanufactured articles, material, and supplies mined or produced in the U.S.” or “articles, material, and supplies manufactured in the U.S. substantially from articles, material, and supplies mined, produced, or manufactured in the U.S.”

The U.S. Department of Transportation (DOT) can waive this rule under three conditions: if the article is unreasonably expensive, if it is not produced in sufficient quantities, or if the requirement is “inconsistent with the public interest.”

It was assumed by the supply industry that the administration would use the law’s exemption liberally in order to expedite development of HSR lines. But Rae said that DOT’s No. 2 official, John Porcari, has been working with the White House to develop plans for 100 percent content and did not plan to issue any waivers.

Unintended Consequences

According to several suppliers, the literal interpretation of PRIIA could actually discourage American companies from entering the HSR field.

“Who wants to go through all these hoops only to find out you’re disqualified because some component is not considered American by a bureaucrat,” asked an executive.

One of the clearest-cut beneficiaries of the rule would appear to be domestic steelmakers supplying new track and structural steel. But who or what is a domestic steelmaker these days? Is it a company that owns plants in the U.S., a company owned by U.S. stockholders, or a company domiciled in the U.S.?

At present, foreign-owned-and-headquartered corporations control more than 35 percent of steel produced in the U.S. What’s more, half of the steel made here originates from raw materials mined outside of the country.

Similarly, GE Transportation, based in Erie, Pa., does a brisk business selling heavy-haul freight locomotives to China, Mexico, Brazil and Australia. Creating barriers for foreign suppliers may mean that overseas railroads won’t buy American in retaliation.

Getting Back on Track

The Obama administration would be wise to break free from the protectionist impulses of PRIIA and let all domestic and global rail suppliers compete for HSR contracts. Out of such competition, the best equipment and lowest prices should emerge.

A robust government policy toward high-speed rail would do wonders to revitalize entrepreneurship and encourage the private sector to enter the field.

This is the true challenge facing the Obama administration — establishing a long-term strategy for HSR, including how to finance the system. Parsing what is and isn’t “100% American” isn’t sound policy, it’s crowd-pleasing politics that will only delay the implementation of the administration’s own program.

Photo credit: Center for Neighborhood Technology’s Photostream

A Look at the New U.N. Sanctions on Iran

Posted on by The Progressive Policy Institute

The new United Nations Security Council has adopted a new round of sanctions against Iran. And they have some bite. But how and if they’ll truly be effective remains an open question.

Let’s start with the nuts and bolts. The sanctions compel Iran to comply with international inspections and to cease uranium enrichment. Failure to do so gets them this:

  • A strengthened arms embargo, prohibiting nations from exporting to Iran battle tanks, armored combat vehicles, large-caliber artillery systems, combat aircraft, attack helicopters, warships, and missiles or missile systems.
  • The resolution imposes financial and travel sanctions on specific Islamic Revolutionary Guard Corps (IRGC) individuals and companies involved in Iran’s nuclear and missile program.
  • Nations are authorized to inspect suspicious Iranian air and sea cargo for illicit items, interdict shipments in port and on the high seas, and confiscate any banned items found.
  • The Islamic Republic of Iran Shipping Lines (IRISL) is sanctioned for its role in transferring nuclear and missile program components. IRISL vessels have also been repeatedly caught exporting weapons to Hamas and Hezbollah.

But it’s never that straightforward. Let’s take a look at what’s going on underneath the surface.

The Security Council resolution was adopted by a 12-2 vote, with an abstention from Lebanon, whose divided government includes members of Iranian-backed Hezbollah. The two “no” votes came from Turkey and Brazil, countries that had negotiated a uranium-exporting deal with Iran. Unfortunately, as you can read here, that deal fell woefully short of what the U.S. and rest of the international community needed to feel comfortable.

Frankly, the Obama administration mishandled Turkey and Brazil’s attempts to mediate. The White House should have cautioned the intermediaries not to go public until the deal was acceptable to the U.S. and Europe (you know, the countries Turkey is in NATO with…). American and European rejection of the deal has caused gnashing of teeth in Ankara and Brasilia (not to mention two “no” votes on the final resolution), splitting the global effort to rein in Iran.

Iran, as you might expect, remains defiant. Iranian President Mahmoud Ahmedinejad continues on his rhetorical hot streak, calling the sanctions “annoying flies.” And to a certain extent, he’s right. As Thomas Erdbrink and Colum Lynch’s excellent article in yesterday’s Washington Post details, Iran does a pretty darn good job getting around them. And then there’s the possibility that Iran could use the sanctions as a domestic political tool to rally Iranians against the “American oppressors.”

But perhaps atop the list of concerns sits Beijing. Sure, China voted for the sanctions, but at what price? Check out this post to see what sort of sweetheart loopholes China secured for its energy companies in exchange for its support. Phew. It’s a lot. A confusing mess of a lot. On the one hand, it seems like the international community has passed a resolution with some teeth, but could sanctions end up being ineffective or, worse, counterproductive?

In the end, sanctions’ benefits are often indirect, subtle and not guaranteed. To get a sense of why sanctions are passed, bear in mind the Obama administration’s real goal: It’s not to inflict direct economic hardship, but rather, to raise the burden Iran must bear to obtain a nuclear weapon.

Sanctions can help the international community do so in two clear ways:

  1. Diplomatic isolation. Of course, Iran has been fairly isolated for years and years now, but it doesn’t hurt to reinforce that sense of isolation from the international community on a regular basis. That’s why, incidentally, the Turkey/Brazil split and recruitment of China and Russia all matter. Getting the world on the same page against Iran sends a message of strength.
  2. When sanctions force Tehran to rearrange shipping contracts, sell vessels to front companies, move money, set up laundering and smuggling operations, stay at home from travel, etc., etc., those are all “costs.” To maintain a something close to the status quo, Iran has to invest time, money and political capital (both at home and internationally) to work around them.

The idea is that one day, Iran will wake up and say, “Huh. We’re alone in the world and working like hell to beat these things. Maybe we should sit down and talk this whole situation through.”

That day may never come, but it’s the best alternative the international community has.

Photo credit: wallyg

Congress Puts the Breaks on Iran Sanctions – But Is the UN’s Deal Any Better?

Posted on by The Progressive Policy Institute

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009, a potentially counterproductive Iran sanctions bill working its way through Congress, has been delayed. Versions of the law had been passed by both houses and were being reconciled in conference committee. A staffer I spoke to a few weeks ago suggested that the bill would be signed by Memorial Day.

But no longer. My friend Brian Wingfield at Forbes reported this week that bill sponsors Sen. Chris Dodd (D-CT) and Rep. Howard Berman (D-CA) have delayed their bill for at least a month.

A delay, and potential scuttling of the law, may not be the worst thing in the world. Read Pirooz Hamvatan’s and Ali K‘s piece on P-Fix a few weeks ago, where they point out the current bill’s flaws:

The new bill aims to cripple Iran’s economy in response to Iran’s refusal to halt its nuclear program. But the sanctions being proposed are not the right answer. Such a sweeping measure would end up only hurting ordinary Iranians, especially the middle class that the U.S. must shore up to improve Iran’s chances for reform.

The delay is thanks to the UN Security Council, which announced it had reached a multilateral sanctions deal with China and Russia. Dodd and Berman say they preferred the multilateral approach all along, and seem content to let that process play out. Both China and Russia have been reluctant partners, so the deal is a potentially big diplomatic win for the Obama administration.

However, it raises the question — why would these holdouts acquiesce to the UN sanctions package now? Did they suddenly see the light? With all the exemptions and loopholes for Chinese companies, it’s doubtful in at least Beijing’s case. Check out this TIME article for a good explanation:

Beijing extracted a significant price for its support. Not only has Beijing watered down the sanctions to be adopted by the Security Council in order to ensure they don’t restrain China from expanding its already massive economic ties with Iran; Chinese analysts also claim that, in the course of a protracted series of negotiations with Washington, their government also won undertakings from Washington to exempt Chinese companies from any U.S. unilateral sanctions that punish third-country business partners with the Islamic Republic.

The Russians must have not gotten such a great deal. Iranian President Ahmadinejad singled out Moscow as a “historic enemy” for supporting UN sanctions, but seems to have forgotten to mention Beijing.

In the end, we’re left with a potentially counterproductive bill out of Congress, or an imperfect UN package. I’ll take the UN version any day of the week — even though Chinese companies get exemptions, it’s better to forge a strong international coalition against Iran’s nuclear program.

And members of Congress who supported that bill can still campaign on their vote, whether or not it ever gets to the president.

Photo credit: Daniella Zalcman/ CC BY-NC 2.0

Confronting Iran: The Case for Targeted Sanctions

Posted on by The Progressive Policy Institute

The following is a guest column from Pirooz Hamvatan, a pseudonym for a Washington, D.C.-based analyst focusing on Iranian domestic and security issues, and Ali K., currently a business student in the U.S. and a supporter of Iran’s Green Movement who was severely beaten by the Basij militia during a peaceful demonstration in Tehran last year.

Congress is on the verge of sending a petroleum sanctions bill to President Obama that has wide bipartisan support in Congress. But far from posing a serious challenge to the regime, the bill could in fact inadvertently undermine long-term U.S. interests by weakening the Iranian civil rights movement and strengthening President Ahmadinejad and his cronies.

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2009, currently in conference committee, will direct the president to impose sanctions on any entity providing Iran with “refined petroleum products” worth $200,000 or more per transaction, or $1 million per year. The bill defines refined petroleum products to include diesel, gasoline, jet fuel and aviation gasoline.

The new bill aims to cripple Iran’s economy in response to Iran’s refusal to halt its nuclear program. But the sanctions being proposed are not the right answer. Such a sweeping measure would end up only hurting ordinary Iranians, especially the middle class that the U.S. must shore up to improve Iran’s chances for reform.

Instead, our top priority should be helping to increase the space for the Iranian civil rights movement. That means moving beyond the limited focus on “solving” the nuclear issue. An Iranian government that is more accountable to — and representative of — its moderate majority would not pose a security threat to the U.S. and its allies. Rather than heavy-handed sanctions, the Obama administration should consider restrictions that are more targeted, which would hit the ruling regime where it hurts, and increase the possibility of change from within.

The Wrong Path

Introduced in the House by Rep. Howard Berman (D-CA) and in the Senate by Sen. Chris Dodd (D-CT), the sanctions bill currently in conference aims to limit Iran’s access to gasoline in the hopes that the suffering population will pressure the regime to give in to Western demands. But if the end goal is to induce Iran to be a more responsible regional actor that doesn’t threaten U.S. security interests, then petroleum sanctions are likely to achieve the opposite effect.

Just look at the experience of the last couple of decades. In 1995, in response to Iranian pursuit of nuclear technology and support of terrorism, President Clinton issued two executive orders prohibiting American investment in Iran’s energy sector and banning U.S. imports of most Iranian goods. The following year, Congress passed the Iran-Libya Sanctions Act (PDF), calling for sanctions on foreign firms investing more than $20 million per year in Iran’s energy sector. Although such measures have impeded the development of Iran’s economy, they have not caused the Islamic Republic to change course on its nuclear program or its funding of groups like Hamas and Hezbollah. In fact, in order to achieve their foreign policy and domestic goals, Iran’s leaders have repeatedly demonstrated their willingness to let the Iranian people suffer.

Just as important, history has shown that crippling sanctions undermine the middle class — the very people who are the backbone of civil society and the voices of moderation. International sanctions on Iraq weakened its population, making them more reliant on, and more vulnerable to, Saddam Hussein’s regime. Gasoline sanctions on Iran could have a similar effect, exacerbating inflation, lowering the quality of life for the middle class and pushing more people below the poverty line.

Gasoline sanctions would also distract Iranians from President Mahmoud Ahmadinejad’s own mismanagement of the economy — an important issue mobilizing people around the Green Movement — and divert blame to the U.S. Iran is already facing a 20-percent inflation rate, a crippled domestic industry, unemployment of over 11 percent (with 24 percent of 15-to-24 year-olds unemployed), and one of the worst rates of brain drain in the world. Many Iranians are still seething over the fact that, since becoming president in 2005, Ahmadinejad squandered unprecedented oil revenues that the Islamic Republic accrued as a result of high world oil prices. Amid all of this, Ahmadinejad has backed a controversial measure that would phase out government subsidies on gasoline and is likely to increase inflation. The Iranian people are already facing enough hardship without the U.S. adding to their woes and diminishing the pro-American sentiments of a wide array of Iranians.

Nor will the sanctions loosen the regime’s grip on power. Ahmadinejad’s faction would, in fact, fare better than the majority of the populace. Masters of smuggling, Iranian Revolutionary Guards Corps members would still be able to bring in gasoline through Iran’s porous borders, perversely enriching themselves even more.

The Right Path

But if broad sanctions are a heavy-handed tool that could only risk the development of Iran’s civil rights movement, what options do U.S. policy makers have to challenge the regime?

A preferred approach would be something more targeted against those responsible for Iran’s actions: the members of the ruling regime. Congress should consider the following:

  • Pass a bill calling on the U.S. State Department to identify Iranian human rights abusers (primarily from within the Revolutionary Guards; the Basij, the regime’s volunteer militia; and the judiciary) and impose travel bans on them. The bill should also seek the cooperation of our allies in enforcing the ban as widely as possible and place pressure on key countries like Dubai to block entry to these individuals. The list of targeted offenders should be made public in order to show the Iranian people that the U.S. is on their side.
  • Pass a measure calling for human rights abusers’ assets to be frozen. Because Iranian officials have gone to great lengths to distance themselves from the U.S. financial system, the U.S. Treasury may not have much of a role to play here. Rather, such a measure would simply be a first step in convincing banks in Europe and the United Arab Emirates — where many regime insiders’ assets are squirreled away — to enforce restrictions.

What specific effect will travel bans have on hardline officials and their mid-ranking employees? Besides being a major inconvenience, it would hurt their pocketbooks. This is because a large number of these individuals have side-businesses in which they smuggle goods from places like Dubai, Thailand, Indonesia and Syria — buying, for example, electronic goods and bringing them back to Iran through Revolutionary Guard-controlled customs stations without having to pay import duties. They then sell these goods at highly marked-up prices in the isolated Iranian market. A strictly enforced travel ban — including on individuals working for these human rights abusers’ front companies — would close off a lucrative source of income.

To be clear, the overall intent of this plan is not necessarily to deal a significant economic blow to the entire hardline establishment — that would be next to impossible. Neither will it convince, in the short term, current Iranian leaders to change course on the nuclear program — no outside pressure will. Rather the strategy is to increase the disincentives for individuals to participate in or condone oppressive behavior, with the goal of helping the Green Movement flourish.

At the same time, it is important not to target certain high level officials who may have the capacity to play a role in moving Iran toward reform. For instance, while it may be justified to sanction Judiciary Chief Sadegh Larijani for allowing hardliners to abuse Iran’s legal system to persecute reformers, his brother Ali Larijani — the pragmatic conservative Speaker of Parliament and bitter Ahmadinejad rival — has not been complicit in human rights abuses, and thus should not be snared by the sanctions net. This nuanced targeting will send a signal to the regime’s officials that they will be left alone if they refrain from abusing their fellow citizens.

Moreover, certain Iranian leaders are sensitive to international accusations of human rights abuses. This is not for altruistic reasons, but because they want the Islamic Republic to be seen as a role model to the Islamic world, and not simply another run-of-the-mill Middle Eastern dictatorship.

To be sure, human rights sanctions alone may not alleviate the pressure currently being placed on Iran’s Green Movement. Regime hardliners could blame the U.S. for fomenting post-election unrest and paint Iran’s dissidents as Western spies. Republican Guard members and Basijis could continue their human rights abuses regardless of travel bans and asset freezes. But that is the status quo in Iran. There is little cost to the U.S. if human rights sanctions don’t work — and much to gain if they do.

A Broader, Pro-Reform Agenda

Human rights sanctions are not a silver bullet. They will not bring the regime to its knees. But neither will gasoline sanctions. Fortunately, it appears that the Obama administration is asking Congress to slow down its push for unilateral gasoline sanctions as the U.N. Security Council deliberates over its own sanctions during the next few months. Meanwhile, targeted sanctions against human rights abusers is being pushed by Sen. John McCain, though not as stand-alone legislation but as an amendment to the flawed gas sanctions bill.

A human rights sanctions package can be an effective part of a broader effort to help Iran’s Green Movement chart its own course toward a better future for Iranians. Other essential pieces to this strategy would include:

  • Rep. Jim Moran’s (D-VA) Iranian Digital Empowerment Act, which seeks to help get information-sharing software and filter-breaking technology into the hands of Iranian reformers.
  • Rep. Keith Ellison’s (D-MN) Stand With the Iranian People Act, which (in addition to calling for human rights abusers to be sanctioned) calls for suspension of U.S. government funding to entities that sell censorship and surveillance equipment to the regime, and seeks to ease restrictions on American charities that want to work in Iran.

Bills focusing on the Islamic Republic’s human rights abuses have an excellent chance of passing in Congress because they are politically appealing — they help legislators look tough on national security while promoting American values of freedom and democracy. Moreover, they avoid the danger that is inherent with sweeping economic sanctions: that of harming the people they were intended to help.

Moreover, U.S. passage of human rights sanctions could lead allies in Europe to follow suit. Although the U.N. Security Council is unlikely to do so — China and Russia are adamantly opposed to interfering in others’ domestic affairs — if the U.S. and European allies banded together to pressure countries like Dubai to enforce travel bans, sanctions would have a greater chance of success.

In the end, it is important to remember that the members of the Green Movement are fighting for reform within the Islamic Republic system. Their demands include an independent electoral commission, the release of all political prisoners and freedom of speech. Acknowledging that it is up to the Iranian people to chart their own course, the U.S. can best protect its own security interests by helping to level the playing field in Iran, allowing the moderate, peace-loving majority of Iranians to continue their journey toward a better future for their country and the broader Middle East.

 

The views expressed here do not necessarily reflect those of the Progressive Policy Institute.

Trading Up

Posted on by The Progressive Policy Institute

For the past year, U.S. Trade Representative Ron Kirk has been the Obama administration’s equivalent of the Maytag repairman—a capable official with nothing to do. That is about to change.

As part of a broader push for job creation, the president yesterday unveiled an ambitious strategy for doubling U.S. exports over the next five years. Key elements include $2 billion more in export financing, an easing of export technology controls and a new Cabinet office to promote sales of U.S. products abroad. Obama also picked W. James McNerney, CEO of Boeing—one of America’s export champions—to chair the President’s Export Council.

The flurry of activity around trade is belated but welcome, since surging exports have been one of the few sources of job growth lately. It may also put to rest lingering doubts about Obama’s commitment to expanding trade.

During the 2008 campaign, candidate Obama sounded economic nationalist themes and indulged in ritual NAFTA-bashing. He even vowed to reopen that treat to get a better deal for U.S. workers, deeply alarming Canada and other trading partners worried about mounting protectionist sentiment in the United States.

But if Obama’s new push is reassuring to pragmatic progressives, anti-trade activists are donning their battle gear. Lori Wallach, president of Global Trade Watch, recently told Bloomberg News that the Obama administration must deal with the import side of trade to create U.S. jobs and increase innovation.

Obama yesterday invoked America’s economic travails to short-circuit a family squabble among progressives over trade. “We are at a moment where it is absolutely necessary for us to get beyond those old debates…Those who once would oppose any trade agreement now understand that there are new markets and new sectors out there that we need to break into if we want our workers to get ahead.”

In another positive development, House New Democrats this week released a trade agenda of their own. It emphasizes support for small business exports, the need to crack down on intellectual property theft, and, echoing a key PPI theme, the strategic benefits of expanding trade and economic opportunity across the Middle East.

Both the president and the New Dems call for efforts to rekindle progress on the stalled Doha round of global trade talks, and perhaps most controversially, for closing the deal on pending bilateral trade agreements with South Korea, Colombia and Panama. This is bound to provoke a reaction from anti-trade Democrats who see trade as a threat to U.S. jobs and wages. They have a powerful ally in the new House Ways and Means Chairman, Rep. Sandy Levin, a longtime trade skeptic.

Trade is not a panacea for America’s job woes. But as Obama and the New Dems understand, lowering foreign barriers to trade is integral to any credible strategy for U.S. economic growth and innovation. It’s also essential for the United States to resume leadership in forging a rules-based global trading system to keep everyone honest and prevent countries from adopting mercantilist strategies.

Finally, and most important for the long-run, boosting U.S. exports is also critical to re-balancing the global economy. Just as we export more and import less, Asian export powerhouses, especially China, need to import more and spur domestic consumption. Obama’s trade initiative is a small but vital first step toward moving world flows of trade and finance toward a sustainable equilibrium.

Conservative Crocodile Tears About “Corporatism”

Posted on by The Progressive Policy Institute

TNR published a piece I did the other day examining the ideological underpinnings of the left/center split in the Democratic Party over the propriety of a universal health care system based on regulated and subsidized private health insurers. I suggested there was a burgeoning, if questionably workable, tactical alliance between “social-democratic” progressives and some conservatives to derail much of the Obama overall agenda. Then I made this observation:

[O]n a widening range of issues, Obama’s critics to the right say he’s engineering a government takeover of the private sector, while his critics to the left accuse him of promoting a corporate takeover of the public sector. They can’t both be right, of course, and these critics would take the country in completely different directions if given a chance. But the tactical convergence is there if they choose to pursue it.

This statement has drawn considerable comment from people on both the Right and Left, mainly objecting to the argument that Obama’s critics can’t all be right.

Conservative theoretician Reihan Salam, writing for National Review, first argued that there’s not much substantive difference between the “New Democrat” deployment of private-sector entities in public initiatives and that favored by the privatizers of the Right. But then he pirouetted to make common cause with Obama’s critics on the Left:

It is entirely possible for both sets of critics to be correct. The concern from the right isn’t that the Obama approach will literally nationalize for-profit    health insurers. Rather, it is that for-profit health insurers will continue evolving into heavily subsidized firms that function as public utilities, and that seek advantage by gaming the political process. Profits, including profits governed by medical loss ratios, can and will then be cycled into political action, which leads to the anxiety concerning a “corporate takeover of the public sector.”

Salam’s friend Ross Douthat of The New York Times added an “amen” to this argument:

The point is that the more intertwined industry and government become, the harder it is to discern who’s “taking over” whom — and the less it matters, because the taxpayer is taking it on the chin either way.

But do conservatives really oppose this intertwining of industry and government? Rhetorically, yes, operationally — not so much.

Consider the default-drive Republican approach to health care reform, such as it is. It typically begins with federal preemption of state medical malpractice laws and health insurance regulation, the latter intended to produce a national market for private insurance (while also, not coincidentally, eliminating existing state provisions designed to prevent discriminatory practices). But the centerpiece is invariably large federal tax credits, accompanied by killing off the current tax deduction for employer-provided coverage, all designed to massively subsidize the purchase of private health insurance by individuals (with or without, depending on the proposal, any sort of group purchases for high-risk individuals). Another conservative pet rock is federal support for Health Savings Accounts, which encourage healthy people to pay cash for most medical services, perhaps supplemented by (very profitable) private catastrophic insurance policies. And most conservatives, when they aren’t “Medagoguing” Democratic proposals to rein in Medicare costs, favor “voucherizing” Medicare benefits—another gigantic subsidy for private health insurers.

Now some conservatives will privately tell you that all these subsidy-and-deregulation schemes are just an interim “solution” towards that great gettin’ up morning when tax rates can be massively lowered, all the tax credits, vouchers and other subsidies can be eliminated, and the government gets out of the health insurance business entirely. But don’t expect to see that on any campaign manifestos in the foreseeable future. In the meantime, Republicans generally support huge government subsidies to corporations without any public-spirited regulatory concessions in return.

Do anti-“corporatist” progressives really think they can make common cause with conservatives, beyond deep-sixing Obama’s agenda in the short term? Well, sorta kinda. Salon’s Glenn Greenwald, who rejected my “incompatibility” argument about left and right critics of “corporatism” as strongly as did Salam, is smart and honest enough to acknowledge there’s no real common ground with conventional conservatives or Republican pols. He instead offers a vision of an “outsider” coalition that includes anti-corporatist progressives and Tea Party types. This is, of course, the age-old “populist” dream (most famously articulated by Tom Frank inWhat’s the Matter With Kansas?) of a progressive takeover of the Democratic Party that attracts millions of current GOP voters (or nonvoters) who don’t share the economic interests of the Republican Party or the conservative movement but have seen little difference between the two parties.

All I can say is: Good luck with that, Glenn. Short of a complete and immediate revolution within one or both parties, complete with blood purges and electoral chaos, it’s hard to see any vehicle for a left-right “populist” alliance other than a Lou Dobbs presidential run. Barring that unlikely convergence, wrecking Obama’s “corporate” agenda would produce little more on the horizon than a return to the kind of governance we enjoyed during the Bush years, or maybe a bit worse given the current savage trajectory of the GOP.

Part of my intention in the original essay was to suggest that pro-Obama Democrats take seriously the views of intra-party rebels on health care and other issues, instead of insulting them as impractical and childish or obsessed with meaningless totems like the “public option” (which in the anti-corporatist context isn’t meaningless at all). But said rebels really do need to think through where they are going, and where they would take Democrats and the progressive coalition.

Meanwhile, conservatives need to be far less pious about their alleged objections to “corporatism.” Cheap rhetoric aside, their own agenda (when it’s not just preserving the status quo) is largely corporatism with any clear and enforceable public purpose cast aside whenever possible.

This item is cross-posted at The New Republic.

Does America Have a China Policy?

Posted on by The Progressive Policy Institute

President Obama’s visit to China has underscored the dramatically unbalanced nature of the Sino-American relationship. No, not the oft-lamented imbalance in trade between the two countries, but a strategic imbalance. Put simply, China has a U.S. strategy, but it’s not clear that the U.S. has a China strategy.

The Chinese know what they want, and for the most part, they are getting it. Foreign policy mavens take note: this is what 21st-century realpolitik looks like.

China wants the United States to keep its markets open. “I stressed to President Obama that under the current circumstances, our two countries need to oppose all kinds of trade protectionism even more strongly,” Chinese President Hu Jintao said yesterday in a joint news conference in Beijing’s Great Hall of the People. Though he was too polite to say so, he had in mind U.S. tariffs on Chinese steel and tires.

While President Obama swore fealty to free trade, he also called for “balanced growth,” which is diplo-speak for U.S. efforts to get China to spur domestic consumption and rely less on exports. The president also declared that the world cannot count on overleveraged U.S. consumers to be a perpetual engine of global growth.

Change in Trade Relationship Unlikely

That’s right in concept. But the U.S. trade deficit with China — even in the midst of recession and financial crisis — is expected to be $200 billion this year, about the same as last year. And U.S. injunctions to pump up domestic demand are no more likely to work with China than they did two decades ago with another export juggernaut, Japan. Beijing not surprisingly seems intent on sticking with the economic strategy that has produced annual growth rates of 10 percent – even as the U.S. wallows in 10 percent unemployment.

Worried about the value of the huge hoard of dollar assets they are sitting on, the Chinese admonished U.S. officials to keep the dollar’s value from sliding further. President Obama, determined to accentuate the positive, praised China’s previous pledges to “move toward a more market-oriented exchange rate over time.” But pegging the renminbi to the dollar is integral to China’s quasi-mercantile strategy. We should expect no more than cosmetic adjustments that will have scant effect on exchange rates and, therefore, will not give a major boost to U.S. exports to China.

So all and all the president’s visit was satisfactory from China’s point of view. Beijing got assurances that the administration would not shut out Chinese imports, or let the dollar get much weaker. It had to endure only mild U.S. nudges on boosting domestic consumption and letting its currency appreciate.

The Limits of Cooperation

For his part, President Obama stressed the need for Beijing to work with the U.S. to get North Korea and Iran to forswear nuclear weapons, and to reduce greenhouse gas emissions. China pays lip service to nuclear non-proliferation, but it has steadfastly declined to use its economic leverage to bring serious pressure to bear on North Korea. It also has blocked stiffer U.N. sanctions against Iran, even while upping its trade with Tehran. And China is adamant that it won’t sign a global warming pact with binding targets next month in Copenhagen.

The president seems not to have said much about democracy, which begs the question of whether the White House believes the absence of accountable governance in China in any way inhibits a close partnership with the U.S. Obama, however, did win Beijing’s acquiescence in a human rights dialogue set to start next year.

In sum, Beijing displayed a hard-boiled realism about hewing to an economic nationalism that has catapulted China from the Third World to the first tier of nations in just 30 years, but at a growing cost to global growth and financial stability. It also gained recognition as a key stakeholder in the world’s steering committee of great powers, without having to sacrifice anything of importance to the common cause of stemming the spread of nuclear weapons or slowing climate change.

What the U.S. got was the atmospherics of a cordial and cooperative Sino-American relationship, and little else.

President Obama is right, of course, that a U.S.-China collision is neither inevitable nor desirable. He may also be right that that none of the world’s toughest challenges can be met without Sino-American cooperation.

It is time, however, for frank acknowledgement of the limits of cooperation. We need to be clear about where U.S. and Chinese interests diverge, and about what, above all else, American really wants from China. Once the administration can answer that question, it will be able to pursue U.S. strategic interests with as much focus and determination as Beijing brings to the bargaining table.

Why the U.S. Needs to Ratify a Free Trade Agreement with Colombia

Posted on by The Progressive Policy Institute

A little over one year since his election, President Obama has been tepid at best on the issue of trade. The tariffs on Chinese tires, while not the administration’s finest hour, have not ignited the trade war its detractors feared. But in an era of economic uncertainty, the U.S. needs to reassert its global leadership on free trade. Ratifying a Free Trade Agreement (FTA) with Colombia would be a good first step.

In 2009, it’s not immediately obvious how to establish trade leadership. The Doha global free trade talks are dead in the water. While there are doubts about the benefits of bilateral trade deals (such as those expressed by Columbia University’s Jagdish Bhagwati), they are a more attainable goal. In his fiscal year 2010 proposal, President Obama said he would be consulting with Congress to try and ratify one or more FTAs, including the one negotiated with Colombia in 2006. Ratifying the Colombia FTA would not just be good economics – it would be good foreign policy.

On October 30, our ambassador signed a deal on the use of Colombian bases in Bogotá. The U.S. had long-standing counter-narcotics flights that were based out of Manta Air Base in Ecuador under an agreement that Ecuadorian President Rafael Correa refused to renew when it expired in July. The agreement with Colombia allows U.S. forces access to seven Colombian military bases for a decade to continue these flights. A ratified FTA also would be a natural complement to the Colombia bases deal. It would show the Colombian people that the U.S. is interested in more than just the narcotics war, but in their economic development as well.

It would also have the added bonus of showing actors like Correa that even if we don’t always see eye-to-eye on every issue, there is benefit to working with the U.S., rather than trying to score political points with hackneyed complaints about Yankee imperialism.

A Colombian FTA would also be a no-brainer economically. We already have effective free trade with Colombia. The Andean Trade Preferences and Drug Enforcement Act (ATPDEA) exempts over 6000 goods from Colombia, Ecuador, Peru and Bolivia from tariff. The President has indicated he will extend ATPDEA for another year before it expires at the end of December. It’s a move that has broad bipartisan support — Sen. Dick Lugar (R-IN) has even recommended ATPDEA be extended to cover Paraguay and Uruguay. But instead of kicking the can down the road another year, and extending what in 1992 was supposed to be a stop-gap act before the launch of a Free Trade Area of the Americas to an 18th year, the Obama administration and Congress should take the opportunity to ratify our FTA with Colombia.

Objections to the Colombia FTA come down to concerns that it will hurt labor and the environment in Colombia or cause job losses here in the U.S. Concerns about labor and the environment have been addressed in a protocol to the treaty adopting the “New Trade Policy Template.” This bipartisan agreement — negotiated between Rep. Charlie Rangel (D-NY) and the Bush administration in 2007 — is made up of six parts covering progressive economic issues such as labor, environment, investment, government procurement, intellectual property, and port security. The job-loss issue is mitigated by the fact that Colombia is a tiny trade partner compared to the U.S., making up less than 1% of our total trade.

But while the costs of a free trade agreement are minimal, there are great benefits to be had. While the North American Free Trade Agreement (NAFTA) is most often looked at through the prism of U.S.-Mexican economic relations, NAFTA’s greatest benefit has been the democracy dividend Mexico has paid out. When NAFTA was signed in 1992, Mexico had been under one-party rule for 60 years — within a decade, it had transformed into a vibrant democracy. The institutionalization of the rule of law by NAFTA was instrumental in making this happen. NAFTA also provided reassurance during the Tequila crisis of 1995.

Likewise, an FTA can provide Colombia with structural support as it strengthens its democracy. President Álvaro Uribe has accomplished much in his two terms in facing down the FARC guerrillas and drug-traffickers (in many cases now one and the same), but the consolidation of democracy in Colombia is not complete. While he is pursuing a third term in extensive consultation with the public and legislature, a third term does raise questions about democratic structures and the viability of institutions — not individuals — in the country. An FTA with Colombia would help consolidate those institutions more than continuing ATPDEA would.

Finally, an FTA would take some of the capriciousness out of U.S. foreign policy. Trade sanctions under FTA sanctions are caused by economic foul play or failure of democratic systems. Their application would send a strong signal encouraging the rule of law and economic fair play. Under the annual renewal of the ATPDEA, the application of sanctions could signal nothing more than political gamesmanship holding up congressional business.