Posts Tagged ‘Trade’

No Deal: South Korea Trade

Tuesday, November 23rd, 2010

President Obama returned from his Asia trip earlier this month without accomplishing one of his principle goals: negotiating a new free trade agreement with South Korea.

Smeal’s Terrence Guay explains what tripped up the deal and what it indicates about the U.S. and global economies:

President Obama’s November trip to Asia sought, among other initiatives, to finalize a free trade agreement with South Korea. With negotiations concluded and a treaty signed in 2007, the U.S. Congress balked at ratifying the treaty. In effect, President Obama tried to persuade the Koreans to amend the treaty to allow greater access to U.S. automobile and beef exports.  His inability to do so reflects several changes in the domestic and international political economy.

First, South Korea successfully stood up to U.S. pressure to change the terms of the treaty. The Asian country refused to weaken its fuel economy regulations, which are higher than U.S. standards and impose additional costs for U.S. auto companies seeking to expand into the Korean market. Also, due to citizens’ concerns about the safety of U.S. beef (the “mad cow” phenomenon), the Korean government refused to relax its regulations on beef imports.  That two products presented an obstacle to completing a trade agreement with our seventh largest trade partner suggests that American influence on global economic matters is in decline.  For further evidence, see the inability of the United States to persuade other countries at the G20 summit this month to apply pressure on China to revalue its currency, or the nine-year (and counting) negotiations on the World Trade Organization’s Doha round of global trade talks.

Second, the failure to reach a trade deal with South Korea underscores the growing distrust of many Americans and politicians of the benefits of global trade and investment flows, especially during “the Great Recession.” The global economy played virtually no role in the recent Congressional elections, other than the simplistic campaign ads blaming China for our economic problems. And while a Democrat-controlled Congress was wary of approving trade agreements with South Korea, Panama and Colombia for a variety of reasons over the past three years—including concerns about labor and environmental issues in those countries—it is not at all obvious that a Republican-controlled House of Representatives will pursue trade agreements with any greater fervor. Most economists expect modest contributions to domestic job and economic growth should these trade deals ultimately be implemented. But with opinion polls consistently showing an American public wary of globalization, the benefits of free trade, and the increasing global influence of other countries, there is little to be gained by congressional Republicans or Democrats using political capital on an issue where the benefits are not widely acknowledged.

Tags: Economy, Globalization, Guay, International Relations, Politics, Trade
Posted in News | 18 Comments

Trade Deficit Not All Bad News

Thursday, January 14th, 2010

The U.S. Department of Commerce on Tuesday announced that the U.S. trade deficit jumped up nearly 10 percent to $36.4 billion in November—a 10-month high. While a widening trade gap is generally portrayed as an economic negative by the media, there’s good news in this latest report, according to Smeal’s Fariborz Ghadar, director of the Center for Global Business Studies:

While the current trade deficit is unsustainable long term, there are reasons to be optimistic in this latest trade report.

First of all, U.S. exports are growing at a faster clip than we’ve seen in recent history. Thanks to the rapid economic growth in countries like China and India, there’s an increasing demand for U.S. heavy machinery. Other U.S. exports are becoming more appealing, too, because of the weakening U.S. dollar. As a result, the United States is experiencing growth in the manufacturing sector that hasn’t been seen in years. As U.S. manufacturers catch up with global demand and fill the pipeline, I expect to see exports grow at an even faster rate in the near future.

The rapid growth in imports also signals a strengthening U.S. economy. We’re seeing consumers loosening their purse strings a bit, ratcheting up the demand for imported goods in the United States. 

Ultimately, though, this imbalance cannot continue unabated. The trade deficit has historically been managed by recycling the outflow of dollars by foreign entities buying U.S. debt. Given the ballooning debt facing the federal government and the recent financial crisis originating in the U.S. financial sector, we should eventually reduce our heavy reliance on foreign purchases of our debt instruments. U.S. exports must begin to close the gap on imports if our economy is going to have long-term viability. 

Overall, the current imbalance is to be expected during economic recovery, and I think it’s promising that we’re seeing such rapid growth in exports. Let’s hope it continues.

Tags: Economy, Ghadar, Trade
Posted in News | 23 Comments

America’s Trade Row with China: Weird Scenes Inside the Goldmine?

Wednesday, September 30th, 2009

A recent article in The Economist discusses President Barack Obama’s decision to impose a tariff on tires imported from China. Smeal’s Brian Davis weighs in on the issue by asking important questions about the repercussions of these actions.

The recent decision by the Obama administration to impose tariffs on imported Chinese tires– at first glance, (even second glance) seems “weird” from a rational economic perspective. Why would policymakers want to slaughter the golden goose of free-trade, especially when the domestic economy is still fragile following the events of the housing and banking crisis? Has Obama not learned the lessons of Smoot-Hawley?

Interpretation of the cause and effect of this action is probably more complex than a first-reaction rationale. On one hand, the tire tariff has relatively little effect on American consumers or workers. This is NOT Smoot-Hawley. Domestic producers have mostly abandoned the low-end tire market, with plenty of substitutes for Chinese tires provided by imports from Brazil and Indonesia. The larger question is whether or not this will spark a larger tit-for-tat trade war with China. An all-out trade war would have severe consequences for American exporters relying on access to the growing Chinese market for recovery. Will more special interest groups demand similar concessions?

The article highlights a worrisome trend, that import restrictions and other protectionist actions against China, by developed economies, have nearly doubled since 2007. Is the risk of sparking a trade war worth the chance that China will dismantle many of its trade barriers as a response to U.S. action?

One last perspective on these events is that the Obama administration has used the tariff issue as a bargaining chip to pressure China’s cooperation concerning Iranian nuclear ambitions. However, history has not been kind when countries attempt to use economic sanctions and other barriers to motivate political concessions. For now it’s a matter of wait, see and of course hope.

Tags: China, Davis, Finance, Trade
Posted in News | 6 Comments

Mexican Trucks, No Mas

Thursday, March 19th, 2009

When President Obama signed the omnibus spending bill last week, he also killed an 18-month-old pilot program that allowed Mexican trucks to drive on U.S. highways. In retaliation, the Mexican government announced yesterday that it is levying higher tariffs on $2.4 billion worth of U.S. goods, including beer, shampoo, and toilet paper.

Columnist Mary Anastasia O’Grady outlines the history of the Mexican truck debate in Monday’s Wall Street Journal and argues that allowing Mexican trucks on U.S. highways improves trade relations, supply chain efficiency, and border security.

Smeal’s Fariborz Ghadar agrees that the trucks should be permitted on U.S. roadways:

If we are going to take NAFTA seriously, Mexican trucks should be allowed to cross the border and continue unimpeded to their U.S. destinations. First, Washington says that they’re not allowed because they are too dirty. Then, once they were cleaned up, the argument became that they’re unsafe. We put up hoop after hoop, and they’ve jumped through all of them.

We finally installed this pilot program, which allowed the trucks on U.S. roads for a year and a half with no safety problems whatsoever, until another election put politics ahead of good policy. The fact that this fight has been going on for so long has everything to do with labor politics and nothing to do with the safety of Mexican trucks. No matter what NAFTA says, if the government continues to put up one obstacle after another in the way of cross-border commerce, they eventually end up blocking free trade.

Tags: Ghadar, Globalization, Politics, Trade
Posted in News | 1 Comment