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Obama's Ambitious Free Trade Proposals Are Dead

12:00 AM, Jun 7, 2014 • By IRWIN M. STELZER
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·     Meanwhile, environmental and trade union groups here fear that Obama’s proposed trade deal with the EU will be a back-door to the relaxation of regulations covering environmental, labor, and health and safety standards. 

TPP RIP. The president’s plans for a massive and complicated trade deal (Trans-Pacific Partnership) with several Asia-Pacific countries, a deal that the Peterson Institute of International Economics could produce a $78 billion income gain for the U.S., is also stalled. It is foundering on the reef of the president’s falling prestige in the region. Vladimir Putin’s massive gas deal with China proves to be a pivot far more awe-inspiring than Obama’s stationing of a few thousand troops in Australia. And the president’s red-line erasures in Crimea and Syria are rattling our allies and trading partners as China becomes more aggressive in the South China Sea.

Enough of the stalled engines of growth, some of which might, but only might, emerge from the repair shop after the November elections. Other engines of growth are already revving up.

The first of these is the fracking revolution. America is now the home of well-priced, abundant energy, attractive to manufacturing industries around the world. The Wall Street Journal’s Dennis Berman reports that Sasol, the former South African state oil company, is building a $21 billion, 3,034-acre energy complex to convert natural gas to chemicals used in food packaging, plastics and paints, and into high-quality diesel and other fuels. That, he reports, is only the beginning: some 66 industrial projects are scheduled to be built in Louisiana at the cost of $90 billion over the next five years—with more to come. “But because much of the work hasn’t started yet, few appreciate the true extent of the industrialization that is about to begin.” 

It is a bit premature to announce what some call the re-industrialization of America, but it isn’t too soon to announce the end of de-industrialization. The manufacturing sector has added over 100,000 jobs in the past year. An enviable supply of well-priced natural gas—only one-fourth the price paid by German industry—is only one American advantage. In addition, labor costs here are increasingly competitive with China’s, which are rising rapidly. Boston Consulting Group estimates that China’s overall manufacturing-cost advantage over the U.S. now stands at only 4 percent. Even if that understates the advantages China’s subsidized manufacturers enjoy in industries that the People’s Republic chooses to groom for international stardom, corporate decision-makers here also have to factor in closeness to customers in this age of rapid shifts in technology and fashion, and security of the intellectual property that China is said—and not only by American firms—to appropriate without hesitation. Then there is the rule of law, which all studies show is one of the keys to long-run success.

Throw in the American edge in innovation, and the continued robust performance of the auto industry, and the outlook seems bright. Unless…

The administration, having taken care of the coal industry and planning to attend its funeral dry-eyed, now has fracking fracking in its sights, and is not ignoring the significant pollutants emitted by the tax-advantaged Sasol and like projects. And it remains fond of higher taxes, such as the twenty-one raised or imposed in the so-called Affordable Care Act, better known as Obamacare.

Sand in the engines of growth, just when many economists are cutting their forecasts of growth this year from 4 percent to 3 percent. The rush to revision demonstrates the (appropriate) lack of faith intelligent forecasters have in their ability to play seer. If their rush to downward revision proves unwarranted, that will be despite, rather than because of, anything Washington has in store for the economy.

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