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Trade: War By Other Means

12:00 AM, May 18, 2013 • By IRWIN M. STELZER
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"Trade makes the cake bigger so everyone can benefit.” So advised our distinguished visitor, British prime minister David Cameron, on the op-ed pages of the Wall Street Journal.

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Well, not everyone—not the American worker who is displaced by exports, or the French film maker protected from competition by l’exception culturelle, or Europe’s farmers who can’t compete with America’s more efficient ones, or German manufacturers of solar panels who probably won’t survive even if the EU does slap a 68 percent tariff on Chinese imports. In short, the decision to extend free trade has losers as well as winners, the latter in this case the multinational companies that want restrictions on foreign investment in infrastructure relaxed, and consumers of the goods and services that might flow more freely across borders.

President Obama agreed to join Cameron in pushing for the Transatlantic Trade and Investment Partnership (TTIP) that would cover about $1 trillion in world trade annually. The British prime minister is predicting “huge benefits,” although these would not be immediate in terms of impact on employment and economic growth. Dispassionate analysts believe the U.S. would benefit if the EU reduced regulation of services and allowed imports of genetically modified crops, and Europe would gain if the president could somehow force or persuade states to abandon buy-American policies. Europeans think a deal would boost their GDP by 0.52 percent (economists love decimal points) over the long term, or by €120 billion. Not peanuts, but hardly a game changer for the stumbling EU economies, now in the deepest post-war recession.

At the same time, Obama is attempting to negotiate a Trans-Pacific Partnership (TPP) as part of his “pivot” to Asia and, if truth be told, away from Europe. This would result in freer trade between countries on this side of the Pacific (U.S., Mexico, and Canada, among them) and several Asian countries, lately including Japan, a late but now enthusiastic player to the consternation of its highly protected farmers, U.S. auto makers stung by competition from Japanese makers, and, for different reasons, China. 

Trade is never only about trade. Interest in TTIP stems in part from Obama’s desire to show that he is trying to stimulate exports and growth, and in part from European politicians’ desire to show that they can do more than squabble over the future economic architecture of the EU. As for TPP, Obama is hoping that closer economic ties will show our Asian allies that we are with them as they confront an increasingly aggressive and expansion-minded China. The Chinese regime claims America is trying to encircle it, which we are, and with reason. 

There is a sense in which action on the trade front is designed to offset the (accurate) impression that America is reducing its involvement in world affairs, its footprint, in Washington jargon, and that the Western democracies are  retreating in the face of an ascendant China and Vladimir Putin’s increasingly belligerent Russia. China continues to grow, more slowly than in the past but more rapidly than Western countries, and to increase its military’s reach. And it has found some Americans equivalent to the “useful idiots” who visited Stalin’s Soviet Union and proclaimed that socialism really works. One such is California governor Jerry Brown, who recently took a large  entourage to China in search of infrastructure investment, contrasted the regime’s “dynamism” with our focus on process, and declared, “I want to be in the presence of people who build, who dream, who get shit done.” They certainly can do the latter. Just ask any dissident, if you can gain access to him or her.

The trade rivalry with China is due to intensify. Dev Ashish, an economist at Societe Generale, predicts that “The OECD will face stiffer competition from China in value-added manufacturing” as China shifts from low-end manufacturing. Ashish points out that “Asia (led by China) and oil-exporting countries substantially increased their value share of world exports” in the first decade of this century while “most advanced countries saw a sharp decline in their share of world exports.”

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