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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.”

In response to China’s success, due in part to its policy of keeping its currency undervalued, more and more of its competitors have decided to fight fire with fire, or more precisely, currency manipulation with currency devaluation that will make their exports cheaper and imports more competitive. The G20 has chosen to look the other way, and to treat devaluations as by-products of monetary policy. Japanese Prime Minister Shinzo Abe and Federal Reserve Board chairman Ben Bernanke claim that they print money as part of monetary policies aimed at stimulating growth. If that printing has the, er, side effect of lowering the value of their currencies, well, so be it. If only they had currencies to devalue against a German deutschemark, the EU’s southern tier would follow Japan’s lead.

The trade scene is likely to become even more fraught now that Brazil’s Roberto Azevedo has been chosen to be the new director general of the World Trade Organisation. Azevedo, formerly his country’s ambassador to the WTO, made his reputation by getting the organisation to rule against America in disputes over cotton, orange juice, sugar and steel, and against Canada and Europe in several trade tiffs. He is well regarded by developing nations, but not much loved in richer, developed countries whose support he will need if he is to revive a moribund agency that presides over the Doha Round, a tariff cutting effort started twelve years ago and generally believed to be beyond saving.

The American trade team will certainly have less influence on trade policy at the WTO than in the past now that Azevedo’s lobbying for the director general’s post has paid off. But since former World Bank president Robert Zoellick was in charge of US trade policy emphasis has been on regional deals, some small, some as all-encompassing as the European and Asian deals that Obama hopes to complete, the latter before the year is out. He would like to have a triumph to announce during the November congressional elections to offset talk of Benghazi, tax collectors’ assault on conservative organisations, and Department of Justice’s seizure of  Associated Press reporters’ telephone records.

Trade is more than an exchange of goods and services. It is politics, and war, by other means.

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