There is no issue on which President Obama is more confused than trade (except for gay marriage, medical marijuana, immigration…). He can’t seem to make up his mind whether to unleash his inner protectionist to appease his union buddies or curb it to create economic growth and jobs. And this week this confusion will be on vivid display as Congress considers a slate of Obama-backed bills that, on the one hand, will conclude free trade agreements with Panama, South Korea and Colombia, while, on the other, threaten a trade war with America’s two biggest trading partners, China and Canada.
In a message accompanying the free trade agreement bills, negotiated by the Bush administration and pending ever since, Obama told Congress that they will “support tends of thousands of jobs across the country.” But apparently this logic doesn’t apply to China and Canada.
Sen. Chuck Schumer on the Democratic side and Sen. Lindsey Graham on the Republican side are introducing a bill that will give U.S. companies the right to seek countervailing duties against countries (read: China) with “misaligned currencies.” But President Obama, whose own Treasury Department has to date refused to designate China as a currency manipulator, is doing absolutely nothing to stop this. Never mind that any correlation between the yuan’s value and China’s trade surplus (not that it’s a bad thing) with the world is purely coincidental. As the Wall Street Journal recently noted:
The yuan has appreciated by almost 30% since the middle of 2005, when Mr. Schumer was pushing for a 25% revaluation. But the Chinese surplus has mostly grown and occasionally shrunk during this period in response to other forces.
This is a repeat of the 1980s, when Congress was bashing Japan for keeping the yen low and running large surpluses. As the yen rose from 360 to the dollar to 80 over 25 years, the surplus persisted and continues today, though it has shrunk in relative terms since the bursting of Japan's bubble.
But China is unlikely to turn the other cheek at this Congressional slapping. Doing so, notes Edward Harrison of CreditWatch, would undermine the Communist Party's authority domestically:
At a minimum China will retaliate in kind. Potentially they could escalate. Depending on the size of the sectors affected - to date, we have seen tariffs on chicken, steel and tires—this could derail America's nascent technical recovery, which I see leading to lower employment and output and depression.
And if other countries join in, we could be off and running into a full-blown trade war, deepening the current recession into a depression, as happened after the 1930 Smoot-Hawley tariffs. (The entire Harrison blog is worth reading for the eerie similarity between the Obama administration’s rhetoric now and Hoover’s administration’s rhetoric then that triggered a global trade war.)
But if the Obama administration’s sin is one of omission in the case of China, it is one of full and active commission in the case of Canada. It has included in its fraudulently named American Jobs Act a “Buy America” provision—pulled verbatim from the stimulus bill—that prohibits use of imported steel on tens of billions dollars’ worth of infrastructure and modernization projects. This disproportionately affects Canada whose companies are part of a cross-border supply chain serving infrastructure projects that have emerged in the wake of NAFTA. The administration has magnanimously included a provision allowing contractors to get a waiver if using all-American products would increase the cost of the project by more than 25%. “But that’s a cumbersome and time-consuming process—a stimulus for lawyers, not construction workers,” the Washington Post, not known for its free market absolutism, points out.
Canada is absolutely livid about it. But the jobs bill ain’t going nowhere so it is safe for now. That, however, is more than can be said for the American economy so long as Barack Hoover Obama is at the helm.
Oh, how I miss Bill Clinton.