The Trade Situation: Pending Bilaterals
President Barack Obama told his Asian hosts in November that he would like to see the Doha Round of multilateral trade negotiations resume as soon as possible, an extension of the campaign initiated in his first State of the Union Address to double American exports over the next five years. After declaring the midterm elections a “shellacking” due to a slow economic recovery, the President converted his long-planned Asian trip into a quest for jobs that would depend upon market opening for American goods. He tied trade liberalization and trade agreements together with economic recovery by promising to conclude a bilateral Free Trade Agreement with Korea while reconstituting multilateral talks.
The American press blamed China and India for the collapse of the Doha Round eighteen months ago, and the apparent alliance between China and India in trade talks suggested a potentially significant development in world affairs. However, the Doha Round failure should have been ascribed as much to the United States and the European Union as to any of the developing countries. The Doha Round began as the “development round;” when developing countries bordering the Pacific Ocean found the deal on the table unacceptable, above all because of agricultural subsidies on both sides of the Atlantic, it was for the more developed countries to change and adjust, not to assign blame for a global disappointment.
The President enters trade terrain, with his call for resumption of the Doha Round, with little credibility. During his first two years in office, he never asked Congress for, and never seemed particularly interested in, trade negotiation authority. Without it, Presidents have minimal negotiating leverage with foreign governments because presidential signatures on agreements cannot be trusted. Congress retains, and typically delivers, the last word.
President Obama, not deliberately, has proved the point about trade negotiation authority, although by the end of 2010 his profile had improved as it had in almost every domain. He inherited three signed bilateral trade agreements; as he begins his third year in office, he has brought none of them before Congress. He seems to have persuaded Panama to revise its deal to satisfy congressional concerns, but has given no indication when he might present the deal for congressional approval. He left Korea without a revised agreement that he determined he had to have to satisfy Congress, souring the entire Asian expedition, although he seems to have solved these negotiating problems after his return. Nevertheless, the Korean deal must still go before Congress, which can still change it, and more than one prominent Democrat, such as Senator Sherrod Brown (D-Ohio), already has declared it unacceptable. The United Auto Workers have endorsed, but the AFL-CIO has denounced it. And even though some major American manufacturers, such as Caterpillar, have called the Colombian agreement the most important of all for them, there is no hint at all when it might be considered for approval.
The President obviously did not think he could count on a Democratic Congress to pass these trade deals, and while Republicans tout free trade, they are not likely to deliver the Democratic President any immediate trade victories. So, even as the Panamanian and Korean deals may be ready, products of President Obama’s negotiations to satisfy essentially Democratic Party and constituent demands, they were not presented to the extraordinarily productive lame duck Democratic Congress, and could still be rejected in a more Republican session.
The Trade Situation: Doha And Agriculture
When the Doha Round talks fell apart in September 2009, American commentators blamed Asians, especially China and India, but the core dispute was over agricultural subsidies, especially American and European. Some trade analysts think the whole multilateral project is dead, or look to more modest enterprises such as the Trans-Pacific Partnership negotiations, but President Obama specifically said he wanted to reopen the Doha Round, and he may have a significant opportunity to do so, in major if not ironic part courtesy of the shellacking.
President Obama’s first budget, eight months after the collapse of the Doha Round under President Bush, featured an assault on agricultural subsidies. Agriculture Secretary Tom Vilsack emphasized that “direct [farm] payments were never intended to be around this long,” noting that their extension already had cost taxpayers $5.2 billion per year for twelve years. Writing in the Des Moines, Iowa Register, Vilsack assured that “cutting these subsidies does not leave these farmers without a safety net [b]ecause these cuts in farm subsidies do not affect access to other farm programs. . .” Budget Director Peter Orszag emphasized “reducing subsidies to large farmers” in order to save money. When asked how he would cut the growth in the federal deficit, House Financial Services Committee Chairman Barney Frank told the press, “The President proposed cutting back on agricultural subsidies,” but also complained, “some of the great budget hawks in both parties killed that right away.”
President Obama was on the side of China and India, seeking to cut agricultural subsidies. He couldn’t do it because the bipartisan budget hawks often came from rural states and would not give up their bounty. He could not resume the Doha talks, however, without doing something about agricultural subsidies.
The Tea Party To Obama’s Rescue
It is here that the Tea Party may be coming to his rescue. Tea Party members have said they have no more patience for Republicans than for Democrats who do not share their views. Although those views typically are more coincidental with the Republican Party, Tea Party members elected to Congress insist they are as ready to challenge Republicans as Democrats; in the primary elections they toppled several Republican Party incumbents and nominees.
The core of the Tea Party’s views is to cut big government, and to slash government give-aways, of which the biggest long-standing give-away of all is agricultural. Indeed, some in the Tea Party already have declared agricultural subsidies specifically as a target.
During the 2010 campaign, Kentucky and Tea Party Senate candidate Rand Paul told a Kentucky Farm Bureau audience that he wanted to repeal all agricultural subsidies that pay farmers not to farm. He said such a move would save $1 billion annually, and invoked agricultural subsidies specifically as targets to reduce the federal debt. Saying, “I don’t think federal subsidies of agriculture are a good idea,” Paul urged that farmers grow more, not less, and increase exports. He declared support for the trade agreements with South Korea, Panama, and Colombia because they would enable Kentucky farmers to export more food.
Many a Republican ox would be gored by renewal of the President’s assault on money for big farmers. While Paul was attacking agricultural subsidies, his future Kentucky seatmate and Senate Minority Leader Mitch McConnell (R-Ky) said, “I have voted for most of the farm bills, yeah, and I try to help Kentucky agriculture.” Thus, the President and the Tea Party, on this subject, are singing from the same hymnal, which most Republicans find off-key. Both the President and the Tea Party see an opportunity to save money by cutting farm subsidies, and while the Tea Party has said little about international trade, Paul’s statements demonstrate general support, if only to open foreign markets for American products, which is precisely President Obama’s interest. Tea Party adherents would have no objection to a growth in jobs, putting Americans to work, making goods foreigners would buy in more open markets. Those markets will open only with freer trade, and freer trade will be possible, at least through the Doha process, only with reduced American and European agricultural subsidies.
Of course, Europe has shared the American spotlight in spending public money on private farmers. Per capita, European largesse is notably greater than American. But Germany, Europe’s economic engine and principal financier of the Common Agricultural Policy, has long wanted to reduce such contributions. Now that the threatened defaults of Greece, Ireland, Portugal, and Spain all point to Germany to save the Euro Zone, the time for Germany to induce reductions in agricultural subsidies may well have arrived.
As the Doha talks imploded, it became apparent that Europeans would not cut back agricultural subsidies until the United States did. It also became apparent that Europeans could no longer afford them. The United States and Europe, consequently, needed a mutual reduction, and passage of the 2008 Farm Bill in the United States, confirmed by the summary rejection of the Obama budget in 2009, made that step impossible. Now, with non-partisan Tea Party sympathy for the President’s budget-cutting objective, the crucial step may be possible.
It is not as if farm subsidies have not been cut before. There was a significant rollback in the 1996 Farm Bill under President Clinton, but subsidies were restored and expanded twice under President Bush, demonstrating that farm subsidies are more Republican than Democratic. Enhancement of Republican presence in the House of Representatives thus is not likely to help the Democratic President, but the themes of government give-aways, deficit reduction, and restoration of trade opportunities ought to be irresistible to many in both parties.
Were President Obama to align with the Tea Party over agricultural subsidies as a means to reduce the deficit, he might split Tea Party adherents from the Republican Party while embarrassing Republicans demanding cutbacks in federal expenditures. As in 1996, a Democratic President could restore sanity to the Farm Bill, and as in 1996, American cuts in agricultural subsidies would almost certainly lead to corresponding cuts in Europe. Were both the United States and Europe to make serious reductions in their agricultural programs – the United States to reduce the deficit, Germany to free up resources to rescue the Euro Zone — the Indians and Chinese may find the hope and satisfaction they need. Doha then could be resurrected, and the Obama Administration could discover, courtesy of the Tea Party, that it can fashion a trade policy, one that could satisfy both China and India, after all.