Obama the Fair Trader

Now we turn to Obama’s stance on free trade.  Obama happens to fit very nicely into our taxonomy of views on trade.  He falls into the category of people that recognizes the benefits of free trade but is wary of the process by which trade achieves its ends.  Obama is a member of the CMOS wing and the CMAT wing of free-traders.  A proponent of cave mercatem and meeting our standards and assisted trade as described in an earlier post.  Obama’s believes that a myriad of standards should be prerequisites to existing and future trade pacts.  He labels his brand of free-trade as “fair-trade.”  Obama’s end is to spread good labor and environmental standards through the United States’ trade pacts.  In addition Obama would like to extend and modify the current regime of trade adjustment assistance,

by extending it to service industries, creating flexible education accounts to help workers retrain, and providing retraining assistance for workers in sectors of the economy vulnerable to dislocation before they lose their jobs. (From barackobama.com/issues/economy/)

In short, Obama is very sceptical of the benefits of free trade.  This being my conclusion from the fact that the only circumstances under which he is for free trade are highly qualified.  Let’s flesh out my claims with some data.  First, let us look at Obama’s stance on trade with China.  He voted in favor of a 27.5% tariff on Chinese products proposed in 2005 in retaliation for the “unfair” advantage of the “artificially low” peg of the Chinese currency, the renminbi, against the dollar.  Obama voted against the Central American Free Trade Agreement which eliminated or will ratchet down tariffs on the majority of trade between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.   Conspicuous with his absence, Obama did not vote at all on the free trade agreement with Peru nor the recently passed Farm Bill, which included many items that are not consistent with free trade.

Obama is in favor of renegotiating the North American Free Trade Agreement between the United States, Canada and Mexico.  He would like to add labor and environmental standards to NAFTA.  Let me quote Senator Obama from a Fortune magazine article from June 18, 2008, which is featured on Obama’s website,

I don’t dispute that there may have been some modest aggregate benefit in terms of lowering prices on consumer goods for example. But I would also argue that not only did it have an adverse affect on certain communities that saw jobs move down to Mexico but for example our agricultural section pretty much devastated a much less efficient Mexican farming system. But from a pure economic, you know if you’re just an economist looking at this in an abstract way you would say well a more efficient producer displaced a less efficient producer in Mexico, there’s nothing wrong with that. As a practical matter those are millions of people in Mexico who are displaced. Many of whom now are moving up to the United States, contributing to the immigration concerns that people are feeling. And so, those human factors should be taken into account. They may not override or every single decision that we make in respect to trade, but to pretend those costs aren’t there, that those costs aren’t real, and my job as president to take those into account, I think, does no service to free trade. And its part of what has fed the protection incentive and the anti-immigration incentive that is out there in both parts and you know I think that if we manage trade more effectively, if we’re better partners, if we are thinking about the dislocations that occurs as a consequence of it, if were true to our belief that labor and environmental standards should be a part of raising living standards around the world instead of a race to the bottom, then we can have free trade and it will be sustainable and we will have political support over the long run.

There is a lot in this quote, which is very revealing of Senator Obama’s beliefs about free trade.  Obama makes the case that the only path to free trade becoming widely accepted is through diminishing the downsides of free trade.  This is true for just about all things.  One always wishes to increase the good while lessening the bad.  We can take many tacts here.  I will take the big picture one.  There are a great many people who wish to make the world a better place.  One way to accomplish this is to spread good labor conditions around the world.  To accomplish this the United States could work for an international pact at the United Nations which defines acceptable working conditions and sets up an enforcement mechanism to ensure that all member nations provide them.  Another means to achieve this is through the incentives present in trade.  If we require, trade deal by trade deal, the provision of good working conditions, then these standards will spread to a greater share of the world’s people.

The “meet our standards” wing of free traders wishes to use trade as the vehicle to achieve the propagation of such standards, whether they are labor or environmental ones.  Obama appears to be a member of this wing and would conduct trade policy accordingly.  Therefore, to agree with Obama on this issue, one has to decide whether or not trade is an apt vehicle for this purpose.