Foreign Policy Argument Will Prevail in Trade Debate, Bergsten Says News Feed

Location: India

C. Fred BergstenApril 8, 2015—The Obama administration is pursuing six trade agreements, “the most ambitious set of negotiations in the country’s history,” while facing probably the toughest sell ever at home for any deals that result, trade policy analyst C. Fred Bergsten told economists and other analysts at Nathan Associates Inc. Bergsten, senior fellow and director emeritus at the Peterson Institute for International Economics, offered insights into what it would take to overcome this opposition, rooted in stagnant or declining wages for much of the U.S. population, lopsided distribution of wealth, and politics of the interest group and partisan varieties.

National Security

First, the economic case doesn’t sell trade deals. Bergsten does indeed argue that trade agreements have been a net plus for the U.S. economy, with lower import prices, higher earnings for exports, and increased productivity from competition adding the yearly equivalent of $15,000 per household to gross domestic product, his institute found in a study from about 10 years ago. But national security considerations typically have the best chance of winning over Congress. The national security argument for the 12-nation Trans-Pacific Partnership (TPP), one of the six proposed agreements, is that the absence of an agreement would cede Asia to Chinese domination. The North American Free Trade Agreement “finally made it through Congress when Colin Powell, then Chairman of the Joint Chiefs, told the Senate that one of his successors might have to put five U.S. divisions on our southern border if the agreement failed.”

Safety Net

Second, “generous safety nets for U.S. workers that are displaced by trade or anything else” could make globalization more acceptable. Resistance to globalization is less pronounced in Europe and other high-income countries with more extensive social welfare programs, he said. The portability of health coverage through Obamacare, Bergsten noted, is making it somewhat easier for workers to move to new jobs. But unemployment insurance covers too few workers and replaces just a third or so of lost wage earnings, while job training and placement services are inadequate. The Trade Adjustment Assistance program is “tiny, less than $2 billion a year, incomplete in its coverage and ineffectively managed.” Bergsten acknowledged that Congress is not about to extend the net. And the Republican majority says it wants to repeal Obamacare.

Currency Manipulation

“A forceful administration response on currency manipulation may be necessary to assuage congressional anxieties,” Bergsten said. The debate over current trade legislation is whether to “force legally binding currency disciplines” on countries that weaken their own currencies in order to boost exports. An opportunity exists now to address the issue because China and other countries aren’t manipulating currency to the degree they did before, meaning foreign resistance to antimanipulation measures would be less intense.

Even though trade agreements have been increasingly difficult to push through since the “bitter debate” over Nafta in 1993-1994, Bergsten says he is optimistic TPP will pass, but not necessarily in this administration. (TPP negotiations started under George W. Bush.)

“I do think the TPP will eventually occur because it is so clearly in our foreign policy interest,” Bergsten said. He spoke as part of Nathan’s monthly series, “Economists Present,” a forum for stimulating discussion of the global economic issues with which the firm is engaged.

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