No End of Free Trade

Free trade agreements also face criticism from economists like CFR Senior Fellow Jagdish N. Bhagwati, who say they amount to preferential deals and undermine free-trade concepts while distracting from the more meaningful Doha round of global trade talks. But advocates like Daniella Markheim, a senior analyst in trade policy for the Heritage Foundation, point to strong results from free trade agreements. She writes that in 2007 regional and bilateral FTAs accounted for more than $1 trillion in two-way merchandise trade, or about 35 percent of U.S. trade.

Given anxiety over the economy and rhetoric from lawmakers in Washington, some trade proponents are concerned that Congress will propose legislation akin to the Smoot-Hawley Tariff Act of 1930, which increased protectionism and contributed to the Great Depression. A week after Election Day, the U.S. Commerce undersecretary of international trade, Christopher Padillo, said President-elect Obama will face "more political pressure for protectionism than any other chief executive since 1930." Mindful of such concerns, the November 15 summit of the G-20 major economic powers made an appeal for advancing the Doha round and underscored "the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty." This appeal was echoed one week later at the summit of the Asia-Pacific Economic Cooperation forum in Peru. James Bacchus, a former Democratic member of Congress and former chief judge of the World Trade Organization's appellate body, says trade liberalization offers a particularly effective economic stimulus, in addition to the spending and tax cut options before Obama at this time. "The rest of the world is waiting for Barack Obama on this issue," Bacchus says. "We're talking about tax cuts in the United States. [Trade] tariffs are a tax and [reducing these] would be immediate tax cuts for Americans and others around the world. These tax cuts would increase the volume of trade and prosperity worldwide."

Though economists tout the benefits of trade liberalization, worried policymakers around the globe have enacted stimulus plans and sought to protect fragile industries during the crisis. CFR Adjunct Senior Fellow Matthew J. Slaughter warns that one plan under consideration, a U.S. federal bailout of the Big Three U.S. automakers, could have a disastrous effect on trade. He writes in a Wall Street Journal op-ed that investment in auto production by foreign firms operating in the United States is likely to suffer if companies see the U.S. government is willing to bail out their competitors. He also says a bailout of automakers could "entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals." This was echoed by the European Union's competition commissioner, Neelie Kroes, who warned against a "subsidy race" that would only worsen economic problems globally.

But the Wall Street Journal's Gerald F. Seib says the crisis provides opportunities for Obama as well; at a time when Americans are expecting government activism on everything from health care to big infrastructure programs, a revival of trade deals could be sought as well. "One test of the Obama administration's economic philosophy is whether it is as eager to take advantage of that opening as some of the others now before it," Seib writes.

Hufbauer of the Peterson Institute says the financial crisis is "taking heat away from the trade" issue during the transition, but he doesn't anticipate any type of trade initiatives emerging from an Obama administration in its early months. "The first thing is to get out of the recession, then do something about a safety net, health insurance, Trade Adjustment Assistance for workers impacted by trade," he said. Bhagwati, speaking at New York Law School in November 2008, said: "This is not a time when we can really sell trade liberalization, in my view. A lot of people are not going to make these distinctions" between problems like lost jobs, outsourcing, and trade.

Obama will confront an American public increasingly skeptical of the benefits of globalization. Numerous polls conducted during the presidential campaign in 2008 showed that a growing number of citizens looked at free trade as a threat. The Pew Global Attitudes Project, conducted in spring 2008, found support for trade lower in the United States than any other country in the survey, with 53 percent saying it was good for the United States. A later poll in June 2008 by CNN/Opinion Research Corporation found only four in ten Americans say free trade provides an opportunity for economic growth, and 51 percent view foreign trade as a threat, up from 35 percent in 2000.