Global Marketers Unclear About Obama’s Direction

Global marketers looking for direction from the Obama Administration will have to wait a little longer.  There are no clear signals as to whether Obama will embrace free trade, like his immediate predecessors, or revert to a more protectionist policy, favored by one of his primary bases of support.

A recent Dartmouth University discussion by two Tuck School of Business professors provides a glimpse of where Obama may be heading and the implications for American  global marketers.  Profs. Douglas Irwin and Matthew Slaughter made a presentation in early May at Rockefeller Center in New York entitled: “Obama Administration’s Trade Policy: Old Wine in New Bottles.”

In this presentation, it was pointed out that the Obama administration has made only modest changes in Bush’s trade policies despite growing public unrest with globalization as a result of U.S. job shrinkage from the recession.

Irwin pointed out that Obama has maintained Bush’s commitment to free trade while also pushing for such new policies as agricultural subsidy reform and an end to the trade embargo with Cuba. “We haven’t had radical change,” said Irwin. “We have had something very constrained,”

Irwin pointed out that free trade is a highly controversial within the Democratic Party citing traditional union opposition based on the conventional lost jobs wisdom.  Slaughter said that he fears these attitudes will increase protectionist tendencies among Americans particularly since recessions foster trade restrictions.

Business vs. Unions

While the Obama administration has yet to fully articulate a world trade policy, both the traditionally conservative business/manufacturing groups and the labor organizations have made their feelings known.

The conservative Center for Trade Policy Analysis urges Obama to move further toward free trade.  In its Trade Policy Analysis #39, authors Daniel Ikenson  and Scott Lincicome write:

“…restoring the pro-trade consensus must be a priority of the Obama administration.  If the United States indulges misplaced fears, restrains economic freedoms and attempts to retreat from the global economy, the country will suffer slower economic growth and will have greater difficulty facing future economic and foreign challenges…”

They point out that America’s trade skepticism is fueled by three myths: (1) the mistaken notion of the decline of American manufacturing; (2) lack of understanding about the trade deficit without discussion of causes, meaning or implications; (3) the mistaken notion that there has been lax enforcement of existing trade agreements.

“President Obama should reexamine these premises.  He will find they are long on fallacy and short on fact,” write Ikenson and Lincicome.

The AFL-CIO takes a different approach in its AFL-CIO NOW BLOG (Jan. 29, 2009.) Posted by James Parks, the union position is that “The Obama administration has a golden opportunity to reframe and reform U.S. trade policy to reflect what is good for America and its workers, not multinationals that send jobs overseas….”  Parks points out that the nation’s trade policy, especially trade with China, “has benefited multinational corporations and financial institutions while working families suffered from millions of lost jobs, stagnating or falling wages and growing inability to sell U.S. products abroad.”

“Buy American” Fears

In a June 8 Associated Press article, author Desmond Butler opines that   protectionist moves by Congress and President Obama’s “Buy American” provision injected into the massive economic stimulus bill “could poison global trade relations” despite the President’s assurances he intends to keep U.S. markets open.

The “Buy American” provision in the massive economic stimulus bill is provoking fears from the European Union and Canada that they will be shut out of U.S. markets because of the requirement to use U.S.-manufactured products.  EU and Canadian official now worry the practice may widen and that Congress will insert similar measures to other spending bills.

It appears that Obama is walking a tight rope on this issue.  Many U.S. exporters fear the “Buy American” provisions will backfire and end up costing more American jobs as foreign trading partners retaliate.  According to the Associated Press, ”Some municipalities in Canada have begun organizing boycotts of U.S. products, and EU and Canadian officials say they are reviewing their options.”

The President, it appears, added the “Buy American” provision as more of political ploy to get the stimulus bill passed and less of a long-range commitment to protectionism.  Following a summit meeting in August with Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon, Obama, in addressing “Buy American” said, “It was not something I thought was necessary, but it was introduced at a time when we had a severe economic situation.  We have not seen sweeping steps toward protectionism.”

Paying the Piper?

A WASHINGTON POST editorial (April 19, 2009) pointed out that Obama owes political debts to labor for their support in the presidential election:

“The anti-trade bias of the Obama administration is not a surprise given the debt Mr. Obama owes organized labor.  According to the Center for Responsive Politics, labor unions spent more than $52 million promoting Mr. Obama’s candidacy and attacking his Republican opponents, Sen. John McCain in the last presidential election.  Overall, in the 2008 election cycle, union spent more than $73 million directly on campaigns, 92 percent of this pot went to Democrats.  An additional $80 million in independent expeditures was spent by unions ‘on independent broadcast advertising, mail and internal advocacy to help elect or defeat federal candidates.’  Now Mr. Obama is paying the piper.”

The editorial goes on to point out that “As a candidate, Mr. Obama promised to unilaterally rewrite NAFTA (North American Free Trade Agreement) and oppose the Central American Free Trade Agreement and free trade accords with Colombia and Panama because labor unions oppose greater access to these markets and their workers.  While the President seems intent on giving a boost to the communist Castro dictatorship by opening relations with Cuba, he resists similar entreaties to assist our allies in Bogota who are fighting a civil war against Marxist-narco revolutionaries.  That says a lot about his priorities.”

Conflicting View

Alan Tonelson, a research fellow at the U.S. Business & Industry Educational Foundation, has a totally different interpretation of Obama’s trade policies.  In a June 26, 2009 article posted on AmericanEconomicAltert.org entitled “Obama Tradc Policy:  If it Walks Like a Bush/Clinton and Talks Like a Bush/Clinton, it Must be….”

In this scathing article, Tonelson writes: “The Obama administration’s drive to clone George W. Bush’s trade policy rolls on — to the point where it is reproducing practically word for word the same dishonest arguments and claims spewed endless by the previous administration — and its predecessor.”

The Bottom Line

The bottom line is that nobody really knows what direction Obama will take in U.S. trade policy.  Clearly, the administration has been preoccupied by some of the more major priorities of the President’s agenda – wars, the economy, energy and health care.  The “Buy American” initiative addressed two issues: (1) the need to get the economic stimulus bill passed and (2) a handout to organized labor, one of Obama’s leading constituencies.  As for the substance of U.S. trade policy under Obama, little has changed and it is simply too soon to see any long-term direction.