United States Trade Policy: The New Reality

By: Russell Smith | Tue, Mar 2, 2010
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The history of United States trade policy formulation and implementation, until 2009, was marked by a number of characteristics that were common to every presidential administration and Congress, more or less without regard to political party affiliation. Those characteristics were a clear commitment to the principle of open trade, including both imports and exports, and an acknowledgement that imports as well as exports contribute substantially to the well-being, employment, productivity, and technical skills of millions of Americans. Moreover, there was a recognition that in addition to these domestic benefits, open trade, and particularly United States imports, represent one of the primary engines for global economic development.

These "markers" were in turn reflected in American trade policy initiatives. Administrations and Congresses may have fluctuated in their enthusiasm for open market and trade liberalization initiatives, but such initiatives were always a part of the political process and were usually, though not always, approved in one form or another.

Without expressing a judgment as to whether a change in this situation is beneficial or detrimental to the United States, there is no question that in the last year there has been a dramatic shift in the status of American trade policy. The new characteristics of the United States approach to trade are very different now than in the past.

First, the traditional U.S. political coalition that supported and pressed for trade liberalization has disappeared. Trade is now a fragmented, ad hoc proposition, in which individual trade problems have taken a much higher priority in the minds of opinion leaders and decision makers than broad trade initiatives. As a result, those thought leaders are much more ready to take positions and express sentiments that are not supportive of open trade because they are reacting to specific circumstances, in which there is usually some allegation of restricted market access, or unfair trade practices. Often these situations also involve a heavy dose of "economic nationalism," with its underlying resentment of foreign interests.

Recently this historic diminution in the traditional commitment to open trade has been accelerated by a political turn toward populism in the United States. Populism encourages rhetorical attacks on foreign interests as well as regulatory, trade remedy, and legislative proposals. In the past year, these factors have been reflected in a number of actions: President Obama's determination to impose tariffs on Chinese tire exports, the "Buy American" provisions of the economic stimulus legislation, White House and congressional proposals to impose additional registration and reporting requirements on, and restrict political activities of, American subsidiaries of foreign companies.

In addition, there are now 137 co-sponsors of H.R. 3012, the "Trade Reform, Accountability, Development and Employment (TRADE) Act" in the House of Representatives, comprising more than half of the Democratic members of the House, and including members of the House Democratic leadership, twelve committee chairs and fifty-five subcommittee chairs. This legislation would, in essence, require the re-opening of existing trade agreements and establish significant restrictions on the negotiation of new agreements.

Second, at this time the principle that both imports and exports benefit the U.S. economy is no longer part of the U.S. approach to trade. President Obama made reference to trade in his State of the Union speech almost exclusively in terms of exports and the jobs they create. The President's commitment to double U.S. exports over the next five years appears to be primarily premised on what the subsequent Economic Report of the President described as "robust enforcement of trade rules" as "an important part of our engagement in the world economy." This export/enforcement focused trade agenda has been confirmed in recent remarks by USTR Kirk, who has indicated that USTR will place a much greater emphasis on enforcement and opening foreign markets both through bilateral efforts, and by bringing more WTO actions.

The Obama Administration has expressed a qualified position regarding trade liberalization initiatives by indicating that at some future point it will ask Congress to approve the free trade agreements negotiated with Korea, Colombia and Panama. The Administration has indicated its support for a Trans-Pacific Partnership agreement, but Ambassador Kirk has also made clear that any such agreement will be negotiated on an extended timetable--years rather than months.

Third, despite the recent pronouncements by the President and his cabinet officers, trade does not appear to be the essential element keystone to U.S. global economic policy at this time. Moving the trade agenda forward is not, and does not promise to be, a U.S. policy priority for the foreseeable future. The long lag in any Administration pronouncement on trade, as well as the lack of any concrete broad-based market liberalization efforts in the agenda that has been announced are clear measures of the direction that the Administration has chosen. United States policy instead is focusing on strengthening global financial markets and cooperation, to be achieved through both financial system reform at home and the G-20 consensus process on the multilateral level.

Finally, the relative influence of political constituencies has shifted and when combined with the other factors, has led to a discernable Administration and congressional unwillingness to take what are identified as trade-related risks. The major manifestation of this shift is the lack of action or aggressive efforts to move the three FTAs forward at this time, despite strong U.S. business community support. This directly attributable to the opposition of key political constituencies including both organized labor and environmental activists.

While there are those who are criticizing these developments, what is more appropriate and productive is to accept them as the new realities of U.S. trade policy. In that context they offer challenges and opportunities. Clearly, U.S. and foreign interests that focus on exports to the United States will be challenged to justify their contributions to the American economy and to be vigilant in response to obvious and subtle trade-restricting initiatives. Those constituencies that are export-oriented will have an open door and a sympathetic ear both in the Executive Branch and in Congress. Those for whom opportunities lie in bilateral and multilateral trade agreements will need to consider how to realign their efforts to adjust to these new realities and, just as importantly, to be patient.



Russell Smith

Author: Russell Smith

Russell L. Smith,
Willkie Farr & Gallagher LLP
for KWR International, Inc.

Russell Smith is Special Counsel and head of the Government Relations Practice Group in the Washington, DC office of Willkie Farr & Gallagher LLP. The views expressed are solely those of Mr. Smith.

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