Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

By Alan Tonelson

The recent G-20 summit in London gave President Obama a huge opportunity to get the U.S. economy’s needed production-led recovery underway by decisively changing the nation’s dangerously wrongheaded, outsourcing-focused trade strategy.  Sad to say, the President whiffed, thanks ultimately to his big misconceptions about multilateral approaches to dealing with other countries.

The summit – the second held by the world’s 20 leading economies – couldn’t have been timelier.  After all, the current Great Recession is rooted in at least 20 years of disastrously shortsighted trade policy decisions in Washington and other major world capitals.  These ill-advised decisions have left the United States incapable of supplying its own material needs – and thus supporting its first world living standards – with its own productive industries.  U.S. leaders responded by promoting an illusory and unsustainable prosperity based on a consuming and importing binge willingly financed by its major trade partners.  

The collapse of this policy into the worst economic crisis in decades has sent the clearest possible signal that world trade and investment flows need fundamental change – for the sake of all countries.  More specifically, the United States needs to enlarge its productive industries by replacing many imports with domestic goods.  And the rest of the world needs to cooperate, principally by engineering an equally thorough transformation – from heavy reliance on export-led growth to heavy reliance on domestically led growth.

The G-20 leaders first gathered to address the crisis in Washington last November.  Unfortunately, circumstances couldn’t have been less promising.  The threat of a Wall Street meltdown was still consuming American officials.  And the lame duck Bush administration was ideologically incapable of abandoning the outsourcing-focused trade policies it had pushed so long and so enthusiastically, and that lay beneath the global imbalances.  And largely because Washington had never seriously sought systemic change, the rest of the world had grown all too comfortable with free-riding on America -- no matter what the inevitable long-term consequences.  

Predictably, even as the G-20 countries were all ignoring free-market principles in their bail-out- dominated domestic crisis responses, the summit produced nothing on the trade front but standard free-market bromides and vows to avoid the allegedly disastrous protectionism of the 1930s.  The imperative of global rebalancing was not even mentioned in the final communique, and the economic crisis was described as a financial, not real-economy phenomenon.  Nothing revealed the inadequacy of the summiteers’ overall approach better than their own actions upon returning home.  Virtually all began erecting new trade barriers and, seemingly on cue, blaming the United States almost exclusively for the renewed specter of protectionism.

Enter a new president, whose campaign occasionally called for new trade policies.  Yet despite this Obama Factor, and even despite continued global economic deterioration, the latest summit’s agenda was virtually identical to the November meeting.  If there was any significant difference, it was due to the fact that a U.S.-Europe disagreement had broken out over basing recovery strategy predominantly on further stimulus spending or on tighter financial regulations.  
Given the run-up to the summit, it’s no surprise that this overly sterile debate hogged the spotlight.  Senior Obama economic advisor Lawrence Summers made clear the administration’s view that, whatever its merits, the “global rebalancing” agenda had become outdated.  Inducing China and other Asian economies, in particular, to grow much less by exporting and much more by supplying domestic demand had to take a policy backseat.  The top priority was persuading as many governments as possible – including China’s – simply to boost stimulus spending greatly, and thus jumpstart global growth just like Washington’s stimulus would spur domestic growth.

The Europeans, however – especially the French and Germans – “Just Said No,” adding that their supersized welfare states were already achieving many of the same ends targeted by America’s public spending spree.  The continentals focused instead on reigning in the “cowboy” brand of American finance and capitalism they had always loathed anyway.

The Europeans prevailed, but as I argued in my March 14 blog item, “Summers’ Bubble-ization Agenda,” a U.S. victory would have been meaningless at best.  Unless America’s major trade partners dismantle the mercantilist systems responsible for so much of the U.S. trade deficit, more global growth will simply recreate in greater quantity the lopsided trade flows that helped spark the crisis.  

Yet despite Summers’ arguments, Obama did wind up pressing a version of global balancing.  In fact, he raised the issue so much in London that his position filled many summit headlines.  Unfortunately, Obama’s rebalancing message was at best mixed and at worst a hasty, poorly veiled effort to pour the old wine of global stimulus into an unconvincing new bottle.

Obama’s words unavoidably suggested that global rebalancing could be achieved mainly if the rest of the world launched even bigger stimulus programs than America’s.  Such global growth would relieve America of outsized budgetary burdens, and automatically transform global trade flows by creating outsized demand for U.S. products.

As Obama put it at a joint press appearance with British Prime Minister Gordon Brown, “The United States will do its [stimulus] share, but...in some ways, the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide.”  For world growth to proceed, he continued, “It can’t just be the United States as the engine.  Everybody is going to have to pick up the pace.”

He also pointedly added that “to the extent that all countries are participating in promoting growth, that also strengthens the arguments that we can make in our respective countries about the importance of world trade – the sense that this isn’t a situation where each country is only exporting and never importing, but rather that there’s a balance....”

Obama did acknowledge that the United States would have to grow even as it took “into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position, as well as our current account deficits.”  Therefore, he did finger U.S. international imbalances as a special problem.  But he never explained how he would induce more thrift in America – an especially critical issue given the spending impulses both of his administration and the Federal Reserve.  And his phrasing suggested, whether unwittingly or not, that global rebalancing and U.S. deficit reduction would only require one country to make structural economic changes:  the United States.  Everyone else was let off the trade policy hook.  In practice, in other words, Obama defended the fiction of global stimulus as cure-all.

The failure of these efforts is obvious from the G-20 communique.  No country pledged any substantial new stimulus effort.  No mention was made of America’s economic partners needing to step especially hard on the gas.  In fact, unlike the November communique, the April version didn’t even cite “unsustainable global macroeconomic outcomes” as a problem.  Thus the world moved farther away from addressing the crisis’ real roots – and from overcoming it.

Just as disturbing are the main reasons for this costly failure: an Obama view of multilateralism devoid of content.  Indeed, the President too often speaks and acts as if multilateralism is neither a strategy nor even a tactic – which would consequently require thought and effort to execute.  Rather, it is something almost mystical – an enlightened state that all will surely attain, especially with some elegant sermonizing and acts of contrition to light the way and set an example.  

As far out as this sounds, think of Obama’s frame of mind leading up to the G-20 summit and the rest of his first overseas trip as president.  Job One was obviously persuading the rest of the world that a new, better America was a-borning – an America that, in his words “would forge partnerships as opposed to simply dictating solution,” that understood the world to be “a complicated place,” that “would show some humility and recognize that we may not always have the best answer,” and that deserves “the benefit of the doubt.

The United States owed many countries and peoples more specific apologies as well.  It had enslaved black Africans and repressed native Americans.  It had engaged in torture.  It had failed “to appreciate Europe’s leading role in the world” and too often shown the continent “arrogance and been dismissive, even derisive.”  It needed to show “the Moslem world greater respect” and change “our language and...our tone.”

Obama did express more realistic views.  Specifically, he reminded European audiences in particular that today’s peace and prosperity “were not easily reached” or “predestined” or drawn from “simple blueprints.”  Rather, they were “born out of the blood of the first half of the 20th century and the resolve of the second.”  He voiced understanding that countries will frequently disagree.  And his chief campaign strategist and top White House political advisor, David Axelrod, expressly denied that the administration expected “the waters [to] part, the sun shine, and all the ills of the world disappear because President Obama came to Europe this week.”

Yet the record shows no other Obama strategy for getting from here to there, and precious little understanding that multilateral results seldom automatically spring from “respecting different points of view,” restoring America’s “standing,” “listening and learning,”  demonstrating persistence, shedding “the biases and prejudices of the past,” and even  “[walking away] from...negotiations.” Wielding power (and thus cultivating it), exerting pressure, and creating realities are usually the keys.  

And paradoxically, strong-arming is at least as important when dealing with allies as with adversaries.  Precisely because, as Obama repeated, the parties’ interests can differ significantly, multilateral “successes” can entail very different specifics, with very different and high-stakes implications for individual countries.  Washington can’t forget the importance of ensuring that as many specifics as possible reflect America’s interests.

Unfortunately, this imperative appeared completely absent from Obama’s agenda in Europe. As a result, he returned home not only having lost the G-20 communique dispute, but having left his country in the worst of all possible positions – too self-effacing to lead, too big simply to follow, and too confused to just take care of business.

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