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).

U.S. Trade Representative Ron Kirk and the rest of Team Obama desperately want to gain the public’s trust on trade policy – at least enough for a fighting chance to win fast-track trade negotiation authority.  They could start making progress by breaking from their predecessors’ practice of trafficking in exaggeration and half-truths when pushing for new trade initiatives – as they’ve unfortunately just done with the proposed Trans-Pacific Partnership (TPP).

In one sense, the case made for this proposal by Kirk and his office in mid-December sounded like the standard boilerplate used for nearly two decades to hawk trade deals.  “The Asia Pacific's robust economies offer huge opportunities to grow U.S. exports,” declared Kirk’s staff, “thereby creating and retaining high-quality, high-paying jobs in the United States.”  The claim is just as delusional as Obama’s contention that Asian countries “want our [export] products.” (See “Obama’s Trade Fantasyland” at http://americaneconomicalert.org/view_art.asp?Prod_ID=3354). But more important, its substance was nothing that hasn’t been heard before from the two Bush administrations and the Clinton administration, which really kick-started current trade policy with NAFTA, the WTO, and PNTR/WTO membership for China.

At the same time, some of Kirk’s arguments opened new frontiers of hype.  In particular, Kirk touted the idea’s potential as “a true 21st century trade agreement,” “a model for the future of American trade” that reflects the new concerns of today’s “workers, businesses, and farmers.”  Specifically, TPP negotiators would “talk about new technologies, emerging business sectors, and the needs of small businesses alongside labor, environmental, and more traditional trade concerns in the context of a regional approach to trade.”  

Assuming that Kirk and Obama really do want to strengthen the domestic economy, as opposed to simply shill for outsourcing multinationals, such hype underscores two big, related problems.  The first entails Kirk’s status as trade policy neophyte.  The idea that he can achieve such successes could be plausible if he possessed significant experience in trade diplomacy, or significant knowledge of the world trade picture.  But he doesn’t.  

And although the administration’s breathtaking ambitions clearly reflect a supreme confidence in its game-changing abilities, Kirk’s main source of experience – Texas big-city mayor – may be the worst kind for  international trade talks.  After all, his veteran European and (of special relevance to the TPP) Asian interlocutors don’t care about personality or domestic U.S. election results.  Nor do they care about American-style political horse-trading aimed mainly at creating the illusion of progress for supposedly gullible voters, and maybe at generating a few morsels of pork.  Trade can be life and death for these foreign economies, and especially the imperative of keeping the U.S. market more open than their own.  

All other goals – “strengthening international cooperation,” “humanizing globalization,” “fostering free markets,” and even “fueling global growth” are simply slogans.  Their purpose has been to flatter and fool Americans, and to conceal the single-minded pursuit of national (or European Union-wide) advantage.  Interestingly, some of recent trade diplomacy’s biggest chumps (again, assuming their sincerity) have turned out to be Carter-era U.S. negotiator Bob Strauss, and Bill Clinton’s trade chief Mickey Kantor – supposedly savvy American politicos just like Kirk.  This is not to say that America’s competitors are immoral or worse – rather, that they’re serious.    

The second big problem with this TPP-style hype is how completely it’s based on a fairy tale about U.S. trade flows and performance indicators as basic as America’s growth rate and the U.S. economy’s size – let alone trade’s impact on employment levels and composition, or the structure of the economy.  How reassuring it would be, for instance, to hear either Obama or Kirk display consistent awareness about America’s huge, chronic trade deficits – most of them with East Asia.  At least the impression would be conveyed of policies grounded in reality.  But those insights are completely absent from the administration’s stated views on the TPP, or on trade policy generally.  

Ditto for the blame these deficits deserve for today’s economic crisis – as their magnitude and relentless buildup forced outsourcing-obsessed U.S. leaders to tell Americans that binge borrowing could bridge the gap between their production and their vastly greater, import-fueled consumption.  

Obama has fingered this over-importing for many of the nation’s economic troubles.  He has even repeatedly warned his foreign counterparts that America’s outsized net consuming and importing sponge can’t continue.  But when he and his deputies talk about trade policy for domestic audiences, these dangerous imbalances are ignored.  The result is a classic of misinformation like the TPP “Fact Sheet” gushing about how “Over the past four and a half years (1st quarter 2005 to 3rd quarter 2009)....American goods and services exports to the world accounted for 40 percent of real GDP growth in the United States.”  

Let’s accept for the moment that January, 2005 is a reasonable baseline – despite its lack of any economic significance.  From then through the end of this past September, inflation-adjusted gross domestic product expanded by $456.2 billion.  Real exports did rise by just over $200 billion.  But real imports also need to be counted to judge the full economic impact of trade on growth.  The national income equation does not disaggregate the figures but contains “net exports” (the combined total of exports and imports).  Imports remain great enough to leave the country with a real trade deficit running at a $358 billion annual rate for the first nine months of 2009.

Because imports subtract from growth and, more important, from the size of the economy, that means that gross domestic product is smaller in absolute terms by nearly 2.8 percent according to the latest data.  Put differently, America’s trade from January through September, 2009 have been offsetting nearly half the desired effect of the Obama stimulus program (which, of course, was only partly devoted to stimulus).

Further, a much more accurate picture of trade’s role comes from using a baseline that actually does make economic sense – like the official December, 2007 onset of the recession.  Since then, real GDP has contracted by just over $400 billion, or three percent.  As since 2005, America’s trade flows have prevented this shrinkage from proceeding further – by $206 billion (the decrease in the deficit).

But this improvement stemmed mainly from a plunge in imports, by 16.2 percent, or $353.6 billion.  Inflation-adjusted exports are having the opposite effect – falling by 9.1 percent, themselves, or $147.6 billion, and therefore subtracting from growth.  And of course, both this import and deficit reduction stem not from better U.S. trade policies, but from a weaker, smaller U.S. economy with strapped consumers and businesses buying much less from abroad.  All of which indicates that, if the economy stabilizes further (albeit due to government life support) or even keeps growing (for equally artificial reasons), the trade deficit is likely to start growing again, too, and re-fueling America’s still-dangerous debts.  

Why such pessimism?  Because it seems to be happening already.  During the third quarter of 2009, the economy grew by an inflation-adjusted 0.7 percent.  But import jumped by 4.8 percent – much faster than the four percent rise in exports.  Therefore, the trade deficit rose by $27.6 billion, or about 8.4 percent.          

So if the administration is indeed leveling with Americans on trade policy, here’s what it’s bringing to the Trans-Pacific Partnership table:  confidence as unbounded as it is unwarranted, a dearth of relevant experience, and utter ignorance about the economics of U.S. trade flows.  Team Obama also appears to be handicapped by an equally complete ignorance about the gap in economic structures and priorities impeding mutually beneficial trade between the United States and its chief foreign competitors (especially in Asia), and by a naively legalistic view on tackling foreign trade barriers and enforcing agreements.  Can you imagine a better formula for policy disaster?

---