Trade Trouble Ahead

I've written a few times about Obama's ambivalent-at-best position on trade, warning that Obama's poor choice of US Trade Representative and "re-open NAFTA", "Buy USA" and "protect labor standards" rhetoric threatened to ignite a trade war.

Well, today's Obama's choice for USTR, former Dallas mayor Ron Kirk, won approval from the Senate. Meanwhile, Mexico announced that it would impose $2.4 billion of tariffs on US goods "ranging from strawberries to Christmas trees" in retaliation for a US ban on Mexican trucks on American highways. The new tariffs, ranging from 10% to 40%, are Mexico's response to the scrapping by the US Congress of a program allowing Mexican trucks to haul goods inside the US, an action that Mexico deems a violation of NAFTA. Mexico has graciously exempted staple goods, such as rice, corn, wheat, and meat, from the tariffs so as not to raise consumer prices for people being pummeled by the economic crisis.

These two events are unrelated, but are also more than mere coincidence. How Obama responds to the Mexican tariff imposition is going to be a vital test of his commitment to existing free trade regimes, let alone expanding free trade. The truck issue has been simmering since 2001; some key US lawmakers backed by American trucking unions claim, without any merit, that Mexican trucks do not meet US standards, a claim that looks suspiciously like an effort to protect US trucking from Mexican competition. Regardless of what Obama intends to do regarding reopening NAFTA or trying to re-do the signed but not yet ratified free trade deals with Colombia and South Korea, it is essential that he send a strong signal on this issue, not only to Mexico but to the rest of the world. The US is the leader and driving engine of the global market and of the free trade regime, but US support for free trade has always been very slim (recent survets by the Pew Global Attitudes Project have found year after year that the US has the lowest public support for free trade among all developed nations).

With the economic crisis cascading around the globe, pressures for protectionist measures have increased, and while we're not anywhere close to Smoot-Hawley land yet, the last thing the US and the global economy needs is more inefficiency, waste, and protection. Obama may have picked a trade lightweight for USTR but his willingness to adhere to an existing US trade agreement, to compromise with one of the US's most important trade partners, and to show a commitment to free trade can send an even more powerful signal.