The ChamberPost

AFL-CIO Breaks with President Obama and Working Americans on "Buy American"

by John Murphy

The AFL-CIO's blog yesterday took a shot at the U.S. Chamber in a post titled Chamber of Commerce Sides with Foreign Embassies Against Buy American.  "There they go again," goes their lament. "Those running the show at the U.S. Chamber of Commerce are attacking again the Buy American provision in the economic stimulus package."

In fact, the Chamber has long advocated a "Buy American, Sell American" strategy. Because many "Made-in-USA" goods and services are the best in the world, we don't just want Americans to buy them -- we want to sell them to the 95% of the world's consumers who live outside the United States, too. If "Buy American" mandates trigger global retaliation, they will threaten our export markets and cost American jobs.

As part of the Chamber's push for approval of the economic stimulus package in February, we fought hard against "Buy American" mandates.  And we were pleased to have President Obama as an ally in that effort.

The AFL-CIO may have forgotten, but on Feb. 3, President Obama went on Fox News to discuss the "Buy American" furor.  He said: "I agree that we can't send a protectionist message... I think it would be a mistake, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."

That same night the president went on ABC News. When asked about "Buy American" rules, he said: "That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe."

It was true then, and it's true today.  As we warned, "Buy American" mandates have sown confusion across the country and have begun to exact a toll on working Americans.  For example, the Washington Post recently reported that Duferco Farrell Corp., which until recently employed 600 United Steel Workers at its plant near Pittsburgh, has had to furlough 80 percent of its workforce.  The USW lobbied hard for "Buy American" rules -- but those very rules have now cost the jobs of the union's own members:

"You need to tell me how inhibiting business between two companies located one mile apart is going to save American jobs," said Bob Miller, Duferco Farrell's executive vice president. "I've got 600 United Steel Workers out there who are going to lose their jobs because of this. And you tell me this is good for America?"

For our part, the Chamber is pleased to be looking out for the interests of American workers, and to work with the White House when we can.  Someone has to do it.

The Lessons of History and World Trade Week

by John Murphy

Yesterday, the U.S. Chamber of Commerce welcomed the Senate Finance Committee’s hearing on the U.S.-Panama Trade Promotion Agreement, calling it a critical step in efforts to spur economic growth at home and abroad.  The fact that we don’t already have a trade agreement in place with Panama only puts American workers, farmers, and companies at a disadvantage. It’s time to for Congress to fix that.

In a moment of levity at the upbeat hearing, Chairman Max Baucus (D-MT) wondered aloud why the sea level of the Pacific Ocean is 20 centimeters higher than the Atlantic (he answered his own question: it has to do with currents and water density). Caterpillar Chairman and CEO Jim Owens, who was testifying on behalf of the Chamber, offered to dig a ditch to equalize them. We know that trade is important to level the playing field for America’s farmers, workers, and businesses; perhaps it can adjust sea levels too!

It was fitting that the hearing took place during World Trade Week, which got off to a bang on Monday when U.S. Trade Representative Ron Kirk delivering his first major address to the business community at the Chamber. Ambassador Kirk left the assembled business representatives impressed with his passion and his commitment to securing the benefits of trade for the American people. He explained that:

USTR is working diligently to carry out a trade policy that is more coherent and more resonant with the American people. We’re seeking to finalize the Panama free trade agreement, working to resolve outstanding issues on the Colombia and Korea agreements, and seeking a way forward on the Doha Development Round of World Trade Organization talks. USTR is also crafting new goals for the coming months and years.

In fact, Kirk said his team is working “furiously” to get the Panama agreement ready for Congressional consideration in the near term, underscoring the point by embracing Panamanian Ambassador Federico Humbert as he made his way to the podium. He also identified Asia as a region ripe for greater trade engagement by his trade negotiators and by American business.

On Trade, the Best Defense is a Good Offense

by John Murphy

Today's Washington Post has an editorial ringing the alarm about "small signs of protectionism … popping up around the globe."

We have seen this with the "Buy American" provisions initially stuck into the stimulus bill, which President Obama wisely persuaded the Senate to alter, as well as restrictions on the operation of Mexican trucks in the United States. We are seeing evidence of this creeping protectionism around the world, as well. In its recent effort to "name and shame," the World Trade Organization published a long list of countries that have made counterproductive trade changes … In looking at instances of protectionism since November's Group of 20 meetings, the World Bank found that 17 of the 20 members, all of whom signed on to the group's communiques pledging to avoid protectionism, have adopting measures restricting trade.

These are examples of "low-intensity protectionism" or protectionist initiatives contained. But the Post is right to express concern because the stakes are so high for the United States.

That's because the United States is the world's largest exporter, and our foreign sales of goods and services approached $2 trillion last year. More than 57 million Americans work at companies that benefit from international trade, according to the Treasury Department. That's 40% of the private sector work force.

How can the administration and Congress get out ahead of the problem? The best defense is a good offense, and this week, the outlook has brightened. President Obama and U.S. Trade Representative Ron Kirk have made a number of positive comments about their plans for a vigorous, forward-leaning trade agenda:

Panama: "President Obama and obviously President Torrijos would both like to see the Panama Free Trade Agreement sooner rather than later," Kirk told reporters on April 20. He noted that Panama will hold elections on May 3 and inaugurate a new president on July 1, adding "we may have a discreet window to move more forcefully... and come up with a timeline to move it more expeditiously" than previously thought, Kirk said. He also noted "some concerns in Congress about Panama's tax laws," and said talks with a "high-level team from Panama" will continue this week in Washington.

Colombia: "It was a very, very good, productive meeting," Kirk said of his meeting with President Uribe at the Summit of the Americas. "My own personal thought as a mayor and as a lawyer is that when you've got two willing partners, that's a pretty good recipe for getting a deal done… President Obama believes very strongly Colombia is a very important ally for the United States, and we believe they have made remarkable progress "in cutting rates of violence in Colombia, Kirk said, while noting "as of right now, there are a number of issues that need to be resolved."

"One of the commitments I made was that we would consult with the Congress early, and we would consult with them often," Kirk said. "The Colombia trade agreement is one that begs for that kind of consultation. "He was reluctant to predict when Congress could approve the Colombia agreement, even though Uribe and Obama believe that "would be a good thing for both economies.”

Carbon Tariffs: In an April 14 letter to a number of House Republicans, Kirk addressed the trade-related aspects of a cap-and-trade program. "The Administration believes that that best approach to address concerns with carbon leakage is to negotiate a new international climate agreement in the UN that ensures that all major emitters take long term, significant action to reduce their greenhouse gas emissions… [climate change policy must be] compatible with our international trade obligations and minimize incentives for our trading partners to pursue counter measures that could negatively impact U.S. exports. "The letter rejects the notion of tariffs on carbon-intensive imports such cement and steel, which could violate U.S. obligations as a member of the WTO. The Chamber supports this approach.

Korea: At the other end of Pennsylvania Avenue, the chairman and ranking member of the Senate Finance Committee — Max Baucus and Charles Grassley — wrote Obama on April 20, asking him to "begin the hard work of winning broad approval" of a trade pact with Korea. North Korea's recent missile launch and "statements that it will resume its nuclear program demonstrate yet again the threat that North Korea poses in the northeast Asian region… In the face of this threat, it is vital that the United States maintain and expand its strong and proven partnership with the Republic of Korea," they wrote.

This is all great news for American businesses that are keen to tap foreign markets and sell their wares to the 95% of the world's consumers who live outside the United States. Getting back on offense will be a key part of the U.S. economic recovery, and trade will play an important role in our efforts.

Do Trade Deficits Destroy Jobs?

by John Murphy

For years, labor leaders and activists calling for major changes in U.S. trade policy have fingered the trade deficit as the culprit behind job losses, particularly in the U.S. manufacturing sector.

This is a timely discussion. The monthly trade deficit has recently fallen to its lowest level in a decade, down by more than half in just a few months (October 2008 – February 2009). Simultaneously, millions of Americans have lost their jobs. What do these facts tell us about the alleged connection between job losses and the trade deficit?

Two of Washington’s most thoughtful commentators on trade issues, Ed Gresser of the Progressive Policy Institute and Phil Levy of the American Enterprise Institute, both shared their thoughts on this question recently.

Gresser explains:

The main reason for the falling deficit is the plunging import total: down from $230 billion last July to $152 billion in February, with the fastest drops in energy and manufacturing … Exports, which helped support employment in the first half of 2008, are also now falling as foreign countries go into recession; but still falling slower than imports.

Writing in Foreign Policy, Levy observes:

[The falling trade deficit] would seem to belie claims that growing trade deficits imply job losses. The logic behind those arguments also implies that shrinking trade deficits bring job gains. In fact, as the U.S. trade deficit halved, we lost 4.25 million jobs.

Gresser offers a hat tip to Doug Karmin, a former international economist with the U.S. Department of Commerce, and his report also prepared for the Progressive Policy Institute. Karmin writes:

The data is clear: When imports go up, unemployment goes down — whether during boom or bust, whether during Democratic or Republican administrations.

Karmin adds that this doesn’t make trade deficits irrelevant. They do force the United States to borrow from abroad on a large scale. But he says the answer is to "meaningfully reduce our energy dependence and significantly raise our national savings rate." This is exactly right. Correlation isn’t causation, but if rising imports usually come with rising employment, that’s an important fact for policymakers to bear in mind. It certainly means that raising barriers to imports is a poor “solution” for the U.S. trade deficit.

Levy gets the last word:

One enthusiastic congressman recently called for the United States to use a sledgehammer to address its trade deficit problems. Before we do so, we should figure out whether we’re dealing with a nail or a screw.

The Need to Open World Markets

by John Murphy

The U.S. trade deficit shrank 28% in February, narrowing to its smallest in more than nine years, the Wall Street Journal reported.

The Commerce Department reported today that U.S. exports climbed in February by 1.6% from the previous month, reaching $127 billion. Imports fell by 5.1%. A sharp global recession is restraining demand for U.S. goods and services in key overseas markets.

This is far cry from recent years when trade was adding a full percentage point or more to GDP, but the U.S. figures look pretty good compared with many Asian economies, which have registered export drops of 30% or more in recent months.

U.S. Trade Representative Ron Kirk's reaction is just the right policy response: "This new trade data underscores the need to open more world markets to U.S. farmers, ranchers, manufacturers, and service providers, and to work with our trading partners to grow the global trading system again," he said.

It's worth remembering that the United States was the world's largest exporter in 2008. More than 57 million Americans work at companies that engage in international trade, according to the Treasury Department.

With so much at stake, opening world markets for U.S. workers, farmers and companies is more important than ever.

The London Summit and "International Economic Sanity"

by John Murphy

As representatives from the world’s leading economies gather for the G20 Summit on April 2, it’s worth remembering the last time London hosted a summit with the aim of reviving a slumping global economy and collapsing trade flows. As the BBC reminds us, "In June 1933, delegates from 66 countries gathered in London to try and agree plans to revive the world economy in the midst of the Great Depression."

The parallels are not pleasant. The World Trade Organization recently forecast global trade would fall 9% in 2009 due to the shrinking global economy, the biggest fall since the Great Depression. 

Leading the U.S. delegation in 1933 was Cordell Hull, who ultimately became America’s longest serving secretary of state. Hull went on to win the Nobel Peace Prize for his work building international institutions, including those that promote trade. He devised the model of trade negotiations in which countries offer one another market access on a reciprocal basis -- trading away their tariffs in order to spur trade, growth, and jobs.

In other words, the father of modern American trade policy was a Democrat serving under President Franklin D. Roosevelt at the height of the New Deal -- a point worth considering amid the challenges of today’s trade politics.

In his memoirs, Hull expressed pride that U.S. trade agreements "were ultimately to be concluded with thirty-seven nations. When many other nations saw [their] possibilities they embraced such agreements not only with ourselves but also with one another. War on three continents was to interfere with its application, but it came to be recognized among the clear thinkers of all nations as the only way out of commercial chaos and as one of the main factors for peace.”

Hull addressed the U.S. Chamber of Commerce on May 2, 1935, and offered words of courage that ring true to this day:

The pressure which is being currently brought upon both legislators and officials in Washington by those who fear that they are to be deprived of even a small part of the artificial advantage given them by an overindulgent Government, too often at the expense of efficient producers and consumers in general, would incline one to believe that much of the sturdy self-reliance, hardihood, and vigor of this country is definitely on the decline…

It is incumbent upon some great nations, certainly the United States as much as any other … to supply the inspiration necessary to induce them to alter their course and to hope that the world can shortly expect a general movement in the direction of international economic sanity.

Or, as he later said in a more pithy way: "Where trade crosses borders, armies do not."

In the long run, Hull’s legacy was to include the post-war General Agreement on Tariffs and Trade, which allowed trade to expand from $80 billion in 1947 to about $20 trillion last year, boosting incomes in country after country.

We hope the delegates to this London conference remember the wisdom of Cordell Hull and the lessons of history.

Senate Confirms Ron Kirk as U.S. Trade Representative

by John Murphy

Former Dallas Mayor Ron Kirk was confirmed by the Senate today to be the 16th United States Trade Representative.  There was no drama — his supporters won the vote by the lopsided margin of 92 to five.  As Chamber President Tom Donohue said when his nomination was announced in December:

At a time when trade has been a rare bright spot for the U.S. economy, we welcome President-elect Obama's emphasis on the need to ‘expand our efforts to promote American enterprise around the world.' … During his time in Washington, Austin, and Dallas, Ron Kirk demonstrated a keen understanding of the benefits of trade as an engine for growth and jobs. Rebuilding the bipartisan consensus on trade will be job one as U.S. Trade Representative, but in the end, his mission will be to open overseas markets to American goods and services.

As Mayor of Dallas, Kirk won accolades from Texans for his common sense, pro-business positions, developing a reputation as a pragmatist with a real-world appreciation of trade's benefits.  With Kirk in place, the new administration's trade policy will be off to a strong start, as we've already seen in the President's 2009 Trade Policy Agenda.

Kirk will face many challenges.  Resisting protectionism will be critical, as we've seen in the "Buy American" debate and the long-running dispute over cross-border trucking with Mexico.  But if Ron Kirk has anything to say about it, trade will be part of the cure for what ails the American economy today.

The President’s Trade Agenda: Off to a Good Start

by John Murphy

While the Senate has yet to confirm his nominees for U.S. Trade Representative and Secretary of Commerce, President Obama faced a statutory obligation to issue his 2009 "Trade Policy Agenda" this month, and he has done so.  This roadmap makes it clear the administration intends to advance a strong and positive trade agenda despite the economic crisis.

The Obama administration deserves high marks for setting a positive tone on trade in its first weeks in office. One critical challenge came in the "Buy American" debate, when President Obama joined with members of both parties to insist these rules comply with our international obligations. While these mandates are still problematic, it’s unfair to call them protectionist, and this action by the president may have helped avert a trade war.

In addition, the Chamber strongly supported the modernized Trade Adjustment Assistance program in the economic stimulus package. This was the result of serious bipartisan negotiations, and it should pave the way for further progress on trade in the months and years ahead.

In reviewing the president’s 2009 trade agenda, the Chamber is pleased to hear the administration is "developing a plan of action to address the pending trade agreements in consultation with Congress. We hope to move on the Panama Free Trade Agreement (FTA) relatively quickly. And we plan to establish benchmarks for progress on the Colombian and South Korean FTAs."

The report also includes a welcome commitment by the administration to conclude an ambitious Doha Round agreement. It says the administration may seek trade negotiating authority from Congress as it considers "proposals for new bilateral and regional agreements when they promise to deliver significant benefits."

The Chamber is pleased to find ample common ground between the President’s agenda and our own recommendations, which are summarized in a publication entitled International Engagement: The U.S. Chamber’s Agenda to Help Americans Compete and Win in the Worldwide Economy. 

Following are excerpts from the overview of the President’s 2009 Trade Policy Agenda:

NAFTA at 15: Assessing its Benefits

by John Murphy

President Barack Obama will travel to Canada tomorrow, February 19, for his first foreign trip. One item on his agenda with Canadian Prime Minister Stephen Harper will be the North American Free Trade Agreement (NAFTA). The meeting follows a similar encounter with Mexican President Felipe Calderón on January 12, after which a spokesman referred to the idea of an "upgrade" for the agreement.

In this context, understanding NAFTA is more important than ever. Since it entered into force in January 1994, rapid growth in trade between the United States, Canada, and Mexico has created significant new opportunities for workers, farmers, consumers and businesses in all three countries. However, despite this 15-year record, many of the agreement’s benefits are poorly understood. Below, I address its benefits, debunk some criticisms of the agreement, and place it in proper context.

U.S. Trade Highlights 2008

By John Murphy

The U.S. Census Bureau and U.S. Bureau of Economic Analysis released their trade data for December 2008 yesterday, thus completing the picture for the year. Combined with agricultural data from the U.S. Department of Agriculture, it illustrates the ongoing importance of international trade to our economy, even as it stumbles.

• Despite a sharp decline in international trade during the final four months of the year, the United States set new records for exports in 2008. For the first two-thirds of 2008, trade provided a significant economic stimulus, partly countering the contraction seen in other sectors of the U.S. economy.

• The United States appears to have retained its title as the world's largest exporter (though it will be months until comparable international data are available). U.S. exports of goods and services grew by 12.0% in 2008 to $1.84 trillion, while imports increased 7.4% to $2.52 trillion.

• Exports are playing a larger role in the economy than ever before. Exports comprised a record 13.1% of U.S. GDP in 2008, up from 9.5% of GDP five years earlier (2003), and 5.3% 40 years ago (1968).

• The goods and services trade deficit was $677.1 billion in 2008, with high prices for imported oil and gas in the first half of the year accounting for a significant portion of the total. While large by international standards, this is the deficit's lowest level in dollar terms since 2004 and its lowest level as a percentage of GDP (4.7%) since 2003. In December 2008, the U.S. goods and services trade deficit ($39.9 billion) recorded its lowest monthly level since February 2003.

• The United States ran a trade surplus with nine of the 10 countries with which it has entered into free trade agreements (FTAs) in the past five years. The United States recorded a trade surplus in manufactured goods with all 14 countries with which it has implemented FTAs.

• The U.S. trade balance for manufactured goods improved by $60 billion in 2008. The U.S. trade balance for services and agricultural products improved by $25 billion and $18 billion, respectively.

• U.S. services exports hit a record $551.6 billion in 2008, up $54.4 billion (or 10.9%) from 2007. This led the United States to a record trade surplus in services at $144.1 billion, up $24.9 billion (or 20.9%) from 2007.

• Agricultural exports for 2008 reached a record $115.4 billion, and imports reached $80.5 billion, for a surplus of $35 billion.

• The largest export markets for U.S. goods in 2008 were Canada ($261.4 billion, up 5.0% from 2007), Mexico ($151.5 billion, up 11.4%), China ($71.5 billion, up 9.5%), Japan ($66.6 billion, up 6.2%), and Germany ($54.7 billion, up 10.2%).