I haven't said much about trade and the U.S. Presidential election this year. To be honest, I had thought President Obama would be re-elected pretty easily, so it didn't seem worth the effort to discuss the differences between an Obama and a Romney presidency. But with recent polls putting Romney and Obama very close (showing you how much my opinion is worth on these matters!), I thought it would be useful to explore this issue a little bit.
The obvious starting point is China currency issues. At the second debate (held last week), Romney said:
China has been a currency manipulator for years and years and years. And the president has a regular opportunity to — to label them as a — as a currency manipulator but refuses to do so. On day one, I will label China a currency manipulator, which will allow me as president to be able to put in place, if necessary, tariffs where I believe that they are taking unfair advantage of our manufacturers.
Whether right or wrong, Romney seems to think he can win a few votes somewhere by appearing to be tougher on China than Obama has been.
It seems to me that Romney has dug in pretty deeply on this issue. I can’t see how he can step back from his statements without some embarrassment. As a result, I think that, if elected, he will do something on day one that can be characterized as “labeling China a currency manipulator”. (He has mentioned an executive order, but it’s more complicated than that, as the Secretary of Treasury needs to be involved, too). But the dirty little secret here is that labeling China a currency manipulator just triggers consultations on the issue. Which is why, actually, I think Romney is pushing this — he knows it doesn’t mean much.
But then you’ve got the issue of imposing tariffs on China as a response to the manipulation, presumably by instructing the Department of Commerce to change its method of calculating countervailing duties, so as to provide for extra duties on Chinese goods based on the currency practices. This would be a more serious action.
But look at the language Romney uses here. He says he will do this “if necessary”. Here, then, he leaves himself wiggle room. He can take some time to negotiate with China, study the issue, and ultimately decide that the tariffs are unnecessary.
For whatever that’s worth, which may not be much, that’s my guess as to how the Romney team is thinking about this issue.
Beyond China, Romney seems to want to present himself as a free trader. At the second debate, he said this:
I’m also going to dramatically expand trade in Latin America. It’s been growing about 12 percent per year over a long period of time. I want to add more free trade agreements so we have more trade.
This all sounds great. He is saying positive things about free trade. But what does he mean?
In Latin America, so far we have trade agreements with: Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Peru (and Panama coming soon). So who’s left? Venezuela is obviously not a great candidate, and Argentina may be problematic as well. So what major trading partners are we talking about? Brazil is the most obvious one. But U.S.-Brazil trade frictions are said to have played a big part in killing the proposed Free Trade Area of the Americas in the 1990s, and those frictions are still pretty high today, with, among other things, Brazil complaining about U.S. monetary policy driving down the value of our currency.
I’m all for free trade with Latin America, and I’m happy to hear Romney supporting it. But in practice, it’s not clear how much can be achieved.
Finally, there's plenty of talk (and campaign ads) about outsourcing. Obama presents it as very negative, and accuses Romney of engaging in outsourcing while at Bain Capital. Romney doesn't really defend outsourcing, instead simply criticizing Obama's economic policies in general. It has not been a very informative discussion.
So, what does all that mean? I have two thoughts. First, trade issues are unlikely to decide the election. And second, despite all the rhetoric, the differences between the two on trade issues will probably not be all that great in practice.