In its first two years in office, the administration of US President Barack Obama was bitterly and justly criticised by trade experts and the business community on both sides of the Atlantic for its failure to show leadership on trade policy. That stigma lingers. But it is no longer fair: 2011 produced a plethora of US trade accomplishments.
This year will not be nearly as productive. But Washington will still be active, aggressively confronting China on its trade practices while laying the groundwork for a very ambitious market-opening agenda in the Pacific and across the Atlantic. Whether Obama is re-elected or a Republican sits in the White House in 2013, the United States is quietly positioning itself to be the link between the transatlantic marketplace and the burgeoning transpacific market.
In retrospect, 2011 was a banner trade year for the Obama administration. Three long-stalled free-trade agreements — with Colombia, Panama and Korea — finally passed Congress. And the US also agreed to allow Russia into the World Trade Organization (WTO).
But the most portentous trade developments involved a new willingness to confront China, the ratcheting up of negotiations to create a Trans-Pacific Partnership (TPP), and signals that the US is now open to more formal trade and investment ties with Europe. All this may begin to bear fruit in 2012.
Americans like their presidents to stand up to foreigners, especially during election campaigns. Japan provided that foil in the 1988 and 1992 presidential elections. China will serve that purpose in the 2012 election. The Republican presidential candidates have already tried to outdo each other in sounding tough on China. And the presumptive Republican nominee Mitt Romney has gone so far as to promise to designate China as a currency manipulator, triggering US government action, on his first day as president.
In part to avoid being outflanked by the Republicans on this populist issue, the White House has now formed a China enforcement task force to come up with a new strategy for combating alleged Chinese currency manipulation, piracy of intellectual property, denial of market access and unfair competition in the US and third-country markets.
There may be more political smoke than trade-policy fire in this effort. But the Obama administration has brought five WTO dispute-settlement cases against China in its three years in office (compared with only seven brought by the administration of George W Bush in eight years). More can be expected this year, generating new US pressure on Europe to join such cases.
It is also worth watching out for the likely passage of legislation to make it easier to go after alleged Chinese subsidies. One bill, which could be introduced early this year, might easily turn into a Christmas tree, adorned with all sorts of amendments directing administration trade action against China and others. In an election year, such 'get tough' law-making may prove irresistible on Capitol Hill.
On a more positive note, the proposed TPP, which involves the US and eight other nations that border on the Pacific, including Australia and Vietnam, is now the all-consuming preoccupation of the Washington trade-policy community.
Obama wants a framework TPP agreement by the end of 2012. Few Washington trade experts think that is possible. While TPP originated with the Bush administration, the White House now clearly sees TPP as Obama's principal trade legacy.
Chinese influence
China is not a TPP participant. But, for both the US and its other prospective members, the agreement is all about more deeply embedding the US in Asia as a hedge against Chinese influence in the region. Such strategic considerations may ultimately facilitate the resolution of thorny trade differences, such as whether Japan should be allowed to join the deliberation. Tokyo has recently expressed an interest in joining TPP (although domestic opposition is strong) and its participation would make the whole exercise far more attractive economically. The White House wants Japan to be a party to the TPP. But the US automobile industry, among others, will fight to keep Japan out. An EU decision to begin free-trade negotiations with Japan would not go unnoticed in Washington.
Finally, in late November 2011, at the annual EU-US summit, the Obama administration agreed to intensify efforts "to realise the untapped potential of transatlantic economic cooperation". To that end, a 'high-level working group on jobs and growth' was created that will issue an interim report in June and a final set of recommendations in December.
For years, there have been calls for a deepening and broadening of the transatlantic marketplace. But as recently as 2007, the Bush administration rejected a proposal by Germany's Chancellor Angela Merkel for an EU-US free-trade agreement. The Obama administration's willingness to take a fresh look at this issue, coupled with support this time from the US Chamber of Commerce and other American business groups, suggests a transatlantic trade and investment initiative of some sort may finally have legs in Washington.
After a quiescent beginning on trade, the Obama administration picked up the pace in 2011 and promises to be more active in 2012. But Washington's trade orientation is changing. It promises to be more aggressive in defending its interests, especially with regard to China, and more regional in its market-liberalising orientation. The opportunities for partnership with Europe, or for transatlantic friction, could grow.
Transatlantic trade relations may finally be poised to lift themselves out of petty disputes about chlorine-treated chicken into more consequential debates over China and the future of Asian and transatlantic trade and investment.
The author is a senior transatlantic fellow for economics of the German Marshall Fund of the United States. This piece has been reprinted with permission from European Voice
