Trade a litmus test for U.S. leadership
October 11, 2011
Anger over the loss of U.S. jobs, fear that America's global economic dominance is sliding, and bitter presidential politics have created a toxic backdrop for U.S. lawmakers this week as they vote on three free-trade deals and a currency bill aimed at penalizing China.
The decisions in Congress will prove an important litmus test for United States' willingness to embrace trade-opening measures in the face of high unemployment and a stalling economic recovery.
The China currency bill, due for a vote in the U.S. Senate on Tuesday, is the most telling measure and has gained increasing levels of support. It would require the Obama administration to levy tariffs on China and four other Asian countries for depressing the value of their currencies in an effort to boost their exports.
Trade data due to be released on Thursday could sharpen the debate even further. The U.S. trade deficit is forecast to have worsened to $46 billion in August from $44.81 billion.
China also reports trade data for September. Its exports are forecast to have risen a robust 20 percent from a year earlier, though down from August's 24.5 percent growth.
For some U.S. lawmakers facing reelection in 13 months, delivering a trade bill that penalizes China for using its yuan currency to gain export share would arm them with an answer to voters questioning how they are addressing the highest U.S. unemployment in a quarter of century. The unemployment rate remains stuck at 9.1 percent for a third straight month.
House Republicans and Democrats have signed onto a similar bill, and they have sufficient support to override U.S. House Speaker John Boehner and bring it to a vote. Boehner like the White House has warned that the bill is "pretty dangerous" and could lead to a trade war with China.
While that final showdown on the China currency bill is not expected this week, debate over jobs will intensify as long-stalled Free Trade Agreements with South Korea, Colombia and Panama come up for votes on Tuesday and Wednesday.
Each side is issuing a barrage of contradictory estimates of job losses, job creation and growth destruction. Disentangling the precise impact of free trade is very difficult, given the complex dynamics of inter-linked global economies where job loss in one area leads to growth in other sectors.
Uri Dadush, director of international economics at the Carnegie Endowment for International Peace and a former director of trade at the World Bank, said any quantitative estimates on jobs or growth are tentative at best.
More important in the trade votes, he said, will be the political signaling from the world's dominant power when the global economy is extremely vulnerable.
"The U.S. is still the largest economy by a wide margin and it is still setting the tone on international economic relations. China is the second largest economy. Deterioration in trade relations between the U.S. and China is only going to hurt us at a very serious time, when Europe's debt crisis could spin out of control," he said.
JOBS VS FREE TRADE
Of the three Free Trade Agreement deals, the one with South Korea appears to have the strongest chance of passage. It would prove a welcome gesture for South Korea President Lee Myung-Bak's state visit to the United States on Thursday.
The International Trade Commission, a U.S. government agency, estimates that the South Korea pact could generate anywhere from zero to 280,000 new U.S. jobs. The U.S. Chamber of Commerce says it would restore U.S. market share lost to the European Union, which already has reduced South Korea tariffs.
The Colombia free trade deal faces hurdles over concerns about the treatment of union workers by Latin America's fourth largest economy, though most observers expects it will be approved along with a smaller one from Panama.
Robert Scott, a trade economist at the liberal Economic Policy Institute, is more skeptical on passage of all three.
"People have a growing awareness that the trade system is not working and these deals are job killers," he said.
He has estimated that the South Korea and Colombia deals would destroy 214,000 jobs in the seven years after their implementation. Estimates of job creation only look at the export side of the equation and omit the impact of import substitution and foreign direct investment that leads to outsourcing, he said.
For those watching the vulnerability of global growth, look for Britain's industrial production on Tuesday, which is forecast to have fallen by 0.2 percent in September for the second month.
U.S. retail sales for September on Friday also will be an important barometer. They are forecast to have risen 0.6 percent after a flat reading in August.
In China, growth has been slowing and that may deliver Beijing a welcome respite from inflation. The consumer price index on Friday is expected to ease slightly to 6.0 percent from 6.2 percent in August. That would still be well above China's annual target of 4 percent, but it would mark a second consecutive month of declines from a peak of 6.5 percent notched in July.