Opportunities for Liberalizing Trade in Obama's Second Term

The United States economy has not seen an annual trade surplus since 1975.  This is arguably in large part due to our transition from liberal trade policies to closed trade policies.  In 2010 Barack Obama promised to double exports by 2015.   In his first term, there was an average annual trade deficit of $493 billion (CBO).  There is a lot of work to be done to turn this number around, because the US economy is not close to doubling exports by that year.  As we have discussed in class, it can be a lot of help to have policy that favors open trade so there will be incentives for industries to produce exports.  These policies would hope to make American goods more attractive in the global markets.

In a recently published memo to the president, Big Bets and Black Swans: Policy Challenges for President Obama’s Second Term, a left-center nonprofit think tank, The Brookings Institute, outlines steps the President should take towards making America open to free trade.  A “big bet” is something the President should put a lot of his time into and a “black swan” is a low probability event that could derail the administration’s attention.  The black swans mentioned are concerns with tensions in Korea, possible revolution in Saudi Arabia, Afghanistan after 2014 and a few more.  There is a great interactive in the link I provided that gives detailed information for each challenge.

One of the big bets mentioned is a Free Trade Game Changer.  This section argues that the President can start long-term economic growth by signing regional free trade agreements with the Asia-Pacific region (Trans-Pacific Partnership) and Europe (Trans-Atlantic Free Trade Agreement).  A TPP that includes Japan and South Korea could create annual income gains of $78 billion.  The TPP would hope to create a competitive high-quality trade environment, making countries in the region, possibly China, want to seek membership.  If there are more countries in the agreement, more trade will take place.  A trade agreement with the US and Europe (TAFTA) can increase trade by 20%.  This increase could generate $200 billon annually.  The article notes that an agreement between the US and EU will be able to collectively compete against the top Asian economies like China, India, and Japan.

Last Tuesday the President unveiled his support for the TPP and TAFTA during his State of the Union address so there is hope for these RTAs.  In an article by Foreign Policy magazine, Kati Suominen states that,

“Much like the United States, the EU has deals with Mexico, Canada, Colombia, Peru, Korea, Australia, and Chile, and it is currently completing bilaterals with Singapore, Malaysia, Vietnam, and Japan -- all likely future TPP members. Once wedded to each other, the United States and EU could next weave all these common deals into one mammoth FTA”

This large FTA hopes to give incentive for the Asian giants and Brazil to join.  She also goes on to argue that if trade is increased between the EU and US, there won’t be as much need for stimulus money due to both economies growing and being able to help the other out.

The Trans-Pacific Partnership and Trans-Atlantic Free Trade Agreement can give an opportunity to increase the United States’ presence in the global economy and start some serious growth.