Over the course of the long presidential campaign, neither candidate has offered much detail on how he’d boost trade, a main engine of economic growth and an increasingly important source of earnings for U.S. farmers and ranchers.
Neither candidate has voiced any support for the stalled global-trade negotiations, called the Doha Round, which was supposed to knock down barriers to trade, especially in farm products. That’s striking given that U.S. exports of goods and services exceeded $2.1 trillion last year.
“One of the problems is that (talking up) trade doesn’t bring you votes,” said Pablo Goldberg, the global head of emerging market research for HSBC Global Research.
Most of the focus on the campaign trail has been on who’ll be a tougher trade-rules enforcer. What little talk there’s been of trade promotion has been vague.
For example, GOP candidate Mitt Romney, mindful of swing-state Florida’s trade with Latin America, lamented in Monday’s foreign-policy debate the “opportunities for us in Latin America we have just not taken advantage of fully.”
However, the United States already has trade agreements in place with Mexico, Central America, Chile, Peru, Panama and Colombia. It buys oil from Venezuela, and Ecuador uses the dollar as its currency. Argentina remains a pariah after defaulting on its debts. That leaves just giant Brazil as the only significant market in Latin America that the U.S. has no pact with.
“Brazil is a pretty protected economy,” said Gary C. Hufbauer, a veteran trade analyst at the Peterson Institute for International Economics, adding that the South American giant has protection levels three times that of China. “And they have a long history, I mean 50 years, of protecting industry.”
President Bill Clinton launched talks to create a hemisphere-wide trade agreement but the negotiations died during the George W. Bush years because Brazil didn’t see a pact as beneficial.
President Barack Obama has supported freer trade during his term, but you wouldn’t know that from his campaign now. Trying to keep a lead in the polls in blue-collar Ohio, which has bled manufacturing jobs, Obama doesn’t tout that trade pacts with South Korea, Colombia and Peru were implemented under his watch.
Global merchandise trade has grown by about 3.7 percent annually since 2005, above the 2.3 percent growth rate for the global economy from 2005 to 2011. The United States and Europe together account for 50 percent of the world’s exports.
Yet both presidential campaigns have chosen to focus on how they’d get tough on trading partners, especially China.
Romney says he’ll label China a currency manipulator on his first day in office, a designation that would allow, but doesn’t require, the United States to impose trade penalties on Chinese products deemed to have hurt specific U.S. companies or sectors.
The president, who similarly railed against China as a candidate in 2008, points to his record in trade enforcement and what he calls a record number of probes and complaints against Chinese products.
“I think that both President Obama and Mitt Romney have compelling positions on China,” said Scott Paul, who heads the Alliance for American Manufacturing, a trade group that represents smaller U.S. manufacturers that haven’t expanded abroad. “I think together they’ve elevated this issue to a point that we haven’t seen for a long time. I welcome that. It’s a discussion that’s overdue.”
He and other critics allege that an artificially low exchange rate for China’s currency, the yuan, allows its products a home-field advantage when U.S. exporters sell there and makes Chinese products cheaper in the United States, undercutting manufacturers. When Obama came into office, the yuan was thought to be undervalued by about 22 percent; now that figure is around 7 percent.
China is the largest U.S. creditor, and it warned last week in a pair of commentaries published by the state-owned news agency Xinhua that it wouldn’t sit on its hands should Romney or Obama take a more aggressive stance against its exports. In one commentary, China warned that punitive tariffs on its products could “lead to a trade war that would benefit neither side.”
If beating up on China is good politics, it’s bad economics, at least in today’s environment. The U.S. growth rate has been subpar and sluggish since the end of the Great Recession in June 2009. The United States is barely adding to global growth. Europe, in the grip of its own debt crisis, is subtracting from growth. China has kept the global economy moving forward.
“I think the best contribution that China can provide to the global economy is taking volatility out of the global economy. And China has been doing that,” Goldberg said, staying out of the political debate but noting that economists are watching China’s slowdown with interest.
A trade war with China would squarely hit growing U.S. exports there. China is now the third largest market for U.S. exports. In 2000, the United States sent $16.1 billion in goods to China, a number that grew to almost $104 billion last year. The problem is that China’s exports to the United States totaled about $100 billion in 2000 and last year stood at just under $400 billion.
The U.S. farm belt is one likely place China could retaliate.
U.S. farmers and ranchers exported almost $19 billion in products to China last year, the second largest market in 2011 for U.S. farm products. Soybeans from the Midwest made up more than half that at $10.5 billion, followed by cotton at $2.6 billion.
Exports have been one of the few bright spots in an underperforming U.S. economy. Hence, whoever wins on Nov. 6 may want to tread carefully with China, said Alan Levenson, the chief economist for investment giant T. Rowe Price in Baltimore.
“Provoking a trade war now is not good for growth, and worldwide, trade is already showing signs of topping out,” he said, noting that global trade has returned to where it was before the 2008 financial crisis but hasn’t expanded much beyond that.