Craig VanGrasstek

The Political Economy of U.S. Trade Policy

Current Issues in U.S. Trade Policy

• A new grant of negotiating authority for the president (known as “fast track” or “trade promotion authority”)

• Approval of the pending free trade agreements with Colombia, Panama, and Korea

• Conclusion of the Doha Round in the WTO

• Renewal and reform of the Generalized System of Preferences and the special programs for the Andean and Caribbean Basin regions

• The linkages between trade policy and a climate-change agreement

The Broader Trends that Will AffectHow these Issues Are Handled

• The division of labor in U.S. trade policymaking (i.e., the struggle between the branches)

• The supply and demand for U.S. trade policy (i.e., the diminishing attention to this field)

• The competition for U.S. trade policy (i.e., the importance of trade-related policy)

Issue 1:The Division of Labor in U.S. Trade

Policymaking

Issue 1:The Division of Labor in U.S. Trade

Policymaking

Thesis: The executive branch can only do what the legislative branch allows it to do in this field, a fact that does not change simply because we have restored unified (one-party) government.

The Commerce Clause:The Congress shall have Power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes

Article I, Section 8, Clause 3

The Treaty Clause:[The President] shall have Power, by and with the Advice and Consent of the Senate to make Treaties, provided two thirds of the Senators present concur

Article II, Section 2, Clause 2

The History of U.S. Trade Policy Centers on a Clash between Two Constitutional Principles

The Ways that Congress RetainsControl over Trade Policy

• Grants of negotiating authority are limited; the last such grant ran out in mid-2007

• The terms of those grants are set by Congress before a negotiation and can be revised at any time

• Congress can use almost any initiative to enact trade-related measures (e.g., Buy- American provisions in the stimulus package)

• Even the threat of action can be intended to influence other countries (e.g., the sanctions in the climate-change bill)

Requires for Approval

Can Be Amended

Can Be Blocked in Committee

Can Be Filibustered in Senate

Treaties2/3 vote in Senate Yes Yes Yes

BillsMajority in both houses Yes Yes Yes

Reciprocal Agreements (1934-1967)

Presidential proclamation No No No

Fast Track/ TPA (1974-?)

Majority in both houses No No No

Options for Approving Trade Agreements

Program or Agreement

Latin American and Caribbean Countries Affected Status

Free Trade Agreements

Colombia and Panama Pending approval in Congress

Andean Trade Preferences Act

Colombia and Ecuador Expires 31 December 2009

Generalized System of Preferences

Argentina, Bolivia, Brazil, Paraguay, Suriname, Uruguay, Venezuela (potentially Colombia and Ecuador)

Expires 31 December 2009

Caribbean Basin Initiative

Anglo-Caribbean and Haiti Parts expire 30 Sept. 2010

Status of U.S. Preferential Trade Agreements and Programs

Presidency House Senate

1967 Johnson247 64

Nixon 243 57

Nixon255 54

Nixon/Ford242 56

Ford291 60

1977 Carter292 61

Carter277 58

Reagan 242 53

Reagan269 54

Reagan253 53

1987 Reagan258 55

Bush260 55

Bush267 56

Clinton 258 57

Clinton230 52

1997 Clinton228 55

Clinton223 55

Bush221 50

Bush229 51

Bush232 55

2007 Bush

The Division of Party Power over the Past Forty Years

Presidency House Senate

1967 Johnson247 64

Nixon 243 57

Nixon255 54

Nixon/Ford242 56

Ford291 60

1977 Carter292 61

Carter277 58

Reagan 242 53

Reagan269 54

Reagan253 53

1987 Reagan258 55

Bush260 55

Bush267 56

Clinton 258 57

Clinton230 52

1997 Clinton228 55

Clinton223 55

Bush221 50

Bush229 51

Bush232 55

2007 Bush

The Division of Party Power over the Past Forty Years

We have had unified government during only seven of the past twenty-one congressional terms (i.e., one-third of the time).

Trade policy nevertheless has to be made all the time.

Presidency House Senate

1967 Johnson247 64

Nixon 243 57

Nixon255 54

Nixon/Ford242 56

Ford291 60

1977 Carter292 61

Carter277 58

Reagan 242 53

Reagan269 54

Reagan253 53

1987 Reagan258 55

Bush260 55

Bush267 56

Clinton 258 57

Clinton230 52

1997 Clinton228 55

Clinton223 55

Bush221 50

Bush229 51

Bush232 55

2007 Bush

Failure: Two GATT codes rejected by Senate

Success on Peru, failure on Colombia.

String of successes on TPA & numerous FTAs.

Repeated failures to get new fast-track grant.

Successes on NAFTA and Uruguay Round.

Successes on Canada FTA and new fast-track grant.

Success on Israel FTA and new fast-track grant.

Success on Tokyo Round.

Success on fast-track grant.

Repeated failures to get fast-track grant.

Success on launching of NAFTA negotiations.

The Mixed Record of Success and Failures

(Congress almost rejected FTA talks with Canada.)

Presidency House Senate

1967 Johnson247 64

Nixon 243 57

Nixon255 54

Nixon/Ford242 56

Ford291 60

1977 Carter292 61

Carter277 58

Reagan 242 53

Reagan269 54

Reagan253 53

1987 Reagan258 55

Bush260 55

Bush267 56

Clinton 258 57

Clinton230 52

1997 Clinton228 55

Clinton223 55

Bush221 50

Bush229 51

Bush232 55

2007 Bush

Failure: Two GATT codes rejected by Senate

Success on Peru, failure on Colombia.

String of successes on TPA & numerous FTAs.

Repeated failures to get new fast-track grant.

Successes on NAFTA and Uruguay Round.

Successes on Canada FTA and new fast-track grant.

Success on Israel FTA and new fast-track grant.

Success on Tokyo Round.

Success on fast-track grant.

Repeated failures to get fast-track grant.

Success on launching of NAFTA negotiations.

The Mixed Record of Success and Failures

(Congress almost rejected FTA talks with Canada.)

Unified government is neither a necessary nor a sufficient condition for successful trade policymaking, but it does make it much easier to manage the relationship.

Issue 2:The Supply and Demand for U.S.

Trade Policy

Issue 2:The Supply and Demand for U.S.

Trade Policy

Thesis: Both the private sector’s demand for trade policymaking and policymakers’ willingness to supply trade policy have been on the decline for decades, and that decline is especially notable in Washington today.

Trade-Remedy

Cases

Buy-American

ProvisionsFees on Imports All Other

Green Measures 0 1 0 2

Amber Measures 17 5 4 4

Red Measures 1 1 0 6

Total Measures 18 7 4 13

U.S. Measures Adopted Since the G-20 Standstill (and Election) in November, 2008

Source: Global Trade Alert.

Trade-Remedy

Cases

Buy-American

ProvisionsFees on Imports All Other

Green Measures 0 1 0 2

Amber Measures 17 5 4 4

Red Measures 1 1 0 6

Total Measures 18 7 0 13

U.S. Measures Adopted Since the G-20 Standstill (and Election) in November, 2008

Source: Global Trade Alert.

These numbers seem prima facie to be troubling, but how do they compare to the past? Do the recent trade-restricting actions in the United States represent an increase or a decrease compared to prior periods (recessionary or otherwise)?

Trade-Remedy

Cases

Buy-American

ProvisionsFees on Imports All Other

Green Measures 0 1 0 2

Amber Measures 17 5 4 4

Red Measures 1 1 0 6

Total Measures 18 7 4 13

U.S. Measures Adopted Since the G-20 Standstill (and Election) in November, 2008

Source: Global Trade Alert.

Trade-remedy cases account for 42.9% of the action during this period, and also have the virtue of being susceptible to time-series analysis

Long-Term Decline in the Demand for Protection via the Antidumping Law

Average Number of Antidumping Petitions Filed Per Quarter, 1980-2009

0

2

4

6

8

10

12

14

16

18

1980-1981

1982-1983

1984-1985

1986-1987

1988-1989

1990-1991

1992-1993

1994-1995

1996-1997

1998-1999

2000-2001

2002-2003

2004-2005

2006-2007

2008-2009

Steel Petitions

All Other Petitions

Source: Calculated from Bown’s Global Antidumping Database and USITC data

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

Prior to Trade & Tariff Actof 1984

Trade & Tariff Act of 1984 Post-Uruguay Round Byrd Amendment Post-Byrd Amendment

Recession Recovery

(No

Rec

essi

on

Du

rin

g

this

Per

iod

)

This Trend is a Twin Function of Recessions and Changes in the Antidumping Law

Quarterly Average of Antidumping Petitions Filed by Policy Period and Economic Phase, 1980-2009

Source: VanGrasstek (2009).

Long-Term Decline in Demand for Either Global or China-Specific Safeguards

Average Annual Filings of Safeguard Petitions Per Presidential Term, 1975-2009

0

1

2

3

4

5

6

7

8

9

10

Ford Carter Reagan Bush Clinton Bush Obama

China

Global

Source: Calculated from U.S. International Trade Commission data.

The Long-Term Decline in Congressional Interest in Trade Legislation

Shares of Bills Introduced in Congress that Deal with the Trade Acts of 1930 and/or 1974, 1980-2009

0

1

2

1981-82

1985-86

1989-90

1993-94

1997-98

2001-02

2005-06

2009-10

Source: Calculated from data on Thomas.gov.

Other Trends that Are Not Easily Quantified

• The private sector places less emphasis on trade now than during the Uruguay Round

• The pressure to negotiate new FTAs, or even to approve the ones that have been concluded, is quite low

• Trade is even a lower priority among the critics of globalization, who now have positive initiatives to attract their attention (e.g., climate change)

Issue 3:The Competition for U.S. Trade

Policy

Issue 3:The Competition for U.S. Trade

Policy

Thesis: While traditional trade policy (tariffs, trade agreements, trade-remedy laws, etc.) is increasingly neglected, many other issues in current U.S. policy have important, indirect effects on competition.

What is a Trade-Related Issue?

Any topic that is not fundamentally about the cross-border exchange of goods and services, but can nonetheless get linked to trade issues:• In foreign policy:

– Trade sanctions against adversaries– Measures taken for reasons of national security– Choice of FTA partners by the executive– Closer scrutiny of these partners by Congress

• In domestic policy:– Aid to domestic industry that is discriminatory– Application of domestic standards to imports– Exploitation of opportunities by protectionists

0 10 20 30 40 50 60 70

United States

India

United Kingdom

France

South Africa

Mexico

China

Germany

Canada

Saudi Arabia

Nigeria

Trinidad & Tobago

Netherlands

Exports of Goods and Services as a Percentage of GDP

More than Most Other Countries, the United States Can Afford to Treat Trade as an Instrument Rather than an Objective

The Activities of the “Trade” Committees in the 111th Congress: Topics of Hearings and

Mark-Ups Held January 20-September 29, 2009

Health Care

Nomi-nations Taxes

Energy & Climate Trade

Social Security Other

House Ways & Means

8 0 8 3 3 3 7

Senate Finance

14 14 2 5 2 1 4

Total 22 14 10 8 5 4 11

Only 6.8% of these two committees’ time this year has been devoted to trade. Two of the five trade hearings have been about trade and climate change. If we discount those two hearings, the share of time devoted to traditional trade policy has been just 4.1%.

Source: Calculated from data on the two committees’ websites.

Trade Has Taken Up a Small Fractionof President Obama’s Time

As of September 29, 2009, he dealt with 1068 topics in 934 events. Trade policy was at issue 12 times (1.1% of the 1068).

Source: Calculated from the Washington Post’s POTUS Tracker.

Presidents Tend to Be More Interested in Trade Policy Later in Their Terms

Number of Times Presidents Use the Word “Trade” in State of the Union Messages, in Two-Year Increments, 1980-2009

0

2

4

6

8

10

12

14

16

18

20

1981-82 1985-86 1989-90 1993-94 1997-98 2001-02 2005-06 2009-10

Reagan Bush Clinton G.W. Bush Obama