Primary Fears for the Global Economy
Op-ed in Welt am Sonntag
English language version © Peterson Institute for International Economics
The Iowa caucuses and the New Hampshire primary have not brought clarity to the American presidential race. Senator Hilary Clinton is still more likely than Senator Barack Obama to be the Democratic nominee, but we will have to wait for February 5th (Super Tuesday) to find out for sure. The Republican nominee is likely to be chosen between Senator John McCain and whoever's left standing to represent the social and religious conservatives. Luckily, since the incumbent largely to blame for the current US economic, social, and foreign policy messes is discredited, and the Democrats will retain majorities in both houses of Congress, we can count on improvements in policy at least on Iraq, global warming, and public finances, no matter who wins.
What about international economic policy? Will the next American president be protectionist? Or will reversals of Bush's unilateralism in security policy lead to greater support for international cooperation in commerce and development? The irony is that while many grievous wrongs have been committed by the Bush administration in other policy areas, its record on international economics has not been all that bad. In particular, the potential conflicts with China and other major developing countries over currencies, intellectual property rights, and World Trade Organization (WTO) trade negotiations were limited and kept from interfering with the ongoing global growth of commerce and investment.
The Clinton administration had a much better record of positive action on international economics than Bush-enacting North American Free Trade Agreement (NAFTA), bringing China into the WTO, managing the Asian Financial Crisis by working with and through the International Monetary Fund (IMF), avoiding protectionist measures more strictly-except on development aid. Still, many people fear that a Democratic president in 2009 would be more protectionist than Bush has been. This is half-right. Unfortunately, a new US president of either party is likely to be more antiglobalization, or at least take a more defensive approach to it, than either of her or his predecessors was.
There are many reasons why. First, now that unemployment is rising, the US workforce has finally reacted to the economic insecurity caused by its lack of health insurance and job protections, all curtailed further by the Bush administration. Second, both parties have moved away from the center, especially in Congress, and it was always a coalition of moderates from both parties which supported trade liberalization. Third, the foreign policy misadventures of the Bush administration have fed isolationism and fear of the openness among the US electorate. Fourth, in the United States just as in Western Europe, there is a seductive-though fundamentally unfounded-belief that the economic emergence of China, India, Brazil, and the former Soviet Union has shifted the relative advantages of globalization away from the rich countries, so their approach to trade and investment should be more defensive.
American antiglobalization, however, will take different forms depending upon which party captures the White House. If a Democrat wins, there will be proposals to impose "minimum labor and environmental standards" on future trade agreements, and perhaps unilaterally on current trading partners. While these can be benignly motivated, in practice they will likely be hijacked by outright protectionist interests and used as an excuse to block imports or trade deals. In any event, such measures are likely to escalate a number of conflicts with major emerging markets and interfere with economic growth in the developing world.
There is some hope that if done in coordination with the European Union and Japan, and accompanied by reasonable concessions by all those richer countries, a Democratic administration pushing such standards could also keep markets open. The most constructive potential use is as a point of pressure to create a genuine global regime to limit carbon emissions. But that will be a political challenge for the United States domestically and diplomatically.
If a Republican, particularly from the conservative majority wing of the party, wins the White House, then the new American antiglobalization stance will likely first take the form of anti-immigration measures. The attractions of this stance are similarly evident to many politicians in Europe, and are another form of worrying about (or capitalizing on) the fear of cheap labor-but with the added touch of being about national identity as in traditional right-wing politics. For today's US Republicans, it also allows them to talk tough in national security terms, about "law and order" and "border control," without having to address US foreign policy as tainted by Bush. Since the congressional Republicans foiled Bush's surprisingly reasonable immigration reform proposal, there is little more for them to lose in the Hispanic vote by pursuing this anti-immigrant line.
Initially, such a Republican anti-immigration stance will be less directly disruptive of the global trading system, and less broadly confrontational with the developing world, than the Democratic labor standards for trade agreements would be. Ultimately, however, it will be more harmful to the US economy, which is increasingly short of labor at both the high- and low-ends of the skills distribution, will be even more encouraging of isolationist sentiment, and will be more likely to divide the United States from the rest of advanced economies as well as from it developing neighbors.
International economic issues will never be the decisive factor in a US national election, and in fact will be a lower priority on any candidate's or new president's agenda than discussions of Iraq withdrawal, broadening health care, tax reform, repairing America's standing in the world, and decreasing partisanship in Washington. But in reality how the United States responds to globalization affects all of these issues and the US government's capability of addressing them. So while outright protectionism and head-on assaults on economic integration thankfully are not in the cards, and whoever succeeds George Bush will inherently be an improvement in most areas, the United States probably will be moving backwards on globalization initially in the next administration.