Yes We Can… With Exceptions, Qualifications And Requirements

Barack Obama told the Australian Parliament last Thursday that our country and his are “among the most open economies on Earth”.

This is true, as far as it goes. The United States is 10th out of 141 countries on the Economic Freedom of the World Index. Australia is fifth.

But that observation sits uncomfortably with almost everything else Obama said in his speech to the Parliament.

The 44th president mouths his support for free trade but carves out so many exceptions, qualifications and requirements that, if those caveats were put into action, the United States would plummet down the economic freedom rankings faster than you could say “level playing field”.

After all, how to reconcile “History teaches us the greatest force the world has ever known for creating wealth and opportunity is free markets” with “We seek trade that is free and fair”? Perhaps it is asking too much of the White House speechwriting B-team to be internally consistent. Yet it is not clear what the qualifier “and fair” is supposed to do apart from repudiate “trade that is free”.

Free trade is the universally recognised principle that national borders should be open to goods no matter where they come from. Fair trade is the opposite. First literally: the phrase originated as a synonym for protectionism in the 19th century. And second practically: its modern popular use describes a trading system that discriminates between different third world producers according to first world standards. Those who conflate the two are saying they support free trade and oppose free trade at the same time. That’s incoherent even for politics.

Obama then ticked off a series of standard refrains. Countries need to play by the rules (as if the benefits of trade are only possible if that trade is approved by World Trade Organisation lawyers in Geneva). Currencies need to be market driven (a clear swipe at China, which is desperately, if nervously, trying to fix its currency issues). “Workers’ rights” need to be respected (wholly admirable, but this vague demand has been long used by unions to protect themselves from foreign competition).

It’s obvious from his speech alone that Barack Obama is no friend of free trade. It’s less obvious why so many Australian conservatives and liberals were full of praise for the president when he was here.

Obama’s domestic record on trade openness is not good at all.

Most notoriously, his stimulus package had a crucial “buy American” provision. The provision mandated that steel, iron or manufactured goods purchased with stimulus money had to be produced in the United States.

Actually, it was worse than that. Steel, iron or manufactured goods purchased for a project which received any stimulus money at all had to be domestically sourced. In other words, if a project received just one dollar of federal stimulus, everything bought with non-stimulus money on that project had to be American as well.

The Government Accountability Office found that Buy American red tape badly delayed many stimulus funded projects. And, of course, substantially reduced their value for money.

The administration’s jobs act, which is spluttering its way through Congress at the moment, has the very same Buy American provision. This is naked, unabashed protectionism imposed as a gesture to Obama’s trade union supporters.

Yes, the administration talked a big game on the benefits of free trade agreements between the United States and Korea, Columbia and Panama. These agreements were negotiated in the twilight of the Bush era. But Obama deliberately delayed passing those agreements for four years. His friends in Congress were responsible for part of this delay, sure. But the White House squibbed many opportunities to shepherd the agreements through. Then the administration saddled the agreements with expensive trade adjustment payments which ensured further delays: the US federal deficit would make anyone question whether now is a good time to expand the welfare state.

The Obama administration also had a chance late last year to resuscitate the Doha round of international trade talks, as the trade analysts Philip I Levy and Scott Lincicome pointed out at the time. They completely failed to do so.

As a candidate, Obama played the same game as he did in Australia last week. He would say he was a supporter of free trade, but then rail against “unfairly traded” products which “flood” American markets.

In his State of the Union address this year he said his goal for the country was to “win the future”, a bizarre and hackneyed phrase which implies that prosperity is an international competition with winners and losers. This is the exact opposite of what we know about trade – countries which exchange do so because it is mutually beneficial. Trade is not a contest some countries “lose”.

As a small country plugged into the global economy, Australia depends on free trade for our prosperity more than most. The US president came to our parliament and disingenuously championed protectionism. It should be embarrassing there was no outcry.