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DLC | E-newsletter | November 19, 2010
Close in Seoul; No Time to Give Up

The Obama administration has taken a beating over the breakdown of talks on the U.S.-Korea FTA a couple of weeks ago. We won't join in the chorus. But we do note that the administration has set a date of "weeks, not months" to perfect a few parts of the agreement, having fallen short in Seoul in early November. It needs to pick itself up and finish the job. The issues are not insoluble, and the agreement needs to get done for a couple of big reasons.

One is our own economy. We wrote six months ago, in "Time for Trade," on the need for an ambitious and focused trade agenda. Completing the Korea talks, and passing the two remaining FTAs with Colombia and Panama, is part of this. The reason is simple: the United States needs exports to strengthen growth and reduce unemployment. Struggling with job insecurity and fallen home values, families are not shopping and buying but saving. (Data: family savings are up from $150 billion to $650 billion a year since the crisis, good for the long term but for now subtracting about 3 percent of GDP from growth.) Businesses, with domestic demand for goods and services weak, are therefore holding their cash rather than investing and hiring. (Data: layoffs have dropped from about 2.6 million a month at the peak of the crisis to 1.8 million per month, but new hires are about a million a month below pre-crisis rates.) Trade needs to be part of the solution. If businesses are to change course and start hiring, they need confidence that someone will buy the goods they make and the services they provide, and with Americans saving, foreigners are the best candidates. Korea is a good place to start. Already the 7th largest buyer of American manufactured goods -- not far behind Germany and the U.K. -- and the 4th largest buyer of farm products and fish, Korea is Asia's fastest-growing advanced economy and can do still more. Meanwhile the EU has just finished an agreement with Korea and other competitors are doing the same, meaning that failure to finish the agreement will place American exporters at a disadvantage as early as 2011.

The other is our long-term role as the Asia-Pacific's leading power. China, very confident these days, has an economic strategy which if not countered will nudge the U.S. and its allies steadily toward the margins of Asian economics. Having concluded free trade agreements with ASEAN, Pakistan, Singapore and New Zealand, China has further agreements in the works or on drawing boards with Australia, Pakistan, Korea, India, and Japan. Its foreign aid programs for its neighbors dwarfs ours: the Congressional Research Service estimates nearly $8 billion for Southeast Asia, over 10 times the roughly $600 million in American aid to ASEAN members. And its businesses are building a battery of infrastructure projects throughout Asia, from a railway through Laos and Thailand to Singapore, to energy facilities, telecommunications networks, and seaports across Southeast Asia, Siberia, Bangladesh, and Pakistan. This is nothing to complain about on the merits -- but it is a comprehensive strategy that, left unmatched, will cement China's place at the center of the Asian economy and leave America and Japan marginalized in economic affairs and then politics and security. The Korea agreement, and the proposed Trans-Pacific Partnership that might follow, are part of the strategy we need to keep pace.

Therefore we need to get the Korea agreement done. Two problems hold it up.

One is technical: regulatory treatment of automobiles and beef. We're of the mind that American products in these areas are very good. Our trade staff points out that American cars are a remarkable success story in China trade -- car exports have jumped from a trivial 215 vehicles in 2000 to a possible 100,000 in 2010 -- and American farmers and ranchers are the world's leaders. They should get fair treatment and reasonable, transparent regulation. But there are middle grounds on these topics and the administration needs to work hard to find them. And we should always remember that the agreement is not solely about cars and cows, but also covers high-tech sectors like semiconductors, environmental technology, medicines and medical equipment, heavy industries like transport equipment and power, seafood and grains, services like entertainment, finance and telemedicine, and many more parts of our economy, and a look at the International Trade Commission's review suggests they will do very well.

The other is political. Democrats love to fight over trade, and one reason the Obama administration hasn't yet fully engaged in the issue is fear of party division. But that is not reason to leave growth opportunities on the table or allow the American position in Asia to erode. And more basically, while there is a political side to trade policy, there is also a right side and a wrong side. Trade liberalization has been a fundamental part of every Democratic administration's economic agenda since Martin van Buren, on the grounds of good economics and good foreign policy. Every Democratic president of the last century -- Wilson, Roosevelt, Truman, Kennedy, Johnson, Carter, and Clinton -- left office with a more open market and better export opportunities than he found. They were right to do this, and their critics were wrong. President Obama will likewise be right to bring the Korea talks to a successful conclusion.

Bruised as it may feel, the administration needs to send its negotiators back to work and let them finish the job.


The U.S. International Trade Commission previews the U.S.-Korea agreement's likely effects (a likely extra $10 billion in exports, and $10 billion to $12 billion in extra GDP growth):

DLC's trade strategy document:

Radio Free Asia reports on China-Laos-Thailand-Southeast Asia rail projects

From China's Commerce Ministry, a look at the Chinese FTA program:

And last ... Ed Gresser reviews public opinion surveys, exit polls, and trade in American politics: