Obama's Asia trip: the free trade conundrum

President Obama’s contention that foreign trade can be a principal engine for creating new jobs and reducing America’s stubbornly high unemployment rate will be put to the test during his two-day visit to South Korea this week.

On his agenda: a US-South Korea free-trade agreement (FTA) that still requires congressional approval and a Group of 20 summit where Mr. Obama will press for countries to adopt measures for addressing trade imbalances. Those measures would cover both surpluses (like those enjoyed by China) and deficits (as in the case of the United States).

In Seoul, as in India and Indonesia earlier this week, one concept of preference for Obama and his sizable entourage will be “rebalancing.” In layman’s terms, it’s the idea that the world’s emerging economies, as well as industrialized countries with deep trade surpluses like Germany, must assume more of the role of global economic engine that the US and American consumers have been counted on to play for decades.

“One of the key steps [for the world economy] is putting in place additional tools to encourage balanced and sustained growth,” Obama said Wednesday before leaving Indonesia for South Korea. “We have not yet achieved that balanced growth,” he said, adding without naming names that some countries are using currency manipulation to run up huge trade surpluses. (The understood main culprit is China.)

Obama’s approach to trade is different from the perspective he held in the presidential campaign, which was more critical of free-trade agreements in general, and specifically of the Korean FTA negotiated under the Bush administration. Back then, Obama and other Democrats homed in on that agreement’s limits on imports of US beef and automobiles.

But things have changed since then. The Obama administration has had to figure out how to address a gloomy jobs environment, and recently the European Union leap-frogged ahead of the US to strike a trade agreement with South Korea. The US has fallen to fourth place on the list of Korea’s trade partners.

More important still, some political analysts say: The recent midterm elections leave trade as a rare bright spot where Obama and a substantially more Republican Congress may be able to work together.

“Trade is an area where both sides can take credit if things move forward,” says Bill Reinsch, president of the National Foreign Trade Council (NFTC) in Washington.

Still, even that assumption may be faulty, given postelection evidence that the new crop of Republicans is less enthusiastic about free-trade agreements.

The Bush administration bequeathed three negotiated but unapproved FTAs to Obama: with Korea, Colombia, and Panama. The Obama administration recently stepped up talks with South Korea on changing that accord – addressing the beef and autos issues – without actually reopening negotiations.

Obama and Korean President Lee Myung-bak could use their lunch in Seoul Thursday to announce agreed changes to the deal, say some trade experts.

Obama will cite such changes as justification for his switch from a “no” on the Korean FTA to a “yes,” Mr. Reinsch predicts. “Obama is going to say, ‘Bush didn’t do this right, and I fixed it,’ ” he says.

That is not likely to satisfy the largely Democratic forces that consider free-trade accords to be job drains and that want the three pending FTAs to be renegotiated with an eye for what they call “fair trade” – if they are to be approved at all.

Some groups opposed to trade accords go so far as to suggest that Obama’s reelection prospects in 2012 could hang on his handling of the trade issue.

“Two years ago, President Obama himself campaigned and won attacking unfair trade agreements ... that promote the export of US jobs,” says Lori Wallach, director of Global Trade Watch for Public Citizen, a consumer advocacy organization in Washington.

The recent midterm elections, she says, demonstrated how public anger over current trade policy “has only intensified.” Obama’s reelection, she adds, “will rest on his delivering on his promise to create a new job-creating US trade policy and staying well away from the old Clinton-Bush trade policy” symbolized by the North American Free Trade Agreement.

Ms. Wallach’s perspective that Americans now oppose current US trade policy “on a bipartisan basis” receives some support from a new Pew Research Center poll. It finds that only 28 percent of Republicans consider FTAs to be good for the country – down sharply from 43 percent a year ago.

Obama is also expected to confront stiff opposition to his trade “rebalancing” proposals from countries that enjoy a comfortable trade surplus. German Chancellor Angela Merkel, who will meet with Obama on the G20 sidelines, dismisses the Obama administration’s proposals for limiting trade surpluses as “too narrowly conceived” and suggests that the problem is really a lack of American competitiveness.

Indeed, American businesses need better tools if they are to grow and create jobs through export, says Reinsch of the NFTC. And, he says, many US business leaders are already worried about how something like Korea’s FTA with the EU – which includes export-powerhouse Germany – is putting them at a disadvantage.

Citing Obama’s National Export Initiative, which calls for doubling US exports in five years, Reinsch says that without steps like free-trade agreements and more-open global markets generally, “he’s just not going to get there.”