Fast-Tracking America's Economic Destruction

Last week’s congressional committee votes to give President Obama “Fast Track” negotiating power may go down in economic history as among the most self-destructive ever.  The leaders of the Republican Party betrayed their voters, may have destroyed their own political careers, and may have even destroyed America’s economic future.

In the 2010 and 2014 elections, American voters gave Republican leaders majorities in first the House and then the Senate so that they could stop President Obama’s agenda.  But instead of stopping him, the Republican leadership decided to give him more power.  Republican leaders are determined to advance Obama’s fast-track agenda despite deep opposition by their base.  According to a recent poll:

Two-thirds (68%) of Republicans say they are less likely to vote for a Member of Congress who votes to give President Obama fast-track authority. Among the conservative Republicans who dominate many primary electorates, this figure is an extraordinary 74%.

Some Tea Party groups speak for these voters.  At a recent Capitol Hill Press Conference, Richard Manning of Americans for Limited Government called on Congress to “not cede any additional authority to a president who has spent the past six years shredding the constitutional separation of powers.”  Similarly, Niger Innis of said that Fast Track would be “a monumental failure of congressional Republicans to understand the nature of the president’s fundamental transformation of America.”

Misrepresenting Trade Statistics

Supporters of fast track are selling it with the same lies that were used to sell previous bad deals.  In an April 22 commentary, Representative Paul Ryan and Senator Ted Cruz claimed that Fast Track would produce jobs by reducing America’s huge trade deficits.  They are wrong, as the history of previous trade agreements shows.  They wrote:

The American worker can compete with anybody, if given a fair chance.  If you add up all 20 countries that the U.S. has a trade agreement with, American manufacturers run a $50 billion trade surplus with them.  The problem is that not all countries have a trade agreement with the U.S.: American manufacturers run a $500 billion trade deficit with those nations.

Their $50-billion surplus number is deeply deceptive.   It involves selecting some goods exports and imports while excluding others.  A complete measure of the balance of trade for all goods indicates that the U.S. ran a deficit of 61.7 billion dollars in 2014 with our Free Trade Agreement (FTA) partners.

Even worse, our trade deficits with the FTA partners got worse after the free trade agreements were negotiated.  In the year prior to implementation of each FTA, our average deficit with each FTA partner was less than $0.8 billion.  By 2014, our average deficit with each FTA partner was over $3 billion. 

Case in point is the “free trade” treaty that Presidents G.W. Bush and Obama negotiated with currency-manipulating South Korea.  This FTA grew the overall U.S. trade deficit (goods plus services) with South Korea from $5.4 billion in 2011 to $13.3 billion in 2014, costing the United States about 100,000 jobs according to the calculations of University of Maryland economist Peter Morici, former director of the Office of Economics at the U.S. International Trade Commission.

Fortunately, our trade agreement with South Korea lets only one country grow its economy at our expense.  The treaty that Obama is currently negotiating would involve 11 other countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam), three of which (Japan, Malaysia, and Vietnam) are active currency-manipulators committed to blocking U.S. efforts to end currency manipulation.  Additional currency-manipulating countries are expected to join later.

The Committee Votes

The worst aspect of April 22’s Fast Track votes in the Senate Finance Committee and the House Ways and Means Committee were their implicit endorsements of currency manipulation, which is the chief way that countries subsidize their exports and place hidden tariffs on their imports.  The words “free trade” should not be applied to a document that encourages currency manipulation.

As we documented in our book Balanced Trade, by manipulating their currencies to unbalance trade, trade surplus countries gain

  1. More factories.
  2. More research and development.  (R&D often needs to be near factories.)
  3. More economic growth.

The trade deficit countries experience the opposite effects:

  1. Reduced factories.
  2. Reduced R&D.
  3. Reduced economic growth.

There were five Republican heroes in the Senate Finance Committee (Senators Grassley, Crapo, Enzi, Burr, and Portman) who voted for an amendment that would have the new treaty oppose currency manipulation.  Six Democratic senators joined them (Schumer, Stabenow, Menendez, Cardin, Brown, and Casey).

But their amendment was defeated by nine Republicans (Hatch, Roberts, Cornyn, Thune, Isakson, Toomey, Coats, Heller, and Scott) who were joined by six Democrats (Wyden, Cantwell, Nelson, Carper, Bennet, and Warner).  And the results were even worse in the House Ways and Means Committee, where, with Committee Chairman Paul Ryan calling the shots, not a single Republican stood up against letting our treaty partners engage in currency manipulation.

But even if these anti-currency manipulation amendments had passed, they would not have been sufficient, since governments can easily hide their currency manipulations in seemingly innocent activities.  For example, the Japanese government has its government pension investment fund sell massive numbers of Japanese bonds, using the proceeds to buy foreign stocks and bonds.  Through such techniques, the Japanese government brought the exchange rate of the yen down from 1.02 U.S. cents per yen in October 2013 to 0.85 cents today.  

Although governments can hide their currency manipulations, they can’t hide their trade surpluses.  Trade agreements should provide mechanisms for balancing trade, such as by letting trade deficit countries place trade-balancing tariffs upon the products of countries with which they have trade deficits.

Caveat Emptor

“Fast Track” contributes to the decline of Congress.  It empowers the president to present Congress with a take-it-or-leave-it demand concerning massive and complex treaties negotiated in secret.

The final trade agreements might contain things that Republicans in Congress like, including patent and copyright protection for American intellectual property and a reduction in tariffs on American agricultural products.  However, President Obama may also be negotiating things that Republicans normally oppose, including:

  • Creating a private court system that gives foreigners the right to sue the U.S. government if any law or regulation violates the treaty.  There is no doubt that this is in the current draft of the treaty.
  • Mandating an end to congressional limits on legal immigration from Mexico and other treaty countries.  There is dispute about whether this is in the current draft of the treaty.

Members of Congress might be well-advised to avoid voting for “Fast Track” to see what’s in it.  Voting down Fast Track would prevent the president from ignoring the wishes of the American people.

A better strategy would be to force Obama to negotiate the treaty and then bring it to Congress.  If Congress retains its power to amend the final agreement, it will be strengthening the administration’s ability to extract favorable concessions.  The administration can say, “I would like to negotiate what you want, but Congress would likely amend that provision out of the treaty.”

If Congress retains its full constitutional authority, then any deal negotiated is much more likely to be good for the American people.

The Worst Thing about Fast Track

The worst aspect of Fast Track is not that it would permit the currency manipulations that tilt the playing field against American workers.  It would set up a private court system that could render billions of dollars of judgment against the United States government should a future president decide to balance its trade with the currency-manipulating countries through tariffs.

In contrast, WTO rules include a provision that lets trade deficit countries impose trade-balancing tariffs.  President Nixon took advantage of that provision when he imposed an across-the-board 10% tariff in August 1971, which quickly forced changes that brought U.S. trade into balance by 1973.  The United States could take advantage of this WTO provision today.  Doing so would give the U.S. more factories, more R&D, and more economic growth.

But the new private court system changes everything.  It ensures that no future president can ever solve America’s trade deficits.

The Best Thing about Fast Track

The Republican Party has about 16 candidates who have indicated that they may run for President in 2016.  Fast Track could be one of the best ways to determine which ones possess economic understanding.  So far Jeb Bush, Marco Rubio, and Ted Cruz have come out in favor of fast-tracking America’s economic destruction, while Mike Huckabee, Lindsey Graham, and Donald Trump have indicated that they are opposed.

We need to elect candidates who will fight for our children’s economic future, instead of candidates eager to empower President Obama to destroy it.

The Richmans co-authored the 2014 book Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.

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