A Trade Opportunity for Obama and the New Congress

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By Charles Boustany And Robert B. Zoellick

The benefits from deals now in the works could mean an added $3,000 a year for the average U.S. family of four.

BN-GE506_EDPBou_M_20141228105608After the midterm elections, political commentators identified trade policy as one area for cooperation between President Obama and the Republican Congress. We agree. Under the U.S. Constitution, Congress has authority over trade. But the active direction and use of that authority depends on an energetic executive, in partnership with Congress.

According to a recent Pew Research survey, 66% of Americans believe greater U.S. involvement in the global economy is a “good thing,” with only 25% thinking it is bad. The Trans-Pacific Partnership (TPP) trade agreement is a “good thing” in the eyes of 55% of Americans, versus 25% who consider it bad; the Transatlantic Trade and Investment Partnership (TTIP) scores 53% good and 20% bad. These inclinations offer opportunity.

Prof. Richard Neustadt explained to President John F. Kennedy that the presidency relied on the “power to persuade.” It’s time for Mr. Obama to persuade on trade. He must make use of the convening power of the executive to bolster his advocacy. His administration must work closely with Congress—to listen, explain, address problems and cut deals.

l.wsjSo why does trade matter? First, Americans are feeling squeezed. On the eve of the election, Pew Research reported that 79% of Americans considered the economy to be poor or at best fair. A boost in U.S. trade can increase wages and lower living expenses for families—offering higher earnings and cutting taxes on trade. Manufacturing workers who produce exports earn, on average, about 18% more, according to the Commerce Department. Their pay raise can be traced to the higher productivity of competitive exporting businesses.

Since World War II, U.S. trade policy has focused on lowering barriers to manufacturing and agricultural products. But U.S. trade negotiators also use free-trade agreements (FTAs) to pry open service sectors and expand e-commerce. In recent years, such business services as software, finance, architecture and engineering employed 25% of American workers, more than twice as many as worked in manufacturing. Business service employees earned over 20% more than the average manufacturing job, and the U.S. consistently runs a trade surplus in business services.

Over the past five years, the World Bank reports, about 75% of the world’s growth has been in emerging markets, which generally have higher barriers to trade. As America’s highly productive farmers and ranchers have seen, growing world markets are the drivers of higher sales. With the boom in U.S. energy innovation and production, fuel exports could spur more investment and jobs in that sector, too.

American families, and businesses, benefit from higher incomes and lower-priced imports. The World Trade Organization reports that the North American Free Trade Agreement and the Uruguay Round, the last big global trade agreement, have increased the purchasing power of an average American family of four by $1,300 to $2,000 every year. The Peterson Institute for International Economics estimates that the new trade deals in the works could offer that family another $3,000 or more a year.

Second, the U.S. and world economies desperately need a shift from extraordinary governmental spending and zero-interest-rate monetary policies to growth led by the private sector. Sustained growth can only be generated by private investment, innovation and purchases. American companies need greater confidence in free-enterprise policies before investing their big cash reserves. Trade policy offers an international partnership to overcome structural impediments to growth.

The negotiations for the TPP, for example, aim to create an open trade and investment network among the U.S., six current FTA partners, and five new ones. The biggest additional market is Japan, a pivotal Pacific ally. Japanese Prime Minister Shinzo Abe wants to use the TPP to press his own economy toward more competition, without which his goal of reviving Japan will falter. Vietnam and Malaysia would also take part; they believe they can use the rules and disciplines of the TPP to boost growth, improve industries and services, expand global linkages, and avoid the so-called “middle income” trap, where countries’ lack of productivity growth slows the rise to higher incomes.

The TTIP under negotiation with the 28 countries of the European Union could overcome regulatory barriers that now choke off Europe’s economic recovery and weigh down U.S. growth. The industries that already operate across the Atlantic—such as autos, chemicals, pharmaceuticals and advanced manufacturing—could offer examples of ways to promote more competition with high standards.

The U.S. is well-positioned to benefit from new, expanded and enforceable rules for fair competition. With an advanced economy at the technological frontier, American companies have demonstrated a rare capacity to innovate—as we have seen in software, use of Big Data, energy, robotics and bioengineering. The demands of consumers and business for better services—in retail, communications, entertainment, education, health care, infrastructure, transport and logistics—in both developed and developing economies, offer private-sector opportunities for growth.

Third, U.S. foreign policy has been drifting. President Obama’s disengagements, have eroded confidence in America’s staying power. Trade policy can help re-establish America’s international economic commitment; U.S. economic interests underpin political and security ties. New economic links with key security partners on the Pacific and Atlantic rims of the Eurasian continents advance our primary geopolitical interests. And trade policy enlists America’s greatest asset—its dynamic private sector—in support of U.S. foreign policy.

Just as American commerce in the 19th and 20th centuries sailed with missionaries, engineers and educators, so 21st-century trade, investment and business networks will promote the causes of civil society, human rights, the environment and gender equality.

Mr. Boustany (R., La.) is a senior member of the House Ways and Means Committee, where he serves on the Subcommittee on Trade. Mr. Zoellick served as U.S. trade representative, deputy secretary of state, and president of the World Bank.

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