In one of yesterday’s posts on MetalMiner, involving steel anti-dumping cases, we alluded to a change in position on international trade on behalf of President Obama. Today we thought we would devote an entire post on the subject because it signals a major shift in policy and will help support US value-added exports.
The concern we raised earlier this year and before the election centered around how protectionism rears its ugly head. Policies levied by the US government in an attempt to protect domestic industries can cause a backlash and in effect not protect other domestic industries. The steel industry does a great job of arguing the point about lost American jobs. But we have read numerous reports (and quote one here) in which the number of steel consuming jobs vs. steel jobs equates to a 5:1 and even 9:1 ratio. And though some will argue that living standards have fallen for the American worker, jobs moved offshore and even Mexican workers did not benefit since NAFTA became law, we disagree. Free trade promotes US exports and benefits the 9 or the 5 workers. Enough said.
So what changed in Obama’s plank? According to this article, the President has whispered (to Canadian diplomats) that NAFTA will remain intact as-is without new environmental and labor regulations attached. In addition, Obama remains silent on the issue of Chinese currency manipulation (which even we have changed our view on that somewhat based on our own analysis of historical exchange rates) whereas many in Congress have voiced their concern over this practice.
And though Obama’s track record may appear spotty on the issue of trade – he still allowed a Buy American provision in his stimulus plan, as supported by Nucor and others, and also killed a piece of legislation to allow Mexican trucks to transport goods directly over the border which would have resulted in more cost effective and efficient logistics, he nonetheless appears to have tempered his campaign rhetoric. Despite these mis-steps, The Wall Street Journal indicates the pending trade pact with Panama may serve as a true test of Obama’s trade policies. We would add to that, however what Obama does (or doesn’t do) on the regulatory side may have far bigger global trade ramifications.
In addition to the President’s executive and legislative powers, Obama’s power to set regulatory policies will play a big role in terms of how the ITC (International Trade Commission) and the ITA (International Trade Administration), of the Department of Commerce will review and ultimately rule in anti-dumping cases. These cases, perhaps more than any other trade policy, can spur retaliatory behavior that ultimately harms US exports. But in the short term, we remain cautiously optimistic about the President’s change of heart.