Trade

By Phil Levy

In Tokyo, President Obama spoke out in favor of trade. It was not exactly the much-heralded Trade Speech, in which he would lay out a detailed agenda and soothe U.S. public fears that he himself had helped to arouse. Instead, this talk was addressed to an Asian audience, but it offered some tantalizing new details and a near embrace of some free trade agreements. The President said:

Continued integration of the economies of this region will benefit workers, consumers, and businesses in all of our nations. Together, with our South Korean friends, we will work through the issues necessary to move forward on a trade agreement with them. The United States will also be engaging with the Trans Pacific partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement.

Rather than drawing inspiration from the president's oratory, as U.S. and European audiences often had, Asian leaders greeted the president's trade stance with skepticism. As the Financial Times reported:

Lee Kuan Yew, Singapore's first prime minister and a regional elder statesman, said the US risked economic exclusion from Asia unless it reversed its protectionist stance. ...

Najib Razak, Malaysia's prime minister, ... told the Asia Pacific Economic Cooperation summit in Singapore that progress on trade liberalisation was "imperative" for global recovery. "The thing I liked about President Bush's foreign policy is that he was very pro-free trade. I hope the same message will be repeated."

- some evidence that the Bush administration did not entirely neglect Asia for eight years.

One might have expected Obama's vague statements in favor of the Doha trade talks, moving forward with South Korea, and engaging with the mysterious Trans Pacific Partnership to have at least created a warm glow about U.S. sentiments. After all, similarly vague statements about avoiding protectionism and supporting the WTO garnered kudos at G-20 summits in London and Pittsburgh earlier this year.

Whether the APEC leaders were more discriminating than other audiences, cared more about trade, were more astute in their reading of American trade politics, or had just learned from past experience, they seemed unsatisfied. Perhaps with recent disputes fresh in their minds, they seemed to ask, "where's the beef?" And they were right to worry.

The global trading system has not been lacking in kindly thoughts and well wishes. It's been lacking in strong leadership and specific proposals. Fingers have been pointing at the Obama administration. The Doha global trade talks that were declared essential in the G-20 sessions have been foundering. Last month, the European Union and Brazil criticized the United States for failing to put forward specific demands. This month, WTO Director General Pascal Lamy commented that "the U.S. is proving to be slow in reaching a clear and articulated negotiating position." If it were translated from the excessively cordial language of international diplomacy, that remark would likely be unprintable in a family publication.

Ostensibly, the Korean FTA is unacceptable to President Obama and Congressional Democrats because the Koreans have had the audacity to intervene in their auto market. Korea, as a major trading nation, has not been as pliable as other U.S. FTA partners and has made clear in the past that they are not interested in renegotiating the agreement with the United States. Instead, Korea has just concluded a similar agreement with the European Union that will put American exporters at a disadvantage in the Korean market.

The novelty in the president's announcement concerned the Trans Pacific Partnership (TPP) and was sufficiently obscure to leave many people scratching their heads. In fact, the United States had already joined TPP talks with Brunei, Chile, New Zealand, and Singapore late in 2008 under President Bush's direction. Obama's announcement in Tokyo seemed to indicate a lifting of his administration's suspension decision from earlier this year: small wonder that it received a tepid response. Even had the President wholeheartedly embraced a TPP deal, that would not have meant much on its own, since the United States already has FTAs with Chile and Singapore. Brunei's entire annual GDP is roughly $20 billion, which is less than the U.S. government has poured into Citigroup.

The reason to care about the TPP was its potential to serve as a platform for serious integration throughout Asia. For a region that places a high value on trade, the Asia-Pacific has had a great deal of difficulty finding the right path toward liberalization. APEC has made trade pledges in the past, but the group has a very diverse membership and likely cannot serve as the vehicle for a high-standards regional FTA. More promising was the idea that if Australia and Japan were coaxed into joining a sophisticated TPP, the resulting FTA might then have opened its doors to any other Pacific nation willing to accept its terms. Unfortunately, the Obama administration has given no indication that it's willing to lead such an ambitious undertaking

A prerequisite for a serious U.S. trade policy would be new trade negotiating authority for the president, which the Obama administration has not even requested from the Congress. For any of these trade initiatives to advance would require persistent and detailed effort of a sort we have yet to see. Obama may be a Pacific president, but he has not been a very specific president. Asian leaders last week were asking for more than platitudes.

MANDEL NGAN/AFP/Getty Images

By José R. Cárdenas

The debate over U.S. policy towards Cuba heats up this week as the House Foreign Affairs Committee (HFAC) holds a hearing Thursday on whether to lift the U.S. travel ban against Fidel Castro's island-prison. Senator Richard Lugar (R-IN) and Rep. Howard Berman (D-CA), Ranking Member of the Senate Foreign Relations Committee and Chairman of the HFAC, respectively, fired the first salvo with an op-ed in the Miami Herald calling for the unilateral lifting of the "anachronistic" ban, arguing that ordinary Americans can "serve as ambassadors for the democratic values we hold dear," thereby eroding the impediments to change in Cuba.

It is indeed a quaint conceit on the part of many in this country that Americans, just by being Americans, can demonstrate the errors in others' ways and infuse on the recalcitrant and autocratic a sudden appreciation for the commonweal, sparking a dawn of democratic reform and respect for human rights. Sadly, the world doesn't work quite that way and thugs like Castro will not be impressed by the earnestness of American tourists to engender a better Cuba.

Besides, if we are to take our cues from Canadian and European tourists, one wonders whether political agitation can compete with sun, sex, and cigars as the primary motivations for visiting the walled tourist compounds on the Island of Dr. Castro. This doesn't even countenance the motivations of U.S. businessmen, for whom political agitation would be the very last item on their agendas, given that their interests are served by a perceived vision of stability and cozy relations with the incumbent government.

This is not to recognize the moribund state of affairs in Cuba. Senator Lugar and Rep. Berman can hardly be blamed for being frustrated. Anyone who cares about Cuba is frustrated at Fidel Castro's pathological obstinacy and nominal leader and brother Raúl's craven inability to deviate from his brother's uncompromising ideological line.

But bad proposals are worse than none at all. The short of it is the Castro regime simply is more determined to maintain absolute power than the United States is in mercifully terminating its fifty years of misrule. Given that, opening the floodgates to U.S. tourists and businessmen will result in a desperately needed financial windfall and credibility boost that will only strengthen the regime, not undermine it.

Moreover, the debate over the U.S. travel ban and, more broadly, the U.S. economic embargo of Cuba clouds the real issues at hand. Namely, that the real conflict in Cuba is not between the United States and the Castro regime, but between the regime and the Cuban people. This is made abundantly clear in a searing new report by the International Republican Institute on the results of a recent survey conducted discretely among the Cuban people on the island

Conducted this past summer among a total of 432 Cuban adults from across the island, the survey found that Cubans do not need American tourists to tell them that things are rotten in their own country and that change is desperately needed.  Specifically, more than four in five citizens on the island (82 percent) do not believe things are going well, while a vast majority of Cubans would vote for fundamental political change (75 percent) and economic change (86 percent) if given the opportunity.

The survey also found that only 8.8 percent believed the U.S. embargo and "isolation" was the biggest problem in Cuba and only 7.9 percent said they thought ending the embargo would most help improve the economy.  What do Cubans overwhelmingly want? Multi-party elections, freedom of speech, freedom of expression, and economic freedoms, including opportunities to own property and run businesses.

Imagine, Cuban citizens came to those conclusions all on their own.

It remains to be seen whether Congress can mobilize the votes to overturn the travel ban (the restrictions were codified under the 1996 Helms-Burton Law), but the prospects seem unlikely. To its credit, the Obama administration has shown no inclination to support such an effort at this time. At the Inter-American Summit last April, the president's words on Cuba were cautious -- and sober. "The Cuban people are not free. And that's our lodestone, our North Star, when it comes to our policy in Cuba," he said. 

He also said his policy would be guided by reciprocity:

What we're looking for is some signal that there are going to be changes in how Cuba operates that assures that political prisoners are released, that people can speak their minds freely, that they can travel, that they can write and attend church and do the things that people throughout the hemisphere can do and take for granted ... And if there is some sense of movement on those fronts in Cuba, then I think we can see a further thawing of relations and further changes.

It is not U.S. policy to be stagnant and unimaginative on Cuba, as critics would have it. President Obama appears intent on continuing the Bush policy of trying to empower Cuban civil society through strategic engagement to operate more independently of the regime's control, although he obviously intends to go much further in opening new avenues to reach the Cuban people. The strategic goal behind such an offensive would be to expand pockets of independence within Cuban civil society and fortify networks among those pockets, putting Cubans who want a different future for their country in touch with other Cubans fed up with the same old struggle and deprivation the regime is only capable of offering.

That Castro's decrepit regime continues to limp along fifty years on understandably confounds many. But that is less an argument for relaxing pressure on the regime than it is an argument to persevere in a cause that is just and right.

Jorge Rey/Getty Images

By Dan Blumenthal

Overall, Obama's Asia policy has been largely driven by events and domestic priorities rather than by an overarching strategic vision. The Obama team had to closely coordinate with China on financial matters in response to the financial crisis. Passing a cap and trade bill at home means that we need China to sign up to a global climate change pact; Americans will chafe at a costly bill if the world's largest carbon emitters do not agree to carbon reductions.

The Obama team attempted a new policy on Burma. The idea is to find a way to engage the military junta which would strengthen relations with the Association of Southeast Asian Nations, of which Burma is a member. But the policy change has been overtaken by events.

Aung San Suu Kyi was unfairly punished when an American swam across a lake to her residence. And the junta began a new round of repression, as its leaders jail and harass political opponents in the run up to their 2010 "elections." Obama could not radically shift Burma policy. Rather, adjustments to our relations with ASEAN and Burma have been only marginal. There has been some more contact with the junta. And as part of the broader attempt to build stronger relations with Southeast Asia, the administration signed the Treaty of Amity and Cooperation (TAC). These and visits to Southeast Asia by Secretary Clinton and her deputy, Jim Steinberg, demonstrate a desire to deepen American engagement with that region. It is unlikely that engaging Burma or signing the TAC will increase America's regional influence.

Surprise?

There are several Obama Asia policies that have been surprising. On a positive note, the Obama team has given much greater attention to the Japan alliance than I had expected. Secretary Clinton's first stop in Asia was in Tokyo, which eased Japanese concerns that they were in for another round of "Japan passing." Since the Democratic Party of Japan took over last September, Obama officials have visited Japan frequently to get a sense of how to deal with a party that has never before governed. The Obama team should be commended for trying to find its way with this inexperienced and eclectic ruling coalition.

Constructive Criticism?

Other policies should give us pause. For example, Obama is sticking to his campaign promises on trade, which means we have no trade policy. The Korea-U.S. Free Trade Agreement has been collecting dust in the Congress. The rest of the region, however, is not standing still. China seems to sign a trade agreement a minute and South Korea is moving forward on an FTA with the EU. If this continues, not only will our economy be disadvantaged, but our regional leadership will also suffer. While the Obama administration has done a fine job showing up to Asian multilateral meetings, without new trade proposals it has shown up empty handed.

A second troubling policy is the absence of any agenda on Taiwan. The Obama team was effusive in its praise of President Ma when he was elected in March 2008 and they applaud his attempts to ease tensions with the Mainland. The Taiwan president is doing what he thinks Washington wants - easing cross Strait tensions. But there was an implicit bargain with Taiwan that we are not upholding. We were supposed to strengthen Ma's hand by strengthening our ties to Taiwan. The Obama team is not helping Ma.  We have not sold any arms to Taiwan even as China has continued its arms buildup across the Strait. And Obama has no plans of yet to deepen economic ties as Taiwan goes forward with a China FTA.

Third, the bluntness with which the team has downplayed China's miserable human rights record is an unfortunate break with past administrations' practices. Secretary Clinton announced that she would deemphasize human rights concerns on her first trip to China. This was followed by the president's refusal to meet with the Dalai Lama when the Tibetan spiritual leader was in Washington last month. The administration has also been silent on Uighur repression and will not meet with Uighur leader Rebiya Kadeer. It does not help either country for us to pretend that we are indifferent about Chinese respect for human rights, when in reality we have a huge stake in China's political liberalization.

Overall, despite a regular barrage of criticism by Candidate Obama directed at President Bush for his supposed neglect of Asia (never a fair criticism), the Obama team has not wowed the region with new ideas or lavished it with attention. During Bush's first year, his administration had offered the largest arms package ever to Taiwan, was well on its way to substantially upgrading ties with Japan, and was negotiating a diplomatic breakthrough with India of historical significance. Then-U.S. Trade Representative Bob Zoellick was negotiating free trade agreements with Singapore, Australia, and Korea.

The criticism of the Bush administration was that it was "distracted" by the war on terror. The Obama team is learning that fighting a war saps a nation's energy and attention. Now in office, the Obama team can see that the threat from Islamic extremism is very real. The Obama team may have really believed that they could "fix" Afghanistan, disengage from Iraq, and then move on to "re-engaging" the rest of the world.

As Obama is learning, it is not so easy to "move on" when you are at war. No president can disconnect a major foreign policy issue such as war from other foreign policy issues. Asians have a stake in America's Afghanistan policy. A loss in Afghanistan would have stark consequences, as friend and foe alike would question our resolve, and Islamic extremism would rear its head again in Southeast Asia.

Prediction?

Obama's Asia team must be finding that during wartime, presidential attention is the scarcest of commodities. Obama has no choice but to focus on "the wars we are in," often at the expense of the Obama team's hopes for a grand "re-engagement" with Asia.

Win McNamee/Getty Images

By Phil Levy

Barack Obama has inspired many people around the world, the Norwegian Nobel Peace Prize Committee members clearly high among them. The president has spoken of the need for common understanding and expressed dismay that there are nuclear weapons. This clearly struck a chord with the committee. 

Did President Obama deserve the prize? It depends what you think the prize is for. If it is to recognize a record of accomplishment, then he does not. He has achieved very little so far. He may yet do great things; it's not really fair to expect that he would have done so in his first nine months in office. 

If, instead, the prize is meant as an endorsement of an ideal, then it's easier to understand. President Obama has painted a vision of America's role in the world that has great appeal to many.

There is certain to be controversy because people confuse their Norwegians and their Swedes and they will confuse an aspirational Peace Prize (Norway) with the recognition of great accomplishment embodied by the prizes in chemistry, physics, economics, or medicine (Sweden). It will also provoke controversy because it appears to be a statement about American political choices. Most nations are touchy about having foreigners weigh in on their domestic debates.

The danger with a symbolic choice is that we are at a stage where aspiration is hitting up hard against reality. Will the president send more troops to Afghanistan? Will anything happen with Middle East peace? Will we have a trade war? Will the United States have anything to offer at the Copenhagen climate talks? Although the Norwegians may be very enthused now about the president's speeches, it will be interesting to see whether they are equally enthused in the future about his performance.

I will leave it to my fellow Shadow Government contributors to opine on the merits of a U.N.-based approach to global governance and the prospects for worldwide disarmament. In my arena of international economics, there has has been a sharp disconnect between the president's rhetoric about multilateral understanding and his unilateralist approach to trade and fiscal policy.

By Phil Levy

We know President Obama is proud of his proposal to reform the nation's health care system; he spoke of it before a joint session of Congress last Wednesday evening. Judging by the timing, he was distinctly less proud of his decision to slap three years of hefty tariffs on low-cost tires imported from China. That announcement came at 9:45 pm on Friday. The decision was due this week, but the move smells of rank protectionism, and there was no better opportunity to bury the story than last Friday night.

It made for an awkward sendoff for Wu Bangguo, Chairman of China's legislature, who had just been visiting Washington. It did not escape notice back in Beijing, either. The Chinese had been sending warnings about how seriously they took this case for months. A Chinese Ministry of Commerce official was quoted on Saturday as saying that China "strongly opposes the serious act of trade protectionism," and that the tariffs mark a breach of U.S. pledges made at the April G20 summit in London to avoid raising trade barriers. Fortunately, there is no indication that the spokesman actually uttered the phrase, "You lie!"

Nor has any Chinese official been heard to say: "Don't worry. We understand. It's just economics." Obama has long seemed to draw a distinction between a warm, multilateral approach to international diplomacy, and a cautious or even hostile approach to international economic relations. For many countries, however, international economic relations are so important to their well-being that they are inseparable from those countries' foreign policy concerns.

Increasing tensions with China have also featured some classic international relations misunderstandings, such as misattribution of intent. The Chinese were already upset about a U.S. countervailing duty decision last week that imposed new barriers against Chinese steel pipe. The pipe and tire decisions seemed to constitute a trend of protectionist U.S. actions. In fact, the two decisions are very different. Obama had full discretion over the tire tariffs and none over the pipe decision.

But the Chinese were not the only ones to be confused. In the wake of the tires decision, United Steel Workers President Leo Gerard exalted, "The President sent the message that we expect others to live by the rules, just as we do." U.S. Trade Representative Ron Kirk certainly encouraged this interpretation, by linking the decision to the Obama administration's campaign for enhanced enforcement of trade laws. In fact, the tires decision had nothing to do with malfeasance on China's part.

To clarify, there are a number of ways the United States might slap tariffs on a country. Congress could pass a tariff bill, in the tradition of the Smoot-Hawley Act of 1930, but that's very rare. It's much more common to use mechanisms that are permitted under world trade law. Two of these, the antidumping (AD) and countervailing duty (CVD) mechanisms, address transgressions by trading partners. The steel pipe decision was an interim step in a CVD (anti-subsidy) case. Congress allows the president no role in these cases. Even if Obama had thought the steel pipe decision was ludicrous, there was nothing he could have done about it. 

In contrast, Friday night's tire decision was the culmination of a "safeguard" case. Safeguards allow the president to respond when a U.S. industry has been injured by a surge in imports. The ITC can recommend a remedy, but the president is free to accept, modify, or reject that recommendation. In the tires case, Obama imposed lower tariffs than the ITC called for. The China-specific safeguard he relied upon was agreed as part of China's entry into the WTO in 2001.

President George W. Bush had four opportunities to impose such tariffs on Chinese goods and turned down all four. Critics decried these decisions as selling out U.S. workers, appeasing China, and demonstrating a slavish adherence to free-trade ideology. I played a very small role in two of those four decisions and remember the reasoning somewhat differently. The only beneficiaries of tariffs in those cases would have been Vietnamese, Brazilians, or Indians.

Here's the problem. The China safeguard is a bilateral policy in a multilateral world. The Chinese are often the lowest-cost suppliers of a good, but they're not the only suppliers. In the Bush cases, importers testified credibly that if Chinese imports were blocked, other countries would undersell U.S. manufacturers in these particular products.

The tire situation appears to be similar. U.S. tire producers did not even support the case; they said they were more interested in producing high-end tires. The petition was filed by the United Steel Workers. If U.S. tire producers are uninterested, then there is little prospect of gains for American workers. The tires will just be sourced from other countries at somewhat higher cost.

So where does this all leave us? New American jobs appear unlikely. Prices should rise a bit for U.S. consumers. Some lucky third country will gain new American orders, redirected away from China. And there is real concern that other countries will follow the U.S. lead. China is exploring ways to block U.S. cars and poultry. Later this month, Pittsburgh G20 discussions of how to pursue open markets together should be particularly awkward. But at least Obama retains the support of organized labor.

By Phil Levy

The Obama Administration last week launched a new World Trade Organization case against China. The United States complained that China has limited exports of industrial materials like bauxite and coke. These limits drive down prices for Chinese producers and raise prices for foreign users. The effect is to subsidize Chinese firms at the expense of foreign firms. We are officially shocked -- shocked! -- that any nation would do such a thing.

This case raises questions of both legal and economic principle. The legal question of whether China's specific measures contravene WTO agreements is best left to the lawyers. The economic question is whether such subsidies are just. U.S. Trade Representative Ron Kirk argued emphatically last week that they were not. He said the policies created "unfair preferences" and "skew the playing field against American workers and businesses." The answer? "Now, more than ever, we must fight against this kind of domestic favoritism," Kirk said.

To be sure, there are commendable aspects of last week's WTO complaint against China. From an economic standpoint, the Chinese measures do constitute a subsidy, and if the United States is to attack them, it is best to do so at the WTO. What's more, it is nothing new for the United States to object to foreign subsidies. The United States is still pursuing a WTO case against Europe for its financial backing of Airbus. In that case, the United States argues that Europe's provision of funds for aircraft design, retooling of manufacturing sites, and debt forgiveness all gave the European aircraft consortium an unfair advantage over its American rival, Boeing.

These cases show that the United States is opposed to other countries distorting markets in favor of their own domestic producers. And yet, consider three headlines of recent months:

1. The Obama administration has provided tens of billions of dollars in support for Chrysler and General Motors. This money, which no private investor would provide, is intended to finance the companies' emergence from bankruptcy and allow them to create new automobile designs. Further, the U.S. Department of Energy last week began to disburse $25 billion in low-interest loans to let domestic auto factories retool their manufacturing sites to produce more environmentally friendly cars. There certainly seem to be conceptual parallels to the Airbus complaint.

2. President Obama signed into law the "Buy America" provisions of the stimulus bill, which are intended to direct business toward domestic producers of goods like steel. After an outcry over an early draft, these provisions were scaled back so they would only hit countries like China, which is not a signatory to WTO government procurement rules. In practice, though, uncertainties over implementation rules have meant that trading partners like Canada and the UK have been hurt as well. This is clear domestic favoritism.

3. The president strongly embraced legislation limiting carbon dioxide emissions, the Waxman-Markey "cap and trade" bill, that passed the House on Friday. Among other things, that legislation aims to raise the domestic price of emissions, but it distributes significant batches of permits free of charge to favored industries. The effect is to subsidize the producers.

Each of these three measures has been contentious; taken together they present a very murky picture of the U.S. stance on subsidies. But who really needs consistency, anyway? There are all kinds of intricate rules at the WTO, and we have good lawyers. Why not just throw everything at dispute settlement panels and see what we can get away with?

There are a couple reasons why not. First, the WTO is not well-equipped to fill in the blanks on contentious and complicated issues like a government's power to subsidize. Those questions are best resolved through negotiation, not litigation. Second, in order to flourish, the global trading system must be perceived as fair. This is unlikely if its principal member is simultaneously subsidizing its own industries while attacking other countries' efforts to do the same. The United States needs to provide principled leadership -- and practice what it preaches.  

Ambassador Kirk is absolutely correct that we should reject arguments for domestic favoritism. But he may also want to raise that point at the next Cabinet meeting. 

By Phil Levy

This week, President Obama hosted South Korean President Lee Myung-Bak at the White House. The meeting was cordial, of course, and the countries vowed their mutual allegiance, of course. But everyone had to tiptoe around the elephant in the room: the Korea-U.S. Free Trade Agreement.

Back in 2005, the United States and Korea had a series of discussions on how to improve trade relations between the two countries. Then, in February 2006, the two sides launched negotiations for a free trade agreement. The KORUS FTA was signed on June 30, 2007. This was right in the wake of a May 2007 agreement on trade between the Bush administration and Congressional leaders which the Bush administration had thought would pave the way for Congressional votes on all four pending trade agreements (Peru, Colombia, Panama, and South Korea).

Under the KORUS FTA, the United States would gain new access to the Korean market in consumer and industrial goods, agriculture, and services. The agreement is predicted to raise U.S. output by $10 billion to $12 billion annually, and increase U.S. exports to Korea by about $10 billion.

The Koreans did their part: The government opened its market to some U.S. beef exports, a politically difficult and highly divisive move that brought over a million protesters into the streets of Seoul and threatened to bring down the Korean cabinet. The United States did... nothing. We left the Koreans standing at the altar. Democrats in Congress, including then-Senator Obama, opposed the agreement. Perhaps the most significant reason given for opposition was that the Korean government meddled too much in its auto sector.

Seriously.

Actually, Korea had agreed to cut its tariffs on autos and to take some measures to address its non-tariff auto trade barriers; however, opponents contended that those measures would not go far enough. This criticism, of course, predated the Obama administration's decision to take over much of the U.S. auto sector and erect its own non-tariff trade barriers.

One experienced Washington trade lawyer this week noted the enormous missed opportunity for a silver lining with the recent auto bailout. As the Obama administration poured tens of billions of dollars into the auto industry and handed large ownership chunks of Chrysler and GM to the United Auto Workers, it could have asked the auto industry and the UAW to drop their opposition to the KORUS FTA in exchange. It didn't.

The U.S. bungling of the KORUS FTA matters not just because of the foregone economic benefits mentioned above. U.S. behavior sends signals about our reliability as an ally, both in economic matters and beyond. The U.S. Congress had authorized the Bush administration to negotiate the agreement. The Koreans had made politically painful public concessions on the understanding that they had reached the moment of truth and that the concessions would lead to a vote on the agreement. Instead, the vote was scuttled and the Koreans faced Congressional demands to negotiate some more.

What should trade negotiators around the world conclude? All negotiators like to postpone the most difficult concessions until the last moment, but how can they know when that moment has arrived with the United States? Does the U.S. Trade Representative really represent the United States, or should partners be talking with the chairman of the House Ways and Means Trade Subcommittee instead?

And what of the U.S. role in Asia? The United States has long sought to portray itself as dependable and indispensable in the region. The U.S. image has mattered even more of late as regional political structures have become rather fluid. China has promoted an East Asian Summit that excludes the United States as an alternative to groupings like APEC. The United States hardly looks dependable when it snubs one of its closest allies in the region. What's more, how confident can we now be that Asian countries will draw a sharp distinction between our unreliability on trade and our reliability in providing a security umbrella? This is all the more important considering that the latest South Korean visit to Washington came against the backdrop of further threatening behavior by the North.

So this week, when the Koreans came to town, Commerce Secretary Gary Locke and his Korean counterpart agreed to hold discussions on how to improve trade relations between the two countries, as if it were 2005 all over again. President Obama said the United States was committed to a "sustained strategic partnership" with the Republic of Korea. Apparently this all holds just so long as that commitment doesn't require any awkward free-trade votes in the House of Representatives. The President isn't willing to cross the KORUS line. And that's the elephant in the room.

By Phil Levy

For the second time in a week, the Obama administration has discarded a major campaign pledge on international economic policy. In its decision last week not to name China a currency manipulator, and now to forswear renegotiation of NAFTA, the administration avoided two potentially costly mistakes. In the short run, this is cause for rejoicing. In the long run, this approach may portend trouble.

There is no doubt about the original pledges. In the case of China, President Obama had been so clear as a candidate that his nominee for treasury secretary had no choice at his January confirmation hearings but to repeat the boss's view that China was manipulating its currency.

In the case of NAFTA, Obama said in a primary debate: "I will make sure that we renegotiate... I think we should use the hammer of a potential opt-out as leverage..." He differentiated himself from his current secretary of state by arguing that he had been a consistent opponent of NAFTA while she had occasionally seemed to favor the agreement.

These vows were not trivial. Key battleground states such as Indiana, Michigan, Ohio, and Pennsylvania had suffered substantial manufacturing job losses. Rightly or wrongly, groups of voters there blamed those losses on trade with China and agreements like NAFTA. They were deeply unsatisfied with the Bush administration's trade policy, which stopped just short of labeling China as a manipulator, and which argued that NAFTA could be improved upon, but that the agreement should not be reopened.

Obama spoke of China's perfidious practices. He spoke of how NAFTA cost a million jobs. He promised change. And now, with no new facts to justify the switch, Obama has adopted the very positions he attacked.

Does this matter? The election is long past. Perhaps it is just naïve to think that politicians will keep their word. This is hardly the idealism that Obama ran on.

But would we really rather he stick with bad positions just for consistency's sake? Had the Obama administration fingered China as a currency manipulator, it would have done nothing to accelerate China's currency adjustment but would have greatly annoyed the Chinese and invited retaliation. Had the administration followed through on its commitment to renegotiate NAFTA, it would have soured relations with our two closest neighbors, with no evidence that the desired change (incorporating labor and environmental commitments into the body of the agreement) would have any real benefit. 

Put differently, though, the answer may seem less obvious: Does it matter whether a leader persuades the public of a policy's merits? Is it a viable approach to convince the citizenry that a policy is bad, and then to pursue that very policy? It will depend on the extent to which a president can act autonomously, without relying upon either firmly-rooted public support or the support of institutions that are more sensitive to public opinion, like Congress. 

Even a purely pragmatic politician would have at least one good reason for honoring commitments: credibility is valuable. There will be times when he must woo legislators with promises. There will be occasions when foreign leaders have to decide whether the politician means what he says. It helps if they consider his word to be his bond.

So long as a majority of the public embraces Obama and holds that he can do no wrong, there will be little domestic price to pay for his reversals, and he will enjoy the benefits of pursuing policies more sensible than those he campaigned on. How will we know when trouble looms? Perhaps when members of the president's own party begin to introduce legislation aimed at reversing his decisions. Or when other countries fail to take the president's concerns seriously. Or when the president's fans lose faith in his infallibility.

Once squandered, credibility can be hard to regain.