Shadow Government

Obama tires of free trade

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.

Shadow Government

Where's Obama's resolve on Afghanistan?

By Peter Feaver

The eyes, mouths, and digits of the punditocracy are understandably focused on the fate of Obamacare. Over here in Shadow Government, we serve the country best by focusing on most everything else.

In that spirit, I was struck by Jane Harman's op-ed, "It's the Corruption, Stupid," in today's Washington Times. Congresswoman Harman is a moderate Democrat on foreign policy and fairly hawkish on national security questions (full disclosure: she is also a friend and fellow Aspen Strategy Group member). She was part of a group of Democrats that the Bush administration considered to be critics especially worth consulting. They were sharply critical of our Iraq, Afghanistan, GWOT, or what-have-you policy, but having enough expertise to be able to offer constructive suggections and sharing enough common ground with us to be willing to do so.  

Bottom line: if you were going to build a bulwark within the Democratic House in support of General McChrystal's request for a ramped up military effort, you would probably begin with Congresswoman Harman.

She may still be part of that bulwark, but I interpret her op-ed as signaling something very different, something very ominous for the Obama Administration. Her argument is that neither increasing nor decreasing coalition troops in Afghanistan makes sense until we have fixed the endemic problem of government corruption. In case you miss the implication, the Washington Times editors spell it out with their subtitle: "Raising U.S. Troop Levels is the Wrong Move." That subtitle might be slightly misleading since, as I read the op-ed, Harman caveats that recommendation with a proviso: "unless or until you fix corruption in Afghanistan."

However, fixing corruption in Afghanistan is the work of a generation, if not more. Indeed, one could argue that you cannot fix corruption in Afghanistan until you have fixed every other problem including ending the drug trade, raising literacy and health standards, ending the influence of tribes, etc., etc. There are vast armies of well-paid bureaucrats in the World Bank and elsewhere who have cushy life-time employment working on corruption issues in societies with far rosier horizons than Afghanistan.

The stipulation that we can not and must not raise troop levels in Afghanistan until we have fixed corruption is tantamount to a stipulation that we can not and must not raise troop levels in Afghanistan, ever. Indeed, that does seem to be Harman's basic argument because she goes on to note, correctly, that once the corruption problem is fixed then it is likely that the Afghan government itself can provide all the additional forces they might need.

That is a principled position, of course, but it is not the one you want in the floor leader defending an urgent Obama administration request for more troops now.  

As I understand it, the recommendation coming from Generals Petraeus and McChrystal involve increased troop levels concurrent with increased efforts aimed at corruption and all the other Afghan problems. Congresswoman Harman appears to be giving that recommendation a clear thumbs-down.

If I am right about this, then President Obama's political problem on Afghanistan is much more thorny than I thought even a few weeks ago.

One final point: in the last couple weeks I have had numerous conversations with journalists all writing some variant of the "Obama administration and national security in wartime" story. I have asked each of them the same question: "Based on your reporting and access to the White House, what do you think is President Obama's gut-level resolve on Afghanistan?" The answer I have gotten back from every one of them, including journalists who are famous for their favorable coverage of Obama, is "I have no idea." That, I believe, may turn out to be one of the most consequential differences between this Commander-in-Chief and his predecessor.

How the administration responds to the signals sent by Congresswoman Harman and others will help clarify this question.