Colombian President Juan Manuel Santos met today with President Obama at the White House to end an impasse blocking adoption of a trade agreement first concluded in November of 2006. The Colombian government has agreed to rewrite parts of their labor law to U.S. specifications.

The resolution came after mounting calls for movement from Capitol Hill. House Republicans had been particularly vocal about the need to advance the pending Colombia and Panama agreements alongside the South Korean accord after years of delay. Of late, though, the calls had grown bipartisan. On Monday, Senate Finance Committee Chairman Max Baucus (D-MT) and Senate Foreign Relations Committee Chairman John Kerry (D-MA) published a joint op-ed in the Wall Street Journal describing the Colombia pact as an important spur to employment:

Each day we fail to act costs American jobs and sales-and sends them elsewhere.

So, 1,091 days after the Bush administration submitted the Colombia FTA to Congress, the Obama administration has found a path to move forward. The plaudits for this move have been rolling in since it was announced yesterday. Not only does the Colombia FTA offer its own array of benefits, but the move has the potential to unblock U.S. trade policy more broadly. To lever the administration into action on the pending FTAs, Republicans had linked the passage of the Korean FTA, renewal of trade adjustment assistance programs, trade preference programs, and even confirmation of a new commerce secretary. It is not clear that all of the timing issues have been worked out between House Republicans and the White House, but the agreement with Colombia significantly enhances prospects for movement on a trade agenda this summer.

Lest there be excessive rejoicing, though, it is worth keeping in mind that passage of the three agreements would partially complete the trade agenda of 2007, and there was a cost to the dithering. The pending FTAs offered benefits in two important dimensions: access to the markets for American exporters and stronger diplomatic ties. On the economic front, this access was originally set to grant American businesses and farmers preferential access to the Korean and Colombian markets, ahead of global competitors. Now, there is a scramble just to keep U.S. exporters on an even footing. While the agreements were stymied by domestic political fights in the United States, our partner countries reached other agreements to open their markets to the world. A prime motivation for the mid-summer deadline on passing the Korea-U.S. FTA is the looming passage into force of Korea's FTA with the European Union.

On the diplomatic front, the FTAs were meant to send a signal of friendship and allegiance. While the partner countries certainly welcome passage now, that signal has been somewhat diminished by years of slapping them around through public criticism.

There is a pending, post-2007 trade agenda out there. The eternal but deeply-troubled global trade talks (the Doha Round) are in desperate need of American leadership. The WTO's director-general, Pascal Lamy, sounded the alarm to members last week:

Now is the time for all of you, and in particular those among you who bear the largest responsibility in the system, to reflect on the consequences of failure ... to think about the consequences of the non-Round to the multilateral trading system which we have so patiently built over the last 70 years. It is the time to think hard about multilateralism, which your leaders, yourselves and myself preach at every occasion. In politics, as in life, there is always a moment when intentions and reality face the test of truth. We are nearly there today.

Then there are the Bush-launched, Obama-embraced talks to expand the Trans-Pacific Partnership (TPP). A number of the participants in those talks are earnestly shooting for a conclusion this November, when the United States hosts the APEC meetings in Hawaii. This seems implausible, since the administration has not yet broached the question of trade negotiating authority for those talks with the Congress. And if labor and human rights issues with Colombia stirred controversy, wait until we start discussing Vietnam, a TPP participant.

The biggest question surrounding this week's breakthrough on the Colombia FTA is where it leaves relations between the White House and the American labor movement, which has been the most outspoken opponent of recent trade agreements. The administration made some inroads with labor through its reworking of the Korea-U.S. FTA at the end of last year. That won the support of the United Auto Workers, though that support did not extend beyond Korea. The AFL-CIO has remained opposed to all of the pending FTAs. Yesterday, it released a statement:

We are deeply disappointed that the Obama administration has signaled that it will move forward to submit the proposed U.S.-Colombia Trade Agreement to Congress for a vote in the near future ... on the basis of the information provided to us at this time, we remain strongly opposed to the Colombia trade agreement.

It remains to be seen whether this opposition will be vigorous or muted. The Obama administration will also need to decide whether, on trade issues, it has now cast its lot with a coalition of pro-trade Republicans and internationalist Democrats, or whether it has pushed its labor allies as far as it dares.

Those are questions for another day, though. Today, Presidents Obama and Santos had cause to celebrate.

WILL INBODEN

As the end of the year approaches, along with it comes the ritual end of year evaluations as well as New Year's resolutions. In that spirit, several Shadow Government contributors here offer our thoughts on the Obama administration's foreign policies -- specifically:

1. Advice for the administration in the new year,

2. Suggestions on what policies are working and should be continued, and

3. Suggestions on what policies aren't working and should be consigned to the archives.

Advice: Seize the initiative. This is not about a specific policy but an overall posture. Two years since President Obama's election, the question of an "Obama Doctrine" remains elusive, as the administration's national security policy has mostly been reactive, focused on managing current challenges and crises. This inbox by itself is a substantial challenge to be sure, and one which the administration is handling with varying degrees of success (e.g. decently well with Iran and North Korea, with mixed results with Afghanistan and Iraq, and less well with Pakistan and Israel/Palestinian issues). Missing thus far, however, has been an overarching strategic framework. Hence my advice that the White House seize the initiative for its next two years, and develop a strategic doctrine or at least proactively take advantage of creating some new foreign policy opportunities. Implications for seizing the initiative include:

• Don't acquiesce in predictions of U.S. decline. The world needs responsible global leadership, and there remains no better candidate than the United States.
• Establish principles, alliances, and institutions that will endure beyond this presidency.
• Take the long view. Ignore annual global popularity surveys, and instead ask a question that President Bush told us to consider while on his NSC staff: "What policies should I adopt now as president that my successor's successor will look back on with gratitude?"

What might seizing the initiative look like in practice? For specific policy ideas, perhaps a new alliance of democracies in Asia, or a new global free trade initiative, or reinvigorated transatlantic partnerships, or a new strategic outreach in a neglected region such as Latin America or Africa (including an American partnership with the likely new state in southern Sudan, as Andrew Natsios has suggested), or establishing a robust strategic framework for winning the war of ideas against jihadist ideology.

Continue: Rediscovery of the freedom agenda. After its initial woeful neglect of democracy and human rights promotion, earlier this year the Obama administration rediscovered -- rhetorically at least -- the importance of supporting freedom around the world. The White House should build on this, particularly with specific policies and with new resources. As events in just the past few weeks have shown, in places like Belarus, Cote d'Ivoire, Egypt, and China, the demands of citizens for their liberty remain embattled and in need of America support.

Drop: The "reset" with Russia. Now that New START has passed the Senate, and thus completes the centerpiece of the administration's "reset" policy, it is time for a new, realistic look at Russia -- which necessarily means a delete of the reset framework. The original reset framework assumed that U.S.-Russia relations could be put on a sustained positive trajectory based on shared interests and reciprocal good will. But as Bob Kagan wrote earlier this week, "relations with Moscow are about to grow more challenging," as serious issues including Russia's ongoing occupation of Georgia, growing corruption and internal repression, and cynical ambivalence on Iran remain. Defense Secretary Robert Gates's reported description of Russia got it right: "An oligarchy run by the security services." Taking a fresh look at the United States' Russia policy should include strengthening U.S. support for beleaguered Russian reformers, reaffirming U.S. commitments to our allies and partners in Russia's border regions, and jettisoning unrealistic assumptions about shared interests. Ironically, such a reduction in expectations might well enable better cooperation in the areas where our interests do align.

PETER FEAVER

Advice: Be as committed to seeing Iraq and Afghanistan through to success as the President was in pursuing health care "reform." President Obama secured his place in history with the passage of Obamacare. Whether it comes to be seen as a positive legacy like Social Security, or as an overreach and folly like Prohibition, it will always be seen as historic and as the president's own. This was a policy war of choice, not of necessity. There were needful aspects of health care reform, but most of them fell out of the bill or got swamped by far more expensive and consequential optional items. Elections have consequences, and in this case it empowered Obama to doggedly pursue what he considered to be the right thing -- and he showed he was willing to pay a huge electoral price, if necessary.

It is time for him to engage in a policy war of necessity, building a political coalition in support of prevailing in Iraq and Afghanistan. His policy moves in the next two years will likely prove decisive in determining whether U.S. forces leave in success or defeat. Until now, President Obama has not made war leadership a central priority of his administration, and he has devoted very little effort at all to the crucial task of mobilizing political/public support. It is time, past time, to devote the political capital to this effort.

Continue: President Obama and his team proved quite adept in passing New START. To be sure the treaty itself was only of secondary importance for national security. Indeed, the side deals on force modernization and missile defense wrung out of the administration by skeptical senators will likely prove far more consequential in the long run than the modest treaty provisions. Yet the orchestration of lobbying, arm-twisting, bipartisan outreaching, principled deal-making, and even somewhat hyperbolic policy-shilling -- all of that amounted to an impressive effort culminating in what surely is the administration's greatest national security accomplishment to date. If the administration devotes a similar effort to forging bipartisan support for the various wars under its command (see point above), it will be an even more impressive national security accomplishment.

Drop: The silly campaign boasting that "America is back" in Asia. The boast was always a bit absurd but it quickly became an embarrassment when President Obama and Secretary of State Hillary Clinton had to skip regional meetings and postpone long-planned trips to attend to domestic political priorities. The boast also reflected a needless defensiveness on the administration's part. The United States has pursued a common bipartisan grand strategy in Asia for over a decade now, with President George W. Bush building on President Bill Clinton's initial efforts regarding China, India, and Japan, and now President Obama building on Bush's initiatives. Rather than pretend to be offering a bold departure, why not make a virtue out of the truth and note that there are some areas where mainstream Democrats and mainstream Republicans can agree, and one of them is Asia? Both sides recognize that the United States is an Asia-Pacific power and the world will be a better place if the United States remains vitally engaged in this region. No need to pretend that the United States ever left, because it didn't and it won't.

PHIL LEVY

Advice: From a trade perspective, it is remarkable to think how little has been accomplished in the first two years of the Obama presidency. When he took office, President Obama inherited an agenda that included stalled global trade talks (the Doha round of World Trade Organization negotiations), three already-negotiated free trade agreements (South Korea, Colombia, and Panama), and a troubled trade relationship with China. Across all of these items, the only achievement approaching progress was the revision to the Korean free trade agreement, and that came at the very end of 2010. The revision left Ford and the United Auto Workers happier, but came at the expense of other sectors, such as pork producers.

Better late than never, but there were costs to the lost time. Free trade agreements that promised U.S. producers at least a period of privileged access to a trading partner's market are now just offering the prospect of equal access, since our jilted partners went and negotiated agreements with other countries while the United States dallied. Frustration was already high with the lagging global trade talks; it has since mounted. What's more, the repeated empty promises of the G-20 nations to conclude the Doha round undermined that group's credibility.

The ineffectiveness of the G-20 was also revealed in the sad Seoul summit, in which China and Germany objected to any global rebalancing plan that pushed past platitudes. The Obama administration -- Treasury Secretary Timothy Geithner in particular -- deserves credit for putting forth a credible approach; it just didn't seem to gain traction. As with trade liberalization, the administration might have been more credible had it led by example. In trade, it called for a new WTO agreement while condoning "Buy America" protectionism and showing that it would not spend the political capital to push through existing agreements. In international finance, it called for global rebalancing while dramatically increasing spending, creating a significant new entitlement program through its health care plans, and relegating any plans for fiscal restraint to a separate deficit commission (as opposed to using its own Office of Management and Budget).

So what happens when you defer serious action on the international economic front for a couple of years? Institutions (in this case the WTO) deteriorate, problems (resurgent global imbalances) fester and grow, and resolutions to address these issues soon may be undercut by new crises that demand attention.

Looking ahead to the rest of Obama's term, my top candidate for major distracting crisis to come is the bubbling debt trouble in Europe. The leaders of the Euro nations have been working furiously to address problems as they pop up in Greece, then Ireland, then Portugal, with Spain and Belgium starting to simmer. But all of their remedies have done little more than buy time and, in some cases, allow the problems to grow. There are fundamental inconsistencies ripping the euro apart. When that happens, it will not simply be a matter of having to deal with currency exchange at the borders; it will likely involve a significant banking crisis. Those, it turns out, can be nasty.

Read on

The president's Asia trip is getting mixed reviews, wildly mixed reviews.

Team Obama thought the trip was a huge success. Tom Donilon, the new National Security Advisor, in a fit of extraordinary (jet-lagged?) exuberance told reporters in Yokohama: "I think when historians look back on the trip to India and Indonesia. It will be one of those seminal moments, one of those iconic moments in the relationship between countries when historians look back on it."

Outside observers were less charitable. Some dismissed it as "a trip about nothing." Even charter members of the Obama choir fretted about the optics of the President scurrying out of town so soon after the electoral "shellacking."

The truth is somewhere in the middle. The president made some modest headway, with a solid but not stellar visit to India and a fine visit to Indonesia. It was hardly "iconic," but the visit to Indonesia may have been "seminal." The Obama administration believes they have a real opportunity in Indonesia thanks to the president's personal connection to the country. If they were able to build the foundation of a strategic partnership with Indonesia as Presidents Clinton and Bush were able to do with India, that would indeed be an accomplishment. But they have a long way to go and they clearly had no significant deliverables for this visit.

The rest of the trip went considerably less well. I was inclined to give Team Obama a pass over the failure to close the deal on the Korea-US Free Trade Agreement (KORUS) because I remember how frustrating the Bush Team found negotiating with our allies in Seoul could be. Then I read Phil Levy's blistering analysis and had second thoughts. He makes a convincing case that this was diplomatic malpractice, from the arrogant dismissal of the deal they inherited, to the boastful claim that the deal would be struck on this trip, to the endgame when the staff sent President Obama out to face the cameras with nothing to show for two years of haggling.

Levy leaves unasked the obvious follow-up question that most interests me about this episode: How could the staff leave the president exposed on this fiasco? There may have been errors at the middle-staff level, but my own read is that the point people who owned the issue -- Treasury Under Secretary Lael Brainard and Deputy National Security Advisor for International Economic Affairs (and economic summit "sherpa") Michael Froman -- were not to blame. In fact, were they to blame that would surprise me because they are some of the strongest players on Obama's team. On an issue such as this one, the hardest deals to cut are the ones within one's own team, in particular the deals between the foreign policy and the domestic politics folks. There are only a handful of people who have the heft to force such deals: a strong National Security Advisor, a strong National Economic Council Director, a bold senior political advisor, and the chief of staff, in other words Tom Donilon, Larry Summers, David Axelrod, and Pete Rouse. If those four were not able to forge a deal they could live with that the Koreans would accept -- and manifestly they were not -- then there is only one person who could have, President Obama himself.

Yes, the Koreans deserve some blame for driving such a hard bargain, but they were just exploiting the mistakes of the administration: the mistake of setting the deadline, which weakened our bargaining position; the mistake of not getting the deal done before Air Force One left Washington; and the mistake of not securing (or merely taking) more bargaining space from domestic coalitions. Once the jet lag wears off, I hope the Obama Team will sort this one out.

While U.S. voters were not particularly interested in foreign policy (certainly not Asia policy) during this election, Asia is always interested in U.S. voters. The economic growth of countries such as China and India, and the technological and innovative dynamism of much of the rest of Asia, are significantly impacting the structure of the U.S. economy. Newly elected Republicans have a chance to help the United States continue to benefit from Asia's growing prosperity.

Though the election was not about foreign policy, it is worth noting that former Vice President Dick Cheney's early 2009 critique of Obama's counter-terrorism policies first exposed the chinks in the administration's armor, demonstrating signs of life for a Republican Party declared dead and providing moral support to others in his party who soon voiced their own powerful critiques. Still, this election was about economics and the size and structure of government, not foreign policy. So, I am about to practice economics and politics without a license.

While voters still do not seem to trust the GOP, the party can regain their trust by reclaiming the mantle of economic leadership. Newly-elected Republicans can insist upon free market, pro-free trade policies that can push the president to create a friendlier climate for foreign investment in the United States as well as to ratify a free trade deal with South Korea and pry open other Asian markets for U.S. investment and exports.

By committing to fiscal responsibility, Republicans can provide a more credible case for the global rebalancing that economists agree needs to happen. A collective economic rebalancing, rather than a trade war or legislating punitive tariffs, is the answer to our current economic troubles with China. And a broader commitment to U.S. leadership in trade liberalization throughout Asia will contribute to setting the United States back on the road to economic growth and low unemployment.

But the United States is on the horns of a dilemma in Asia, one that new Republican leaders must resolve. Our huge debt and uncertain fiscal position calls into question our ability to sustain a robust diplomatic and military presence in the region; if fiscal austerity includes cuts to the defense budget, Asians will continue to conclude that we are not going to be present in Asia for the long haul. In the context of Asia policy, then, the key challenge for Republican leaders both in Congress and aspiring to the presidency is to strike the right balance between pursuing long-term measures to restore fiscal health without making short-term cuts on defense spending that create deep regional unease.

The first chance for Republicans to reconcile long and short term goals with respect to Asia is during Obama's trip to the region. They should pledge to work with him if he agrees to ratify the FTA with Korea, hold his feet to the fire if he panders to special interests on the issue of outsourcing to India (or what I like to call trading based on comparative advantage), and pledge to support him if he commits to keeping our alliances strong by making the military investments we need to keep the region stable.

Within a week of suffering the biggest midterm drubbing in generations, President Barack Obama will depart on a trip to India, Indonesia, Japan and Korea. How the president handles this trip will speak volumes about how he sees his agenda for the next two years and how much of an international president he really is.

The first test will be whether he takes the trip at all. Democratic Party strategists and other influential pundits have already begun questioning why he would go abroad and let Republicans seize the narrative at the most crucial point in his presidency. On CNN, former advisor to President Bill Clinton, David Gergen, warned the White House against making the same mistake Clinton made when he went abroad in the wake of Republican midterm victories in November 1994. Will they cancel? The president has already put off previously scheduled trips to India and Indonesia because of domestic political developments. On the other hand, the White House likes to claim this is the first "Pacific president," because Obama grew up in Indonesia and Hawaii (though other presidents like William Howard Taft and John F. Kennedy had plenty of experience in the Pacific as well, of course), and that the United States is "back" in Asia (though commentators across the region are asking when the United States ever left). All of this spin -- the first "Pacific president" and the "we're back in Asia" mantra -- would go flying out the window if the president cancelled his trip. Clinton was right not to cancel his international travel in 1994 -- it would have made the presidency appear even weaker. That would have been disastrous politics and worse geostrategy. So odds are pretty good that the president will go on the trip (fingers crossed).

The next test will be how the president handles ten days of hounding from the press about electoral defeats while he is in Asia. And the press will hound -- no doubt about it. Maybe if North Korea fires artillery across the DMZ during the G-20 summit in Seoul or China attacks the Senkaku Islands while the president is in Japan, the press corps might be distracted from domestic U.S. politics to focus briefly on international events. Or maybe the president will dig deep into his oratorical tool box to help shift the media's focus to U.S. interests in Asia -- the continent projected to contribute 60 percent of global GDP in our lifetime. He will have real occasion to look presidential again if he avoids the trivia of fact sheets and joint statements and presents a vision for international U.S. leadership. The visit to Indonesia -- the world's largest Muslim nation and one that proves Islam and democracy coexist-- could be a moment for articulating a real message about the compatibility of democratic values and Muslim faith. The Asia Pacific Economic Cooperation (APEC) summit in Yokohama would be the place to remind Americans that over 50 percent of our trade is with this dynamic region, and that the United States can and must compete. The stops in India, Japan and Korea would be the right settings for explaining why investing in our strategic partnerships and alliances will pay dividends in terms of tackling the challenges we face internationally. The president must not re-fight the midterm, appear defensive, or make the narrative about himself (the last of these being the default narrative of the White House on foreign trips thus far). He must ignore what John McCain would call the "ground noise" and talk about the United States and Asia. The press might just listen. The region certainly will.

The third test will be on trade. If there is one area where the White House should be able to work with a more Republican Congress, it is on trade. And if there is one policy area Asia is watching to see if Washington is committed, it's trade. The president has said that he wants the United States-Korea Free Trade Agreement (KORUS) ready to present to Congress (again) by the end of the year, but the administration has done no heavy lifting to get to that point (all the action has been aimed at pressing the Koreans to make further compromises). Fair enough -- there were elections coming up, and it may have been unrealistic to expect a Democratic White House to take on its labor union base when turnout was so critical to their electoral strategy. This trip is the time to demonstrate not only the hope that KORUS will be introduced this year, but the intention to do so in partnership with Republicans willing to work for its passage. It would set a tone that Asia would welcome and that Americans desiring more bipartisanship in Washington would be thankful for.

The president's Asia trip should not be seen by the White House as an unfortunate distraction, but instead as a real test of presidential leadership -- one that will help the president and the country if he approaches it the right way.

What was the administration trying to achieve by sending Larry Summers to Beijing? What message was it trying to convey? And was the intended audience American or Chinese?

Taken at face value, Dr. Summers, as head of the National Economic Council, was there to deliver a message about American economic concerns. Foremost among these has been the stubborn stasis in China's exchange rate against the dollar. If this was the real purpose of his trip, he achieved little; the Chinese did not even pretend to accommodate. According to the Wall Street Journal:

Chinese officials have consistently said that they won't change key economic policies because of foreign pressure, and argued that the exchange rate has little bearing on the U.S. trade imbalance with China. "Our exchange rate reform can't be pressed ahead under external pressure," Foreign Ministry spokeswoman Jiang Yu said at a regular press briefing Tuesday.

If Dr. Summers' mission was to describe mounting political pressure in Washington, it is not clear what he could have said that would have surprised his hosts. The Chinese have certainly already heard of Sen. Schumer (D-NY) and they have undoubtedly read the Ryan-Murphy bill in the House.

Read on

The signing by Taiwan and China of the Economic Cooperation Framework Agreement is a welcome development. The agreement cuts tariffs on 539 Taiwanese products bound for China and 267 Chinese products exported to Taiwan. The cuts on the Taiwan items are valued at $13.84 billion and those from China $2.86 billion.

Economically, Taiwan, the PRC, and the United States will all benefit. Politically, the agreement means a reduction in tension across the Strait, and it provides incentives for Chinese restraint (it is easy to forget that interdependence works both ways -- Taiwan may rely on China for final assembly and low-end manufacturing, but China is dependent upon Taiwan's investment and managerial know-how).

However, Washington should not be lulled into complacency -- the cross Strait problem has not disappeared. With over a thousand missiles pointed at it, Taiwan faces Chinese coercion every day: All of Taipei's negotiations, including those over the ECFA, are conducted with the equivalent of a gun pointed at its head. We should view the ECFA as only the first step in a series of measures that will strengthen Taiwan, stabilize the Strait, and liberalize trade in Asia.

Next up, we should sell Taiwan the additional F-16 aircraft it has requested, which it needs in order to counter China's daunting threat to the island's airspace. An F-16 sale would demonstrate America's abiding commitment to Taiwan's security and strengthen the hand of Taiwan's President Ma Ying-jeou as he continues to negotiate stability in the Strait. Would Beijing raise a stink? Of course. But it has no leg to stand on. Taiwan already has F-16s and simply needs more to replace the numerous aging aircraft in its fleet. Moreover, it is China that has decided to negotiate and threaten at the same time. In response, Taiwan needs to simultaneously negotiate and deter. Finally, the cost to Washington would be low: Beijing has already thrown its quarterly temper tantrum by cutting off bilateral military talks and prohibiting Secretary of Defense Robert Gates from visiting China.

Beyond arms sales, the United States can help Taiwan become the place to do business in Asia, a move that would benefit both Washington and Taipei. Taiwan has already liberalized its trading relationship with China, its high-end manufacturing and design capabilities are world class, and its businesses succeed in the China market where many others fail. Washington should negotiate a free trade agreement with Taiwan for three reasons. First, an FTA with Taiwan will provide  economic benefits to both sides. Second, now that Taiwan has liberalized trade with China, U.S. businesses can use Taiwan as a launching pad to succeed in the China market. Third, other Asian economies will only move forward with their own FTAs with Taiwan -- necessary for both Taiwan's security and its future prosperity -- if Washington provides political cover.

With some help from Washington, Taiwan could make itself into the region's business hub. If Taiwan becomes Asia's economic nerve center, its security will improve immeasurably.

Does China control the fate of the U.S. labor market? Fred Bergsten, the distinguished director of the Peterson Institute for International Economics, writes that persuading China to boost the value of its currency would be "by far the most cost-effective possible step to reduce the unemployment rate and help speed economic recovery" in the United States.

He claims that "such a trade correction would generate an additional 600,000 to 1.2 million jobs." In this claim he actually underbids competitors such as Paul Krugman (1.4 million jobs) of the New York Times and Rob Scott (2.4 million) of the Economic Policy Institute. Praiseworthy as Bergsten's moderation may be, how does one get a number like his?

Here is his chain of assumptions:

• China will revalue its currency significantly. Bergsten estimates that the renminbi is undervalued by about 40 percent against the U.S. dollar.
• Chinese revaluation will cut the U.S. trade deficit (i.e., increase exports relative to imports).
• Cutting the U.S. trade deficit will bring American jobs.

Every single link in this chain is weak. Let's take them in turn.

Weak link No. 1: While estimates may vary about how much China ought to revalue, there is less quibbling about how much China is likely to revalue. I agree with Gary Hufbauer, also of the Peterson Institute, who writes:

The period between July 2005 and July 2008, when China temporarily abandoned its peg to the U.S. dollar, suggests the maximum extent and pace the Chinese might allow the yuan to appreciate. During that period, the yuan increased 20.15 percent against the dollar; on a per month basis the average increase was 0.52 percent."

So the most likely outcome is a modest appreciation of the renminbi. But even if the United States could compel a 40 percent overnight appreciation, China would be left reeling from the magnitude of the economic shock. It would be unlikely to turn into a vibrant source of demand for Western goods.

Read on

This did not feel like President Obama's first State of the Union address. It was just four months ago that he stood before a joint session of Congress, calling for action on his top priority -- health  care reform. I was struck then that his speech was so devoid of specifics. It seemed a mistake.

I had the same reaction to his trade comments this evening. The president said:

"If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores."

He seemed on the verge of calling for Congress to pass pending accords with Colombia, Panama, and South Korea, which await only an up-down vote. Yet the president veered away into a non sequitur caveat: We must enforce our agreements! That's true, but it would seem that as the head of the executive branch, he could handle that.

He ended the trade section with only a vague call for improved relations. I wish instead he had closed with lines from later in the speech: "Do not walk away... Not when we are so close. Let us find a way to come together and finish the job .... "

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 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

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

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

It's still early to take the measure of Obama administration's trade policy. The new U.S. Trade Representative, Ron Kirk, has not even been in office a month. From his statements and those of President Obama during the campaign, though, we do know they intend to emphasize aggressive enforcement and fair trade. These emphases are intended to contrast with the approach of the Bush administration. But all of this begs a question: how do we know that trade is unfair now?

One way is to tally up objectionable actions by our trading partners. This is what USTR has just done with the National Trade Estimate. This list of barriers can then be pursued through complaints under existing trade agreements or through new agreements, depending on whether or not the actions are covered. But that's pretty much what the Bush administration did.

The other approach was clearly stated by Sen. Debbie Stabenow (D-MI) as part of a confirmation question to Ambassador Kirk:

Last year was the fourth consecutive year in which the U.S. trade deficit in goods exceeded $700 billion. That is an enormous sum.... The trade deficit has been in large part caused and exacerbated by the unfair tactics of our trading partners.... Are you committed to stronger and more effective enforcement of our laws against unfair trade to address the root causes of this imbalance?

Under this approach, trade imbalances are evidence of foul play on the part of our trading partners. To the credit of Ambassador Kirk and his staff, he cast doubt on this reasoning in one of his written answers:

The overall trade balance of the United States reflects important macroeconomic factors, such as relative rates of economic growth, fiscal and monetary policies, patterns of saving and investment, domestic price levels and exchange rates.

Now that Kirk is safely tucked into the Winder Building, we can say that this answer would have been embraced by economists in the Bush administration and in academia more generally. But large trade deficits have been central to demands for change in trade policy, and these two quotes set out very different visions of what drives them. One side argues that unfair trade barriers are the root cause, while the other points to macro variables.

To sort this out, a little background can help. The broadest measure of the trade balance, known as the current account, must exactly offset the balance of financial transactions (the capital account). If we send $100,000 abroad to buy a shipment of DVD players, there are only a couple things that can ultimately happen with that money. It can find its way back to buy U.S. goods, in which case exports and imports offset and there is no current account imbalance. Or it can be held abroad as cash, or turned into stocks, bonds, or a lovely assortment of mortgage-backed securities. These would all serve as IOUs and would show up on the capital account. In that case, there would be a current account deficit (the value of the DVDs) and an offsetting capital account surplus (the value of the mortgage-backed securities).

Since this is an accounting identity, it's pretty uncontroversial. The controversial part comes when we talk about cause and effect. We can tell two different stories. A "Stabenow Story" might go like this: other countries distort trade through subsidies and barriers. As a result, the United States runs up a large current account deficit and then needs to borrow money to finance that deficit by selling stocks, bonds, and the like.

Alternatively, a "Finance First Story" might go like this: broad macroeconomic variables like consumption, savings, government spending, and investment determine how much a country borrows or lends on world capital markets. Exchange rates adjust so that net borrowers run current account deficits while net lenders run current account surpluses. This would happen even in the complete absence of tariffs, quotas, or subsidies.

Which version we believe makes a big difference. If it's the Stabenow Story, then USTR has its work cut out attacking the deficit, even if it means souring relations with trade partners as we hit them with enforcement actions. If it's the Finance First Story, then it's not the job of Kirk to address the trade deficit, but rather that of Treasury Secretary Geithner, who might discuss global macro imbalances at the upcoming IMF Spring Meetings, or perhaps a task for OMB Director Orszag with his plans for trillions of dollars of federal borrowing across the next decade.

It would certainly be helpful to know which story is right. The problem is that usually all the variables are moving at once. We could see which story rings true -- if only we had a time when trade policy held still and macro variables moved sharply...

Well, actually, we're in luck. Over the course of the current crisis, incomes and consumption have been fluctuating wildly (downward). Despite some unfortunate protectionist moves -- mostly symbolic -- the overall level of trade barriers in the world has not changed significantly. Under the Stabenow Story, the trade deficit shouldn't have changed much, either. Under the Finance First story, we could expect some big swings.

It was announced last week that in the first two months of 2009, the U.S. trade deficit in goods and services fell almost in half from the same period a year earlier, from $121 billion to $62 billion. There have been similarly large changes in countries like Japan. This would seem to support the Finance First story. It would also seem to belie claims that growing trade deficits imply job losses. The logic behind those arguments also implies that shrinking trade deficits bring job gains. In fact, as the U.S. trade deficit halved, we lost 4.25 million jobs.

One enthusiastic congressman recently called for the United States to use a sledgehammer to address its trade deficit problems. Before we do so, we should figure out whether we're dealing with a nail or a screw.