Obama Will Give Free Trade a Rough Ride

BARACK Obama has taken the notion of politics as a performance art to another level. Other than perhaps the folksy Ronald Reagan, or the charismatic JFK, he is surely the most honey-tongued crooner ever to run for presidential office in America.

Obama's capacity to light up a lecture hall is a powerful asset in the image-obsessed politics of the early 21st century. But it also raises a serious concern: are people intoxicated by what he says, or more by how he says it?

Why should this be a worry? Because the world has much to lose by not paying very close attention to what the Democratic Party contender articulates as his core policy beliefs. Especially, if elected, he acts accordingly.

This is crucial when it comes to the question of how a President Obama would seek to pursue American interests on the big issues of national security and trade, and what this might mean, in turn, for global stability and prosperity.

Much of the media focus in Australia has been on Obama's criticisms of US policy in Iraq, and his alternative formula for dealing with the war on terror.

But were we also aware that he has suggested a commitment to free trade is no longer in the interests of working Americans?

If carried into office, such a mindset would represent a profound departure from a 60-year tradition of the US championing the cause of open markets.

Such a fundamental policy reversal in the world's leading economy would feed greater uncertainty into a global economy already struggling with high energy costs, food shortages, inflationary pressures, tighter credit, and the challenge of accommodating the emergence of China and India.

Much is at stake. What we don't know yet is to what extent Obama's attacks on free trade represent mere campaign hyperbole.

In his run for the presidency, Obama's immediate strategic priority was to defeat Hillary Clinton in the Democratic primaries. Given that the "centre" of Democratic Party economic thought has shifted substantially to the left in recent years, Obama crafted a highly populist and sometimes shrill pitch to economic "patriotism", the low point of which has been his campaign to dishonour and disown the North American Free Trade Agreement.

For significant sections of the Democratic Party, blaming any decline of the world's economic powerhouse on the export of jobs to East Asia or Latin America is almost as potent as hammering the Bush Administration over setbacks in Iraq. So much so that the Democrat leaders now in control of the US Congress have taken to obstructing the passage of free trade deals negotiated by the Bush Administration with South Korea, Peru and Colombia.

Obama has adopted this mantra with gusto. He argues NAFTA, the free-trade deal with Canada and Mexico signed into law by Bill Clinton in 1993, has cost a million American jobs.

He has pledged to stand firm against "similar agreements that undermine our economic security". In his debates against Hillary Clinton, he went further still, warning that, as president, he would use the threat of a "potential opt-out" from NAFTA to dictate labour and environmental standards to neighbouring Mexico.

All of this comes on top of his co-sponsorship of the Patriot Employer Act. In a quixotic tilt at globalisation, this requires that major American companies do not decrease their ratio of full-time workers in the US to full-time workers outside the US. It also offers tax credits to American companies to maintain their corporate headquarters in the US.

This bill stands in defiance of the realities of contemporary global business. And a large part of the cost would be borne by low-paid workers in developing economies, out-muscled from fairer trade in world markets by US manufacturers provided with tax advantages to keep investments at home.

So much for Obama's high-minded talk of healing the planet.

It is not surprising, amid fears of a US economy sliding into recession, that Obama should seek to exploit anxieties in the industrial heartlands. But playing to xenophobia about foreign workers, and stoking protectionist sentiments, seems an oddly old-fashioned pitch for a man who styles himself as the voice of the future.

There is also the question of whether Obama's much-hyped claims about the deleterious effects of free trade on the US economy in any way accord with the facts. Twenty-six million jobs have been created in the US since Clinton signed NAFTA. By almost any measure, the US, Canada and Mexico have all gained. The US economy has grown by more than 50%.

Obama's negative campaigning on this issue may have delivered him decisive support against Hillary Clinton, including an endorsement from the Teamsters' Union. But where does it position him in the contest against Republican John McCain, and what might it portend if Obama actually wins?

If Obama wants to make free trade a key ideological battleground, McCain appears to be up for the fight. "NAFTA was a good idea," the Republican nominee says. "It's created millions of jobs, and it has helped the economies of all three of these nations … free trade is something I think that is vital to the future of America. As a free trader, I will open up every market in the world."

Next month, McCain is expected to go on the front foot with a tour to Colombia, where he will stress the benefits of closer economic ties with America's neighbours, including geo-strategic ramifications that go far beyond better market access for US exporters. Trade deals with Mexico, Colombia and Peru are one important means of the US extending its influence in its own neighbourhood through soft power.

In contrast, if Congress rejects the Colombian deal, this would play directly into the hands of the strident anti-US camp in Latin America, led by Venezuela's Hugo Chavez. As Colombian President Alvaro Uribe warns, any departure from America's commitment to free trade "would be devastating for the good relationship between the United States and our region". And the ripple effect could extend well beyond the American hemisphere. The Doha Round of global trade liberalisation talks are already on life support, stalled by bottlenecks within the World Trade Organisation. Without sturdy American leadership, there is simply no prospect of the round succeeding.

The consequences of a US president bringing a protectionist tilt to the Doha negotiations would be dramatic and immediate. If the world's leading economy signalled it was looking to throw up the shutters to foreign exports, it would invite Europe and Japan to do the same.

The result could be a crisis of confidence in the multilateral trading system.

These are the risks inherent in Obama's flirtation with a populist protectionist mindset. And no amount of sweet-talking should be allowed to obscure it.