As Barack Obama would happily concede, words are powerful. Words matter. So let's briefly look at the words of Obama on trade. Here is Obama from his book The Audacity of Hope, sounding all Tom Friedman:
We can try to slow globalization, but we can't stop it. The U.S. economy is now so integrated with the rest of the world, and digital commerce so widespread, that it's hard to imagine, much less enforce, an effective regime of protectionism. A tariff on imported steel may give temporary relief to U.S. steel producers, but it will make every U.S. manufacturer who uses steel in its products less competitive on the world market.... U.S. Border Patrol agents can't interdict the services of a call center in India, or stop an electrical engineer in Prague from sending his work via email to a company in Dubuque. When it comes to trade, there are few borders left.
And here is Obama at the Democratic presidential debate in Ohio, sounding all Dennis Kucinich:
If you travel through Youngstown and you travel through communities in my home state of Illinois, you will see entire cities that have been devastated as a consequence of trade agreements that were not adequately structured to make sure that U.S. workers had a fair deal.... But you know, when I first moved to Chicago in the early '80s and I saw steelworkers who had been laid off of their plants—black, white, and Hispanic—and I worked on the streets of Chicago to try to help them find jobs, I saw then that the net costs of many of these trade agreements, if they're not properly structured, can be devastating.
Now it would be easy to say that those two quotes are not necessarily in conflict, that they are merely examples of a political candidate emphasizing different aspects of an agenda. Maybe. But words matter. Yesterday the Canadian trade minister cautioned that if the United States pulls out of the North American Free Trade Agreement, America might lose preferential access to Canadian and Mexican oil.
Over at Reason, Steve Chapman trots out some interesting factoids about NAFTA (as bullet-pointed by me):
1) Over the last 14 years, the American economy has added a net total of 25 million jobs. When NAFTA took effect in 1994, the unemployment rate was 6.7 percent. Today it's 4.9 percent.
2) According to data compiled by Harvard economist Robert Z. Lawrence, the average blue-collar worker's wages and benefits, adjusted for inflation, have risen by 11 percent under NAFTA. Instead of driving pay scales down, it appears to have pulled them up.
3) Manufacturing output has not only expanded, but has expanded far faster than it did in the decade before NAFTA. The problem is that as productivity rises, we can make more stuff with fewer people. That's not a bad thing. In fact, it's essentially the definition of economic progress.
4) Gary Clyde Hufbauer, an economist at the Peterson Institute for International Economics in Washington, estimates that 90 percent of the people in his profession regard the accord as a good thing.
5) Jagdish Bhagwati, a Columbia University trade economist, supports Obama and thinks his positions on trade are generally better than Clinton's. "But on NAFTA," Bhagwati told me, "he is dead wrong."
I think the überpoint is this: Americans are growing ever more skeptical about trade, and antitrade rhetoric on the campaign trail may well be adding momentum to the forces of protectionism. What if the economy does enter a recession, perhaps a deep one? Won't there be incredible pressure on a President Obama and a heavily Democratic Congress to indeed pull out of NAFTA and attempt to slow Chinese exports to America by taking harsh measures to force that nation to let its currency appreciate? The yuan has been steadily rising for some 2½ years, but economist and China watcher Donald Straszheim says that run is about over:
The currency keeps rising, but a significant economic policy turn in China is brewing by mid-2008. Beijing will worry about the economy becoming too cold rather than remaining too hot. And the policy of allowing the currency to gradually appreciate will stop for a time—with fears that China's all-important export sector will be toppled by the global slowdown.
A former White House official who now works on Wall Street recently told me how year after year, big-money investors fret about increased protectionism but down deep really can't imagine America is going to start a trade war or build walls around its economy. Just too horrible a scenario to imagine, ultimately. But a weak economy plus one-party control of Washington plus a flare-up of Chinese trade tensions might mean investors need to start imagining a little harder.