Trade counterfactuals

*This post on trade represents only my own opinions.

For the sake of argument, I want to present an alternate viewpoint about President-elect Obama and trade. I’ve been thinking about it a lot about, and specifically whether or not he’s ‘bad’ for trade. He distances himself from protectionist rhetoric all the time, and he likes to reiterate that he both understands the fundamentals of trade and considers himself a free trader. And yet, the conventional wisdom among many trade watchers seems to be that he won’t pursue new agreements and that he won’t try to bring a successful conclusion to the DDA. How do you reconcile these two points of view? Is one of them wrong?

For what it’s worth, I don’t think the two positions are incompatible. I agree that is unlikely that Mr. Obama will do much on trade for the first year or two of his presidency. But this only in part because of the financial/economic crisis over which he will preside – part of it is purposeful as well. Free traders tend to look at the big picture: the aggregate benefits of freer trade outweigh the concentrated losses, and society as a whole gains. Mr. Obama recognizes this, but he is also much more in tune with the distribution of these gains. In other words, his departure point is different.

I think that in Mr. Obama’s mind, the postwar consensus on trade has unraveled. And the public has grown much more skeptical about the benefits of globalization and much more wary of the downsides. In this climate, it is possible that simply continuing the current trade policy is no longer sustainable. To make people more accepting of future trade deals, it might mean that you need better unemployment assistance, better infrastructure investment, better retraining schemes and better health care that is less tied to employment. And Mr. Obama is very eager to do all of these things.

So while trade watchers may be wary of Mr. Obama’s short term stance toward trade, his intended investments in an enhanced social safety net may actually make it more feasible to conduct ambitious trade deals in the future. The remaining question (aside from whether or not this is accurate!) is whether or not the US can afford to take a trade pause while other nations are racing forward.

Any thoughts? This is just a hypothetical counterfactual. Feel free to tear it apart in the comments section.