President Obama left on Friday for a 10-day trip to Asia that has, to a large extent, become an effort to create jobs in the U.S. Yet if he wants to make progress toward that goal, Obama will have to abandon the Democratic Party's longstanding opposition to foreign trade agreements and make accommodations with the newly victorious Republicans in Congress.
"There aren't many areas where Obama can cooperate with the Republicans, but I think trade is one," says Meredith Broadbent, a trade specialist at the Center for Strategic and International Studies in Washington, D.C. "Trade is something he can be bipartisan about, but it requires him to take on the unions in his own party."
Obama's trip will take him to India, Japan, Indonesia and South Korea. Security and international political issues are on the agenda, but economic matters -- particularly those involving U.S. jobs -- are at the forefront. Obama will also attend a summit meeting of the G20 nations in Seoul, which will also be focused on getting the world economy back on track after the financial crisis.
Wanted: Agreement on Agreements
"The primary purpose is to take a bunch of U.S. companies and open up markets so that we can sell in Asia, in some of the fastest growing markets in the world, and we can create jobs here in the United States of America," Obama noted on Thursday.
"My hope is that we've got some specific announcements that show the connection between what we're doing overseas and what happens here at home when it comes to job growth and economic growth," the president said.
That's a pretty tall order, given the fact that the U.S. has dragged its heels on efforts to implement free trade agreements with Asian nations. Obama has the most work to do in South Korea, a nation with whom the U.S. signed a foreign trade agreement three years ago. Obama blocked implementation of the deal when he took office because of concern that the agreement was too skewed in Korea's favor regarding auto and beef exports.
Obama is under heavy pressure from U.S. business to expand trade because the European Union has also signed a trade agreement with Korea, and the deal is set to go into effect in just a few months. If that happens, European exporters will be able to send goods to Korea duty-free while U.S. companies continue to pay hefty tariffs, making their products less competitive.
The Pressure Is On
"The pressure couldn't be higher," says John Murphy, vice president for international affairs at the U.S. Chamber of Commerce. "This will be the largest new trade deal the U.S. has entered into in nearly 20 years, and the economic consequences are vital," Murphy says, referring to the North-American Free Trade Agreement that was signed by President Clinton.
The White House hasn't given any indication of how it plans to resolve the outstanding issues, since it is unlikely Korea can be forced to import more American cars. To save face with its own voters, the South Korean government will likely demand concessions if Obama wants to change the pact, which was finalized three years ago, during the Bush Administration.
The U.S. Chamber of Commerce estimates the U.S. will lose 345,000 jobs and $35 billion in exports if the European agreement goes through and the United States fails to follow suit.
"There is a new trade architecture being created in the Asia-Pacific region that is shutting out U.S. goods and services," Murphy says. "If U.S. exporters wants to be competitive in that part of the world, we have to move forward with our pending trade agreements."
In addition to the agreement with Korea, the U.S. is currently negotiating a trade pact, known as the Transpacific Partnership, that would give U.S. goods tariff-free entry into Singapore, Australia, New Zealand, Peru, Chile, Malaysia and Vietnam.
The U.S. currently has only two preferential trade agreements in Asia, with Australia and tiny Singapore.
Europeans are currently negotiating a free-trade agreement with India, at a time when the U.S. hasn't even begun talks with New Delhi on the subject.
India has extremely high tariffs on imports, which keep most foreign manufactured goods out of the country. India also limits how much control a foreign company can exert over a joint venture -- a policy which has deterred many U.S. firms from making investments in Indian companies. European negotiators are also discussing a foreign investment treaty with India that would provide a major advantage in the country.
A Presidential Roadshow
Obama is traveling with 200 U.S. executives, including CEOs from General Electric and Boeing, who want to sell capital goods, medical equipment and jet aircraft to India. The government in New Delhi is also negotiating to buy new warplanes to replace its aging fleet of Russian jets. The U.S. is also in the running to sell civilian nuclear technology to India.
"On the trip I'm about to take, I'm going to be talking about opening up additional markets in places like India, so that American businesses can sell more products abroad in order to create more jobs here at home," Obama said Thursday
An Indian news agency reported that the Obama administration was spending $200 million a day on the visit, including housing the executives in five star hotels, but the White House said the figure was wildly inflated.
About 25% of U.S. exports currently go to East Asian countries. While exports have been growing in dollar terms, the U.S. is actually losing market share to other countries trading in the region.
Obama has pledged to double U.S. exports in five years, though it is hard to see how the U.S. can add $300 billion in international sales in such a short period, says Broadbent. Obama also pledged to support small business exports, but an increase of the magnitude of $300 billion can only come from big companies, she says.
"The agreement with Korea will be the proxy for whether the region feels like we're back and wanting to get more involved commercially," Broadbent says.
Because many in the Democratic Party, especially House Speaker Nancy Pelosi, are closely allied with organized labor, Obama may be forced to win Republican support if he wants to achieve passage of the free trade agreement with Korea and the Pacific Partnership nations. That will depend on how willing the newly triumphant Republicans are in helping a Democratic rival achieve a big win economically.