Obama trade policy expected to focus on home front

WASHINGTON (Reuters) - President-elect Barack Obama is expected to make preserving jobs and restoring U.S. economic health the focus of his trade policy after promising to get tough on China and renegotiate trade pacts.

“Starting at home will be the key to unlocking any forward movement on the trade agenda,” said Thea Lee, policy director of the 10.5-million member AFL-CIO labour federation, which made a big push to put Obama in the White House.

“For the Bush administration, the strategy was really about facilitating the shift of jobs offshore,” Lee said.

With the global financial crisis threatening a severe U.S. recession, Obama is not expected to launch any new trade negotiations in his first year in office or to push for a rapid conclusion to the long-running Doha round of world trade talks, which will soon be in their eighth year.

“We simply have to have the next president lead us in an effort to rebuild the strength of the U.S. economy. You will then find, after time, room to identify areas where trade complements that,” said Ira Shapiro, a former U.S. trade official who helped negotiate the North American Free Trade Agreement and the 1994 Uruguay Round trade deal.

For many members of Congress, the huge trade deficit with China -- which reached a record $256 billion last year -- is the most compelling piece of evidence that U.S. trade policy needs a major overhaul.

Like them, Obama blames the trade imbalance on China’s “manipulation” of its currency and has pledged to increase U.S. pressure on Beijing to rely less on exports and more on domestic demand for its growth.

He has backed legislation that would define currency manipulation as a subsidy under U.S. trade law -- opening the door for the United States to impose duties on a large swath of Chinese goods -- and promised to beef up trade enforcement operations at U.S. Trade Representative’s office.


As strong as Obama’s rhetoric on China has been, he’ll probably moderate his stance as president to head off any bill that opens the door for “an avalanche of countervailing duty cases,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.

However, he could move early in his administration to curtail clothing imports from China, after temporary quotas expire at the end of this year, Hufbauer said.

Obama is expected to press Congress for quick action to end tax breaks that he says encourages U.S. companies to move manufacturing jobs overseas -- a theme echoed by many Democrats running for Congress this year.

Obama also has pledged to reopen NAFTA to include stronger labour and environmental provisions and to change investment provisions that critics say have given foreign corporations too much power over domestic regulations.

That has alarmed U.S. manufacturers and agriculture groups, who worry Mexico and Canada could demand too high a price at the negotiating table to satisfy U.S. demands.

“We will not have NAFTA if we try to open it up” to add stronger environmental and labour provisions, said Burton Eller, top lobbyist for the National Cattlemen’s Beef Association, whose members’ top two export markets are Mexico and Canada. “They’ll just laugh at us and ride away.”

Obama opposes Bush administration free trade deals with Colombia and South Korea, but is unlikely to walk away from either pact without trying to address the concerns he has raised, said Greg Mastel, a senior policy adviser on trade issues for the Akin Gump law firm.

That could take one or more years, although a third agreement with Panama could win congressional approval early in the Obama administration if not in a “lame duck” congressional session this year, Mastel said.

To help lay the groundwork for the South Korea and Colombia agreement, Obama should make an early push to expand the federal ‘trade adjustment assistance” program to cover more workers who have lost their jobs because of import competition or factories moving overseas, Mastel said.

Ultimately, Colombia will have to resolve concerns Obama has raised about the murders of trade unionists for that pact to pass, while South Korea will have to revisit auto provisions that many Democrats believe favour Seoul too much, Mastel said.

Additional reporting by Charles Abbott; Editing by Eric Walsh