Remember FDR’s Trade Legacy
Published in World Trade 100
In 1934, President Franklin Delano Roosevelt eloquently stated, “A full and permanent domestic recovery depends in part upon a revived and strengthened international trade.” Sadly, this important history lesson seems lost on the 113th Congress, which continues to remain gridlocked and stalled on sound trade initiatives that could propel the U.S. over its sluggish economic hump.
In dealing with the economic mess that was the Great Depression, FDR knew well that in addition to domestic policy measures, the country needed to be economically engaged with the rest of the world. His first initiative was the establishment of the Export-Import Bank to finance U.S. trade. Next up was fixing the crippling tariff barriers. Most important, he asked for the authority to negotiate trade deals that would reduce tariffs within levels pre-approved by Congress. The authority was granted, and this cooperation between executive and legislative branches worked so well that the authority was renewed 11 times until 1962.
As the global economy developed, nontariff barrier rules became more prominent in multilateral trade negotiations. The Trade Act of 1974 recognized this fact and stipulated that nontariff barrier agreements that required changes in U.S. law could only be enforced if Congress passed implementing legislation. Recognizing the possible negative impact of unlimited congressional debates and amendments on future trade deals, Congress agreed on an expedited procedure with no amendments, known as Fast Track Authority, later renamed Trade Promotion Authority (TPA). TPA was successfully used in forming free trade agreements up until its expiration on July 1, 2007.
This initiative has been instrumental in U.S. leadership of international trade, and, in turn, trade has been a driving force for the U.S. economy. In fact, according to a recent U.S. Department of Commerce study, export growth was responsible for 30 percent of GDP growth over the last five years. Other studies show that both exports and imports support millions of jobs in the U.S. with considerably higher earning premiums.
In addition to the economic benefits of trade, recent polls suggest that the majority of Americans support free trade agreements. A Pew Research Center poll shows that 59 percent of Americans believe that free trade agreements have been a good thing for the country.
So what is holding back Congress from granting TPA? Despite enjoying bipartisan support in the past, TPA seems to have fallen victim to the increasing polarization in Washington, D.C. Some critics wrongly assume that the authority either excludes or minimizes the role of Congress in the decision-making process. The whole process is based on continuous consultation with Congress through trade advisors and oversight groups formed by congressional members. In addition, Congress still has the final decision on whether to implement the trade agreement with a “yes” or “no” vote.
Why should we care about whether TPA is granted? The authority is particularly important given the multiple free trade agreements (FTA) that could have significant impact on world trade as well as the U.S. economy. TPA will help open the door to more FTAs, initiatives between countries in which tariffs, import quotas, and preferences on most (if not all) goods and services traded between the member countries are eliminated. For example, the parties involved in the Trans-Pacific Partnership (TPP) negotiations represent 40 percent of total U.S. trade in goods and 25 percent of total U.S. trade in services. According to a recent Peterson Institute Report, TPP could increase annual global income by $295 billion ($78 billion for the U.S.) in 2025 depending on the coverage of the final agreement.
Another key area in which FTAs have taken on even greater importance is in the energy sector, due to the surge of domestic shale gas and oil production. The Natural Gas Act (NGA) requires all natural gas exports be approved by the Department of Energy (DOE). However, exports to countries with FTAs are considered to be in the public interest and are authorized without modification or delay. In the case of non-FTA countries, DOE has a lengthy process for approval. In fact, there are currently 27 applications, and the longest pending application is at 964 days and counting. FTAs that might result from ongoing trade negotiations would help to decrease some of the burden of this lengthy process. Prior research by many organizations concludes that exporting LNG presents the U.S. with an opportunity to attain considerable economic benefit in the years to come.
Granting Trade Promotion Authority has a long list of benefits, including the direct impacts stemming from production, indirect impacts coming from the supply chains that support production, and induced impacts resulting from personal consumption spending by direct and indirect employees. Trade can also be instrumental in opening new markets for emerging U.S. products, especially in the energy sector.
Indeed, trade may hold the key to our economic recovery, just as it did 80 years ago. Both branches of government must have the will and courage to look to our history and recall FDR’s other adage, “The only limit to our realization of tomorrow will be our doubts of today.”
Dr. Pinar Çebi Wilber is a senior economist for the American Council for Capital Formation, a nonprofit, nonpartisan organization promoting pro-capital formation policies and cost-effective regulatory policies.