When Trade Rhetoric Shifts Trade Reality
With major U.S. trade initiatives working their way between the legislative and executive branches, the future of U.S. trade policy has taken center stage in the 2016 presidential contests. As candidates make their way through the various primaries in both manufacturing and agricultural states, each is outlining their plans for how they might make better deals for the United States. Even better, none of this is done in a vacuum. Markets watch politics, and global markets watch U.S. politics especially.
So when candidates for President of the United States start talking tough on trade, one can be sure that other nations are watching what is said closely — and reacting accordingly.
Such is the case in the latest battle in the global sugar trade. Two of the biggest players in the business, Brazil and Thailand, are going head-to-head before the World Trade Organization. The issue, as one can imagine, is subsidies, with Brazil accusing Thailand of massive subsidization of its sugar firms. This is ironic, of course, since Brazil is well known to be massively subsidizing its sugar industry — as well as trying to gain competitive advantage in trade through systematic devaluation of its currency (another issue raised in this year’s U.S. presidential race — how the U.S. ought to respond to currency devaluation by other nations).
Clearly, Brazil, Thailand, and India (another nation that massively subsidizes its agro-industries to undercut U.S. farm-good prices, though not complained about in these proceedings) all understand that nearly without exception, regardless of who wins, the 2016 election will bring massive change to how the U.S. deals with its global competitors, and they are posturing accordingly.
They have to. If military might was the fuel for expanding economic empire in the 19th century, the tools of corporate cronyism (subsidization and currency manipulation) have supplanted it — and nations like Brazil, Thailand, and India, who will never fight a hot war to expand their economic empires, will use whatever weapons of trade to achieve their ends today. They know, given the drivers that competitively disadvantage the U.S. (the $2 trillion regulatory state, artificially heightened labor costs, an arcane tax code), that U.S. firms can be pushed over the edge.
Clearly, the U.S. needs to deal with these disadvantages — and all of the candidates are talking about some aspect of them (and some of the candidates are taking about all of them), as well as talking about trade policy.
But perhaps the WTO situation between Brazil and Thailand is illustrative that a sea-change needs to happen when it comes to these cases. Maybe something comprehensive ought to be called-for — a multilateral ceasefire on the issues of subsidies, wherein everyone steps back from the brink. Certainly, this is something all these candidates who are talking tough on things like corporate welfare and crony capitalism can get behind, since subsidies are emblematic of this issue.
And U.S. presidential candidates ought to be talking more about the “Zero-for-Zero” initiative proposed by Rep. Ted Yoho (R-FL). Zero-for-Zero calls for our trading competitors to eliminate these massive cronyist giveaways, while at the same time ensuring that the U.S. doesn’t prematurely economically disarm absent an effort by our competitors to do the same.
A massive change in U.S. trade policy is certainly on its way. Our global competitors know this, and they are already reacting. Given this, we need to be contemplating smart trade policies like Zero-for-Zero now.
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