In President Obama’s State of the Union address this week, he criticized countries that don’t play by the rules of international trade. He noted that his administration had initiated nearly twice as many trade cases against China as the previous administration. He criticized countries (read China) who let movies, music and software be pirated. And he exclaimed that it is unfair if foreign manufacturers get a leg up because of foreign government subsidies.
To resolve these problems and to help promote jobs in the US, President Obama then announced the creation of a NEW Trade Enforcement Unit that will be responsible for investigating unfair trading practices in countries like China. Finally, he said that if only the playing field were level, America would always win.
To the American people, especially to labor union workers or others whose jobs may be threatened by rising imports, this new initiative will surely be welcomed. The President has proclaimed that he has been tough and will get even tougher on China.
But what is really the point of this new unit?
The US already has numerous agencies charged with monitoring foreign countries’ trade policies and protecting US companies from unfair trade actions. The Executive branch’s US Trade Representative (Ron Kirk) is the lead organization in this effort. The USTR represents the US at the World Trade Organization, negotiates free trade areas, including the new Trans Pacific Partnership (TPP), and monitors foreign practices that negatively affect US exports, including intellectual property violations. It is responsible for the several WTO dispute cases that the US has ongoing against China and other countries. To protect against unfair trade practices we have several trade laws including the antidumping code, the anti-subsidy code and the safeguards procedures. These are administered jointly by the International trade Administration in the Department of Commerce and the US international Trade Commission. These agencies are also currently investigating several cases against China and others. Other agencies are also involved in trade policy matters including the Department of Agriculture and even the Defense Department.
So what will this Trade Enforcement Unit do? My guess is that it will spend an enormous amount of time trying not to step on the toes of all the other authorities that already have jurisdiction in these matters. One might argue that the unit could serve as a coordinator between all these different units, except that the President’s office is already supposed to be doing that. If the Trade Enforcement Unit is housed within the USTR office, then it will just be a new name placed around a group of individuals who are already supposed to be doing this anyway. And furthermore, if the President wants to take stronger actions against China or others, he already has some authority to do that within the current structure.
So, why do we need a NEW Trade Enforcement Unit?
The answer must be political. The President wants another bullet point that he can refer to in speeches highlighting how he is getting tough on China and protecting workers against unfair trade practices. As a result, the Obama administration is doing what all political leaders tend to do …. create more initiatives. For leaders to justify their existence they need to demonstrate that they are doing something. And the easiest thing governments can DO is to create more government. The greater the number of NEW initiatives the greater the number of talking points one will have in campaign speeches.
In this case, I expect the Trade Enforcement Unit will be inconsequential. The unit will probably consist of a small group of government workers, maybe many reassigned from other units so it may not even involve the growth of government. The unit will spend a lot of time coordinating with others and may be given credit for some of the initiatives that are already being investigated … this, because in the end, the unit will have to be shown to be a success. So this announcement is not a big deal.
However, the political incentive to DO SOMETHING whenever a problem is identified, has contributed to the growth of government across all administrations. This has led to the creation of new government agencies and the growth of existing agencies as each one is asked to expand their services with each new administration. The Trade Enforcement unit won’t affect the size of government much … but when we recognize the incentive behind this benign announcement and expand this action across numerous issues, numerous years, and numerous administrations … the effects are not so benign.
Steve Suranovic teaches international trade, international finance and microeconomics at The George Washington University. His research focuses on international trade policy, fairness and equity issues, and behavioral economics. He has a book titled “A Moderate Compromise: Economic Policy Choice in an Era of Globalization” published by Palgrave-Macmillan. This is cross posted from his blog.
Steve Suranovic is an Economics Professor at the George Washington University in Washington DC where he introduces students to the principles of microeconomics and international economics. His recent book is titled “A Moderate Compromise: Economic Policy Choice in an Era of Globalization” published by Palgrave-Macmillan.