Obama Turns Gaze to Free Trade

Feb. 11, 2010
Plan to modernize export control laws raises questions both political and business interests.

When the Obama administration unveiled its National Export Initiative on Feb. 4, a federal program aimed at creating 2 million new jobs and strengthening U.S. trade abroad, the White House termed the plan "unprecedented."

On the contrary, many of the proposals -- and the circumstances surrounding their unveiling -- ring strangely similar to the struggles of a previous president. Back in 1993, Bill Clinton launched a similar bid to increase U.S. trade abroad in what was viewed at the time as an effort to both boost the economy and shift the focus away from the rapidly deteriorating Congressional support for his healthcare bill.

While both presidents' initiatives -- and their surrounding circumstances -- might not be perfectly symmetrical, they showcase the dueling interests of business and politics and the confounding ways in which they can intersect on an issue such as foreign trade.

Obama has called for an ambitious government-wide effort to help American companies push exports past $3 trillion and shift the economy away from relying so heavily on domestic consumption. To this end, the trade strategy aims to pry open emerging economies like China, India and Brazil and boost efforts to identify markets for fast-growing sectors such as environmental goods and services, renewable energy, healthcare and biotechnology.

"This initiative will correct an economic blind spot that has allowed other countries to slowly chip away at the United States' international competitiveness," said Commerce Secretary Gary Locke.

More Insider's Look

Insider's Look offers exclusive commentary and analysis by digging deep into the stories that most affect manufacturers. IW Associate Editor Peter Alpern talks with manufacturing executives on the ground as well as industry experts about the trends and challenges the manufacturing sector faces. See the latest in this continuing series.

Obama ordered the creation of a cabinet level group to oversee a three-pronged strategy based on better educating U.S. businesses that seek to export their goods overseas, especially those that are small- to medium-sized companies; opening up lines of export financing for U.S. businesses which have struggled to secure bank loans; and finally, to remove many of the trade barriers which U.S. manufacturers have said put them at a competitive disadvantage with foreign competitors.

While much of the manufacturing and business community hailed Obama's call to modernize export control laws, which to this point haven't been touched since 1979, many were left with questions.

"I think this initiative is certainly welcome by export companies, both small and large," says Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. "But the question a lot of people have is the cost to entering those markets both politically and economically. I'm not sure we're going to get an immediate answer. This will be a six-month process before the government gets to providing those details."

The first two layers of the initiative have received widespread support. According to Tim Hanley, vice chairman and leader of Deloitte & Touche LLP's U.S. process and industrial products group, small and medium-sized manufacturers need assistance in navigating the sometimes highly complex international channels into foreign markets. Such mechanisms already are in place, such as at the International Trade Association. Obama would seek to further expand this on a broader scale.

What is highly controversial, however, is the plan's effort to bring down barriers to U.S. exports.

"So many of the major obstacles to U.S. exports are the barriers that are self-inflicted," says Asim Erdilek, professor of economics at the Weatherhood School of Management at Case Western Reserve University. "We've had export controls for 30 years on strategic goods, such as computer inscription and aircraft parts, that need to be reviewed. We have to exert more leadership on the Doha Round World Trade Organization negotiations, which has been in deadlock since 2001."

Obama has vowed to press ahead on pending free trade agreements with South Korea and Panama and Colombia, which since the closing days of the George W. Bush administration have languished in Congress due to strong union opposition.

Many of these measures can be decided within the government's control. Others, however, such as Obama's call to get tougher on countries like China to open up their markets in "reciprocal ways," would require the consent of competing economies. China, for instance, which has been accused of undervaluing its currency and creating a series of regulatory barriers to block U.S. exports, has thus far shown no willingness to negotiate these policies.

"The dollar is a very popular topic right now, but I don't think that's the big picture," says PricewaterhouseCoopers's Misthal. "What's preventing small and medium-sized businesses, as well as larger ones for that matter, from entering new markets is the cost of being an American company. You have high corporate taxes, increasing high employment and healthcare benefit costs, and increasing regulatory compliance. These are all issues that prevent businesses from competing on an equal playing field."

Obama's plan is rich both in ambition and abstracts, such as calling for doubling U.S. exports. While that might not be feasible -- after all, it would require growth at a sustained rate of 15% -- there are elements that might be highly valuable to U.S. manufacturing. The key, says Case Western's Erdilek, is seeing through the political verbiage.

"Whenever a government announces a plan out of political motivations, you have to be skeptical as to whether it can be done," says Erdilek. "Just because it's political doesn't mean it's not good. We're facing a jobs crisis. We know this. That doesn't mean there aren't some very valuable elements to it."

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!