Treaty rhetoric obscures trade’s benefits

Published July 29, 2016 by Robert Powell, III

How did international trade become the political boogeyman of 2016?

Donald Trump blames multinational trade agreements, such as the North American Free Trade Agreement (NAFTA) and the proposed Trans-Pacific Partnership (TPP), for the economic woes of the American middle class.

Hillary Clinton also opposes TPP although she was for the treaty three years  ago when she was President Obama’s secretary of state. Her husband, former President Bill Clinton, signed the NAFTA treaty in 1993.

Meanwhile, British voters have decided to leave the European Union, the 28-nation economic alliance that accounts for 50 percent of Britain’s gross domestic product.

The loud political rhetoric about these treaties unfortunately has clouded public perception about the benefits of international trade.

In Virginia, exports represent about 8 percent of Virginia’s GDP, and a major effort is underway to push that percentage higher.

As Senior Editor Jessica Sabbath reported in our July issue, recent actions by the Virginia General Assembly are designed to ramp up trade as a driver of the commonwealth’s economy.

One major element of that move is the approval of a $350 million bond issue that will be used to expand the capacity of the Port of Virginia’s Norfolk International Terminals.

The port’s influence on the Virginia economy has accelerated in recent decades to the point that it affects business decisions from Hampton Roads to the Shenandoah Valley. That influence could grow even more with the recently completed expansion of the Panama Canal and the increasing use of huge vessels in international shipping.

Virginia has an urgent need to diversify its economy, which still remains heavily dependent on government spending. Gov. Terry McAuliffe has repeatedly said that the commonwealth has a brief window of opportunity to alter the focus of its economy before a series of deep federal budget cuts, known as sequestration, are reimposed.

Nearly 12 percent of the commonwealth’s economy is dependent on defense spending.  The General Assembly has included $1.5 million each year of the biennial state budget to continue a Virginia Economic Development Partnership program designed to aid state defense contractors.  The Going Global Defense Initiative, which initially was supported with federal funds, assists contractors in marketing their products and services overseas.

Legislative appropriations also will bolster two other trade programs: Virginia International Trade Alliance (VITAL) and Virginia Leaders in Export Trade (VALET). VITAL encourages Virginia trade associations to promote state export programs to their members. VALET is a two-year program training companies on ways to increase international sales.

One highly visible VALET graduate, the Richmond-based C.F. Sauer Co., announced in early July that it will begin selling its iconic Duke’s mayonnaise in Colombia after taking part in a recent state-sponsored trade mission there.

The biggest trade-related change approved by the legislature is the creation of a separate agency, the Virginia International Trade Corp. (VITC).

Supporters of the move, including the Virginia Chamber of Commerce and the Virginia Manufacturers Association, believe that a trade agency separate from VEDP will give more exposure to the state’s trade programs while making a statement about the commonwealth’s commitment to international commerce.

Appointment of VITC’s CEO is expected to take place by December, and the agency will begin operation in April. A 17-member board will govern the agency.

The progress of Virginia’s efforts, however, could be affected by the trade policies of the next president.

In a June speech in Pennsylvania, Trump called current U.S. trade policy a “politician-made disaster” that has betrayed the working class. He wants to renegotiate NAFTA and withdraw from TPP.  Earlier in his campaign, Trump also threatened to impose hefty tariffs on imports from China and Mexico.

Noting the outcome of the “Brexit” referendum, Trump said the British people have voted to regain control of their economy and “now it’s time for the American people to take back their future.”

The U.S. Chamber of Commerce immediately criticized Trump’s speech, saying trade with Mexico and Canada supports 14 U.S. million jobs, 5 million of which are the result of increases in trade because of NAFTA.

Trump’s opposition to NAFTA and TPP represents a break from Republican orthodoxy on trade. In fact, his stance echoes the sentiments of Bernie Sanders, Clinton’s primary opponent.

Sanders’ pressure during the campaign pulled Clinton to the left on many issues, including TPP. Asked to explain her flip-flop on the treaty last December, she said had “absorbed new information.” Clinton explained she had high hopes for the treaty while it was being negotiated three years ago, but the final document “didn’t meet my standards.”

While exploiting the voters’ anger about  their economic struggles, the trade policies of both candidates have increased doubts about their leadership abilities. Trump’s critics fear he could provoke a trade war that would pitch the U.S. into recession. Clinton’s change of heart on TPP meanwhile feeds a widespread perception that she can’t be trusted.

Maybe the best hope for trade is that neither of them will keep their promises.