The Wall Street Journal reported on the stunning defeat for President Obama with the US House of Representatives rejecting his request for fast tracking a trade deal. This deal had the strong backing of the President, as well the Republican leadership in the House. Obama expended significant capital on getting a positive vote, including a visit to the House Democratic Caucus the morning of the vote, but to no avail. The final tally for a procedural vote required for passage of the bill showed only 126 in favor and 302 voting against it, including many Democrats. Even his old buddy Nancy Pelosi voted against the bill.
The fact that President Obama and House Speaker John Boehner on trade bill might seem odd at first glance. However, there are significant special-interest groups in favor of the bill, including large business interests. These special interests have done quite well over the years, irrespective of whether the Democrats or Republicans control the White House. This is further evidence that Beltway special-interests have no political affiliation.
Free trade in its most basic form is a good for economies, including America’s. However, the positive effects only occur if all parties to the agreement play by the same rules. That is not the case with the free trade recent decades. The current bill backed by Obama and Boehner involves Asian countries including developing one’s such as Vietnam. While most often disparities between countries focus on currency manipulations and wages, there are more significant impediments to real free trade, including differing regulatory environments.
The United States and many Western countries have added thousands of regulations on businesses and other parts of their societies that significantly increase their relative costs of exports. Examples of the regulations include those related to climate change, worker safety, health issues, etc. While in a vacuum it can be argued that these individual regulations are well intended, their affect is to significantly increase production costs in the developed world, including the United States.
Absent an equalization of the regulatory environment, free trade cannot exist without substantially penalizing those that are forced to operate in the overregulated environments. The large business Interest that currently back the proposed free trade agreement in Asia understand this and use it to their advantage. Large corporations are typically multinational in structure and can move their production to the least expensive regulatory environments. Smaller and medium businesses typically do not have the resources required to make this type of move. As a result, free trade agreements offer advantage to larger corporations and increase their competitiveness compared to smaller firms. This lessens the chance of competition from startups. As a result, jobs will move to the lowest cost labor environments, a reality that has been proven in the past 20 years.
So, why are Obama and Boehner so staunchly in favor of a free trade agreement with Asia? As is often said, follow the money, and in this case the lobbyists.