Mitt Romney, even more than many Republicans, is a passionate free-trader. He has made the expansion of global trade a key element of his program to create 12 million jobs, and he’s hammered away at President Obama for allegedly being less of free-trader than he is and being far more beholden to union-inspired protectionism than President Clinton was. But perhaps Romney’s most revelatory comments on the workings of the international economy came in a TV interview in June, when he declared he wanted to stay completely clear of the eurozone’s troubles, even though that transatlantic crisis has been lapping at the front steps of the White House for two years. “I surely don’t believe that we should expose our national balance sheet to the vagaries of what’s going to be happening in Europe,” Romney told CBS.
“Our national balance sheet.” You don’t hear that kind of language out of presidents very often, and Romney’s comment played right into the Obama campaign’s characterization of him as a heartless baron of Wall Street. The GOP nominee seemed to be saying not just that he has no interest in bailing out Europe—the usual topic of discussion on this side of the pond—but that he also doesn’t think it’s even safe to invest in Europe. It was hard to avoid the conclusion (and the Obama campaign hasn’t) that Romney was saying the sort of thing he might have said 15 years ago around the boardroom table: Let’s avoid “exposure” in what is clearly a bad deal, my fellow men of Bain—er, my fellow Americans—and let the eurozoners go down together. Our “balance sheet” will be fine.
Asked in September whether Romney meant what he said and still holds this view, Oren Cass, his domestic-policy director, told National Journal that he did. “Governor Romney does not believe that American taxpayers should have to pay for a problem that European political leaders can solve on their own.”
Obama has avoided a euro bailout, and, in fact, his views on global trade are not very different from Romney’s. But the issue is a little more complex than Romney has made out, which is one reason Treasury Secretary Timothy Geithner and his deputy, Lael Brainard, have tried to keep a hand in the talks over the euro’s fate. The president of the United States oversees a globalized economy, not merely a national balance sheet. Like it or not, the economy’s health is intimately bound up with Europe’s similarly globalized economy in multifarious ways. According to a report by Citigroup last year, the correlation between U.S. quarterly growth in gross domestic product and that of the largest European economies has risen to 70 percent in the past decade. Economists such as Nouriel Roubini and Mohamed el-Erian warn that a eurozone disintegration would lead to another global recession, dragging the U.S. back down after its worst downturn in 60 years as measured in terms of sustained unemployment. The failure of the eurozone could also begin a process of political disintegration that could badly harm America’s many-layered relationship with Europe, one that includes coordinated action by NATO in Afghanistan and against Libya; sanctions against Iran; and a (somewhat) united front against terrorists.
Romney understands all these issues quite well, Cass says; more than that, he has plans to develop a bold new vision inspired by President Reagan’s handling of free trade in the 1980s, when he negotiated tough tariffs against the cheating Japanese for subsidizing private industry. Romney wants to create a “Reagan Economic Zone” of like-minded free-trading nations. (Ironically, considering that he often accuses Obama of wanting to turn the U.S. into Europe, Romney wants to make the European Union nations a central part of the new zone.) This zone would seek to isolate China and other countries that, inspired by Beijing’s ability to get away with currency manipulation or intellectual property theft, may be emulating such practices—Brazil, India, and Russia, among others. The idea builds on the Trans-Pacific Partnership that the Obama administration is pursuing (which, the Romney camp notes, was started by President George W. Bush) and would expand on the World Trade Organization’s already-robust dispute-settlement mechanisms with tougher penalties for violations of intellectual-property rights.
Obama, by contrast, has undercut the case for freer trade by subsidizing or blundering into outright ownership of industry (such as autos and green energy) and worse, Cass says. “He’s offered zero proposals, frameworks, concepts, a vision, or anything in terms of what role he sees trade playing in actually strengthening this economy.”
Beyond that, Romney insists he would be tougher than others, even many of his fellow Republicans, in insisting on reciprocal trade practices and punishing those (read China) that don’t play by the rules. “When nations cheat in trade, there will be unmistakable consequences,” Romney warned in his acceptance speech in Tampa.
OBAMA KNOCKS ROMNEY
For its part, the Obama team charges that Romney is misrepresenting the president’s record on trade, in particular, his success at increasing U.S. exports by more than 35 percent since he first laid out such goals in his 2010 State of the Union; his toughness with China, having doubled the rate of cases brought before the World Trade Organization; and his push for the Trans-Pacific Partnership, which is designed to exclude China as a violator of intellectual-property rights and a manipulator of currency, unless Beijing relents.
But worse, Team Obama says, Romney and his vice presidential nominee, Paul Ryan, just don’t get the realities of trade—as well as a lot of other things about the international economy. Romney’s pledge to designate China as a currency manipulator and slap it with tariffs “on Day One of my presidency” virtually ensures a ruinous trade war with America’s No. 1 financier, they say. All of which helps to explain why perhaps the zingiest lines to come out of Obama’s acceptance speech in Charlotte were the president’s mockery of Romney and Ryan as “new to foreign policy.” He said that Romney’s rhetoric takes us “back to an era of blustering and blundering” (read: George W. Bush). “You might not be ready for diplomacy with Beijing if you can’t visit the Olympics without insulting our closest ally,” Obama said.
To drive home the point, the Obama campaign has consistently hit the theme that, despite Romney’s self-touted brilliance at business, he still thinks too much like a Bain Capital financier who could care less about where U.S. jobs go—indeed, at Bain, he sent many of them abroad himself—or how many of them are created, and that such an attitude ill suits the Oval Office occupant. Vice President Joe Biden, in his convention speech, again accused Romney, who opposed the GM/Chrysler bailout, of failing to understand the importance of the auto industry to the United States. Because, Biden said, “he saw it the Bain way. I think he saw it in terms of balance sheets and write-offs.” (The Romney camp says this is nonsense, that all he ever called for was a “managed bankruptcy,” which is ultimately what happened.)
Cass concedes that the campaign does not know how many of the 12 million new jobs Romney has promised would come from trade expansion. “Scoring the job-creation potential of trade-policy proposals is very difficult,” he says. Some analysts such as Mark Zandi of Moody’s Analytics have concluded that the U.S. economy will probably create 12 million jobs or so by 2016 no matter who is in office.
Obama and his campaign have also relentlessly pounded Romney over how his planned budget cuts would blunt U.S. competitiveness in the global economy. “I don’t believe that firing teachers or kicking students off financial aid will grow the economy or help us compete with the scientists and engineers coming out of China,” the president said in Charlotte.
Romney has something of a case to make that Obama has at least de-emphasized a key agenda item of both Republican and Democratic presidents going back to World War II: expanding international trade. Obama signed three major free-trade agreements—with Colombia, Panama, and South Korea—but Republicans complain that they were back-burner issues left over from Bush and that the current administration delayed them by haggling over workers’ rights, especially in violence-threatened Colombia. (The South Korea deal, however was also renegotiated to expand access for U.S. vehicles.) Indeed, nothing illustrates the bizarre mutation of American politics more than the spectacle of Republicans favorably comparing Clinton--whom they once impeached--to Obama simply because Clinton signed the North American Free Trade Agreement, plus a passel of other trade deals, and deregulated Wall Street.
But to be fair, the international trading system has been somewhat stuck for years, and that’s not entirely Obama’s fault. The 50-year effort to strengthen rules for open trade, so integral to global stability since the General Agreement on Tariffs and Trade began in 1947, has been adrift since the 10-year-long Doha Round of talks broke down in 2008 at the end of the Bush administration, when developing nations stalked out over the issue of farm subsidies. Romney has no specific plan to revive that process. In the aftermath of the 2007 to ’09 financial crisis, and a decade of antiglobalization protests driven by complaints about worker disenfranchisement and income inequality, many nations no longer see free trade as a panacea. And as the G-20 inevitably replaced the G-8 and, to a certain extent, eclipsed the WTO as the forum for international economic diplomacy in the aftermath of the financial crisis, the U.S. found that it no longer enjoyed as much of a free hand in setting the agenda as it once did, particularly because so much blame for the latest global downturn rests with Wall Street.
Because of domestic political paralysis in both Washington and Europe, the major Western powers have also failed to devise a coordinated strategy for avoiding a double-dip recession. Indeed, in Washington and in European capitals, politicians have embraced policies that most economists argue are the opposite of what is needed. They are pursuing austerity, in other words, when the world needs a concerted stimulus. And, of course, the Obama administration, with reason, blames the Republicans for its piece of that policy.
What are the real, as opposed to rhetorical, differences between Obama and Romney on the international economy? In truth, compared with the stark differences between the two candidates on so many other fronts from domestic growth to immigration to social issues, this is one area where the two men would probably end up pursuing fairly similar policies. The Obama team says that it’s absurd to suggest that this president is any less dogged than his predecessors about opening up trade. “The president has done quite a bit to open up new markets,” says James Kvaal, Obama’s campaign policy director. True, the three bilateral agreements began under Bush, he notes, but “it is the president who got them through Congress, signed them, and strengthened them to do a better job for American workers and the American auto industry.”
Meanwhile, Kvall says, the Trans-Pacific Partnership, still under negotiation, “will become one of the largest trade agreements in the last two decades, covering a market of about 40 percent of the world’s goods and including our four principal trading partners: Japan, Canada, Mexico, and [South] Korea. The president set a goal of doubling exports over five years, and we are on track to do it.”
The one caveat to this conclusion may be China. Although the Obama administration has walked up to the edge of branding China a currency manipulator, a move that could trigger sanctions, it has avoided doing so, to avoid a complete break with Beijing. Romney, during the primaries, declared at one point, “People say, ‘Well, you’ll start a trade war.’ There’s one going on right now, folks. They’re stealing our jobs. And we’re gonna stand up to China.” If Romney does indeed carry out his promise to label China a rogue trader on Day One, the world could begin to look very different in 2013.
This article appears in the Sep. 15, 2012, edition of National Journal.