Monday, March 16, 2009

RR’s 3 R’s

There are a few preliminary signs that the Obama administration is preparing to take a fresh look at the trade policy that helped get us into the global mess we’re in. Thus far, nothing revolutionary has emerged, just a hopeful emphasis on enforcing our legal rights and a healthy skepticism about new agreements for agreements’ sake.

In addition, there are signs of fresh thinking being undertaken at the Office of the US Trade Representative, my old agency. This will take time, and I’d urge them to take the all the time needed to get it right.

For starters, though, it might be instructive to reexamine the rhetoric and record of Ronald Reagan. Though sometimes derided as simplistic, Reagan at his best was a principled pragmatist. Nowhere was that more in evidence than in his trade policy.

Reagan believed and publicly argued that “free trade must be fair.” In other words, free trade and fair trade were complementary, not polar opposites.

He made this clear in his radio address of August 2, 1986. (The transcript can be read at In just a few minutes, Reagan laid out three characteristics of his trade policy that are still on point:

• Reciprocity: “Free and fair trade with free and fair traders” was his motto to get the best treatment in trade, a nation would have to give it to others. In fact, reciprocal market access was the essential feature of Cordell Hull’s reciprocal trade agreements that helped lift the world from the Great Depression and later formed a major foundation for the General Agreement on Tariffs and Trade negotiated in 1947. It’s plain wrong to consider reciprocity as a code word for protectionism. In fact, reciprocal trade undid the 1930 Smoot-Hawley tariffs and opened the way to sustained economic growth in the world.
• Respect for Rules: In another context, Reagan famously said “trust, but verify.” That’s why we must not only have trade rules but also be willing to enforce them. Reagan objected to countries that didn’t “play by the rules” and that got an “unfair advantage” by subsidizing their industries. On the other side of the coin, protectionism – transgression of the agreed rules – invited retaliation by aggrieved trading partners and was to be avoided.
• Results-Oriented: A free and fair trade policy was expected to produce fair and equitable results. A key to good results was “toughness.” Reagan said: “We’ve been tough with those nations who’ve been unfair in their trading practices, and that toughness has produced results.”

Reciprocity. Respect for Rules. Results-oriented. Sounds like the making a pretty good trade policy for the Obama administration, too.

Charles Blum

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