The SOTUation on Trade and the Deficit

The State of the Union address offers any president the temptation to revel in the pageantry and splendor of the office. He can sound resonant themes and expound on U.S. values. He can embellish these motifs with the recognition of carefully-placed guests in the balcony.

President Obama is at his best when delivering high-altitude orations about national aspirations. This can be terrifically effective in a campaign or in a moment of national mourning. It can also be a necessary prelude to effective action, a way of rallying the public to support difficult choices.

The problem is that on the key issues of trade and the deficit President Obama's prelude to action has now lasted more than half his term. On each, he has earnestly stressed the national need for action. Yet on trade, he has only moved the country to where it was in mid-2007. On the deficit, he has moved the country backwards.

At least, on the big trade issues, the president has done no harm. The same cannot be said about the deficit.

In his weekly radio address on Saturday, the president said,"Here's the truth about today's economy: If we're serious about fighting for American jobs and American businesses, one of the most important things we can do is open up more markets to American goods around the world."

This has the standard mercantilist twist of the president's trade advocacy, but it's a worthy theme. How does it translate into action?

The president said,"That goal is why I fought so hard to negotiate a new and better trade deal with South Korea." The original KORUS free trade agreement was signed in June of 2007. It was worth passing then and it is worth passing now. The Obama administration has reworked the agreement so that it is a bit better for Ford Motor Company and a bit worse for U.S. pork producers. The changes are sufficiently minor that the official U.S. International Trade Commission estimates for economic impact are unlikely to show any change from 3.5 years ago.

The president also touted his trip to India. While India is a strategically important emerging economy, it does not make the top ten list of U.S. trading partners, nor was there any momentous change in policy.

If the president wished to advance relations with smaller trading partners, what of the pending trade agreements with Colombia and Panama? More important still, why not some initiative to move the Doha Round of World Trade Organization talks forward? On these we have had years of good intentions, aspirational pronouncements, and policy neglect. Republican leaders have called for moving forward broadly on trade, but the administration has limited itself publicly to backing the Korea FTA. On Doha, the White House has waited patiently for other countries to make an offer. That strategy has been predictably ineffectual in a trading regime that has always relied heavily on U.S. leadership.

At least, on the big trade issues, the president has done no harm. The same cannot be said about the deficit. While steadily espousing the need to address the deficit, the president's signature health care initiative launched two new entitlement programs that demonstrably worsen the long-term deficit situation.

The lack of leadership on the federal budget deficit is particularly striking because there is built-in, institutional pressure to lead on the issue. Every year, in the follow-up to the State of the Union address, presidents put forth their vision for addressing the nation's fiscal situation in the form of the budget. Crafted under the direction of the Office of Management and Budget, is meant to describe near-term and longer-term solutions to questions of taxes and spending. This would seem to leave little room for dodging pressing fiscal decisions.

Remarkably, though, the Obama administration did just that with last year's budget. Rather than depicting a path for a sustainable level of deficit spending, with the hard choices that would entail, it explicitly and admittedly offered an unsustainable path. The Congress then dutifully followed the president's lead (or lack thereof) and failed to pass a budget of its own. The administration later assured the citizenry that the president's deficit commission would set things right.

This gambit of waiting for the deficit commission seemed to offer the possibility that the Democrats in charge might slip past the November midterm elections without confronting difficult issues of spending and the size of government. In the event, public concerns were not assuaged.

Now, the president has the proposals of his deficit commission before him. They are controversial and he has yet to embrace them. He also has an alternative he probably finds even less appealing -- House Budget Committee Chairman Paul Ryan's (R-WI)"Road Map." But the president has yet to put forward a plan of his own.

His lack of leadership on the deficit issue has international ramifications. Major economic gatherings have recently fixated on global imbalances. Uncontrolled U.S. borrowing has drawn unflattering attention, particularly as other nations like the U.K. have found the will to adopt bold deficit-reduction strategies.

The calls for leadership on trade and the deficit are getting louder, even from the president's own party. Former White House Chief of Staff Mack McLarty today joins a former Clinton and Biden aide Nelson Cunningham in calling for more action on trade. Former Clinton-era Deputy Treasury Secretary Roger Altman joins Richard Haass in calling for a move beyond generalities on deficits.

At tomorrow night's State of the Union, beyond the pageantry and platitudes, it is worth listening to whether the president has crafted workable solutions and made tough decisions, or whether we will be asked to wait until 2013 for the extended prelude to give way to real movement.

Phil Levy is a resident scholar at AEI.

Photo Credit: White House/Pete Souza

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