Tim Harcourt

Born in Honolulu and with a childhood spent partly in Indonesia, it is only natural that US President Barack Obama should have a strong affinity with the Asia Pacific and have an internationalist outlook.

His speech to the joint houses of Parliament was a ringing endorsement for America’s economic orientation to the Pacific, the region which holds the most promise of economic growth for the next decades. America, he said, had made a “deliberate and strategic” decision to engage more with the Asia Pacific, which was “critical” to the highest priority of creating jobs in the US.

In making this choice, Obama is following the tradition of other recent Democratic presidents who, contrary to some popular opinion, are anything but isolationist in their world view. And at the same time, he is debunking another old myth: that a free trade agenda is bad for jobs growth and social equality in the US.

The conventional wisdom has been that Democrats are always trade protectionists and the Republicans firm free traders. For example, in his Boyer lectures several years ago, Rupert Murdoch claimed that the Democrats are always protectionist and Obama’s trade policies would hurt Australia. His views were echoed at the time by Australian Industry Group’s Heather Ridout.

But this is a misreading of history. Both parties have moved on both sides of the trade issue depending on the times. In fact, the Republican Party was traditionally the party of the northern states and had a large manufacturing base of support and supported protection whilst the Democrats had a strong southern base too (the so-called ‘Dixiecrats’) and supported free trade.

A glance through 20th century history shows a strong internationalist spirit running through the Democratic Presidents; Franklin Roosevelt, John F Kennedy, and Bill Clinton, under whose administration the North American Free Trade Agreement was negotiated.

Fast forward to today, and Obama’s motivation is plain to see. The US economy has stalled and is proving hard to kick start. Looking across the Atlantic, home of the more traditional economic and financial alliance, and all is chaos and uncertainty.

With Chinese savings funding US debt and economic growth in the region moving along nicely, in spite of the turmoil elsewhere, where else is the US economy going to receive a boost?
US unemployment is hovering stubbornly at just under 10 percent and Obama’s political future, and more importantly the economic welfare of millions of Americans, is dependent on the economy showing even some signs of recovery.

The reality is that inequality and rocketing executive salaries with declining real wages for American workers have bred protectionist sentiments whilst a fairer America may actually benefit from freer trade.

Real wage growth in the US stagnated under the two Republican decade of George W Bush, while the richest 1 percent of the US population control around 40 percent of the financial wealth. Republican protectionism did little to protect the people it was supposed to help: American workers.

Right now, more than ever, America needs economic engagement with the rest of the world – particularly a region, like the Asia Pacific, which is performing well. Free trade can be a part of the formula to restore growth, reduce unemployment and help make some gains on social equality. Barack Obama the liberal internationalist understands this very well. And the Trade Pacific Partnership agreement recently announced at Obama’s birthplace in Hawaii at APEC is symbolic of the President’s internationalist instincts.
Tim Harcourt is the J.W. Nevile Fellow in Economics with the Australian School of Business, University of New South Wales: www.theairporteconomist.com.