May 13, 2015 | By

Venn Will They See How Serious This Is?


After the President’s trade policy was blocked in the US Senate yesterday, there was a divide among analysts over just how serious a setback the vote was. I took a dire view, arguing both that it was difficult to see how the trade agenda could now advance and that the sensitive timing of trade talks meant that a delay could be fatal.

Others were more sanguine. The Wall Street Journal, in its lead story, wrote:

The Senate action almost certainly won’t be the last word on advancing trade deals, since a majority of senators are believed to favor both the fast-track measure and the Trans-Pacific Partnership (TPP), the big trade deal between the US and 11 nations around the Pacific, whose path would be eased by the fast-track legislation.

The White House took a similarly calm line. Press Secretary Josh Earnest described the vote as a “procedural snafu,” and assured that such foibles were hardly unknown in the Senate.

Here is the difficulty: even if the White House sets aside its own preferences and simply commits itself to striking a deal, it has to reach agreement between at least three groups with different interests. Senate Republicans have a set of characteristics they will demand from a trade agreement (technically, from the negotiating rules in Trade Promotion Authority). Senate Democrats have their own set of characteristics. Then, there are the demands of countries negotiating with the United States in the TPP and other future trade deals.

The ideal, for striking a bargain, would be to find the set of characteristics and legal clauses that would satisfy all three groups, since they all need to be satisfied. Without Republicans, there is no majority in the Senate. Without Democrats, there is no vote to cut off debate (as demonstrated yesterday). Without partner countries, there is no trade deal.

What yesterday’s vote seemed to reveal was that there may be no configuration of text that satisfies all three groups. The package that Majority Leader McConnell (R-KY) attempted to move satisfied Republicans (none opposed) and was designed with the administration to satisfy partner countries. But it did not satisfy Democrats  (on the Venn diagram, this could be point A). 




There are certainly measures that would make the deal more palatable to Democrats. These could include strong language on currency manipulation and provisions against human trafficking. Those measures could even draw support from Republicans; Sen. Rob Portman (R-OH) has been active in his backing of a currency clause, for example (on the Venn diagram, this could be point B). But these clauses would likely kill a deal with our trade partners. Treasury Secretary Jack Lew warned that currency manipulation language could have this effect. A strong human trafficking amendment could have the effect of excluding Malaysia, one of the 12 TPP countries, from the accord.

This is why the impasse is so serious. It is highly unlikely that negotiating partners would accede to the existing set of congressional Democratic demands. If not, there are only two paths forward – the administration can try to proceed without negotiating authority, or some Senate Democrats can concede.

There is virtually no chance of moving forward without negotiating authority. That is the approach the Obama team has taken up until now and they have gotten as far as they could over 6 years. They have done this by reassuring partners that they could manage Congress when the time came. Other countries had already reached the limits of their credulity on that argument, even before yesterday’s fiasco.

So could some Democrats change their position? We already saw such movement on the Republican side, where Sen. Portman and Sen. Jeff Sessions (R-AL) voted to move forward, despite their well-known misgivings.  Presumably, the reason Sen. McConnell called the vote was to make clear that the time for haggling had ended. The White House certainly acted as though this was the big push, going beyond pure moral suasion and turning to basic politics – offering to campaign for those who voted for the president’s trade agenda.

And yet it did not work. So what can be done? There is only one important voice who has not yet been heard from – former Secretary of State Hillary Clinton, the presumptive Democratic nominee for president. She backed the trade agenda for four years in office and knows well how critical it is to the “pivot to Asia” that she oversaw. She has not backed the legislation before Congress. This may be her 3a.m. phone call. It will be interesting to see if she answers.
 

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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