Argument

The Tradeoff

When it comes to developing an industrial policy that can revive the U.S. economy, the president may have a leg up on his Republican challenger.

Free trade has been a bedrock policy of the United States under both Republican and Democratic administrations for nearly three quarters of a century. But both Barack Obama and Mitt Romney have spoken about trade in remarkably ambivalent terms over the course of the presidential campaign.

On the one hand, both candidates have talked about getting tough with U.S. trading partners and especially with China, which Romney has repeatedly promised to label a currency manipulator on his first day in office (currency manipulation is the practice of governments intervening in global currency markets to buy dollars in an effort to push the value of the dollar up and the value of their own currency down, thereby making their exports less expensive in foreign markets and their imports more expensive for their own citizens). Under international rules, labeling China a currency manipulator (which it clearly is) would lead to a formal call for the International Monetary Fund to convene formal consultations on the matter between China and the United States. But it would not trigger any specific retaliatory measure. Indeed, since consultations have already taken place in various forums, it's not clear that Romney's pledge would achieve any concrete result at all.

Although Obama has eschewed formal action on the currency issue, he has also adopted an aggressive posture, taking action against Chinese producers on anti-dumping and countervailing duty cases involving steel, solar panels, and tires and establishing a trade law enforcement body aimed at actively seeking out unfair trade and prosecuting it. This is a far tougher stance than either the Bill Clinton or George W. Bush administrations took.

Yet for all the tough talk and action, both candidates remain quite conventional with regard to trade. After taking a hard line on China, Romney always follows up by calling for the negotiation of more traditional free trade agreements, especially in Latin America. Obama continually promotes his program to double exports and, like Romney, champions free trade deals -- particularly the Trans-Pacific Partnership now under negotiation, which the Obama administration promotes as a "21st-century" trade agreement.

None of these deals represents a material departure from the path U.S. trade policy has taken over the past 65 years. All the agreements attempt to lower tariffs, import quotas, and other formal trade restrictions. They also seek to protect intellectual property, reduce export subsidies, and ensure that foreign participants in a nation's economy are treated more like domestic participants in terms of regulatory rulings, labor arrangements, the right of establishment, and opportunities for investment.

What they don't do is deal with the main drivers of the chronic market distortions, trade imbalances, and capital flows that were behind the Great Global Economic Recession and Crisis of the past five years. For starters, these agreements don't address currency issues at all -- and not even Mitt Romney is proposing that they should. Yet currency misalignment is a much more important factor in trade flows than the tariff and intellectual property issues that always dominate trade talks. These so-called free trade agreements don't tackle the investment incentives and subsidies that are often used to induce the outsourcing and offshoring of jobs, or the informal administrative guidance and pressure that many countries use to intimidate global corporations into transferring investment, technology, production, and intellectual property away from their home countries. All of these factors are much more important determinants of global trade, capital, production, and investment flows than the key items normally negotiated in conventional free trade agreements.

Since neither Obama nor Romney is proposing to change this framework in any significant way, the outcome of Tuesday's election probably won't matter much to trade and globalization policy.

Still, there is at least a small indication that an Obama win might produce more of a material change than a Romney victory. On occasion, the president has asked in an instinctual way why America can't produce high-tech batteries, solar energy systems, high-speed trains, advanced lighting elements, flat panel electronic displays, and the like. He has actually promoted the development of some of these key industries in the United States. To be sure, his efforts have been small-scale, halting, and inconsistent, but he has nevertheless given the United States the kind of industrial strategy and policy that used to be standard operating practice in the United States. Romney and the Republicans, by contrast, have sharply criticized Obama's initiatives while holding fast to the doctrine that the government should not have an industrial policy and should not even respond when countries such as China and South Korea pour money into developing key industries in which America is often the competitive leader.

Why is this difference between the two candidates significant for trade policy? Global economic trends suggest that to create jobs, the United States will have to pay more attention than in the past to reducing its trade deficit by producing more of what it consumes in the United States and importing less of what it consumes from abroad.

Ever since the outbreak of the economic crisis in 2008, the world's leaders have been talking about the necessity of "rebalancing." It is generally agreed that the U.S. trade and current account deficits are unsustainable over the long term, just as the surpluses of Germany and Asia are unsustainable. But Asia, Europe, and much of Latin America have found it difficult to actually begin rebalancing and, in fact, have moved to maintain and even strengthen their export-led growth capabilities. With Britain and the European Union both on austerity diets, their only hope for growth is exports. While Japan is finally running sporadic trade deficits after decades of pledging to increase imports, it is desperately trying to maintain and expand exports. And China is having a hard time transitioning from export-led growth to domestic consumption-led growth. Thus, the rest of the world is aiming to create jobs and growth through exports -- especially to the United States as the U.S. economy slowly accelerates while all others appear to be decelerating.

The dilemma this will pose for the next president is that devotion to orthodox, unilateral free trade, and hands-off government is likely to clash with the economic and political need to create more and better American jobs. Obama, for example may well achieve his goal of doubling exports, only to find that imports have tripled and that he remains further behind in realizing his overarching goal of increasing U.S. job and GDP growth. On top of that, the high level of U.S. government debt is already limiting the White House's ability to revive the economy through classic stimulus policies. In this case, the only way that the United States will be able to achieve the desired growth is by importing less, supplying more of the domestic market from increased domestic production, and exporting more. To make this happen, Obama's little experiments with expanding industrial development and proactively enforcing trade laws may provide a useful roadmap for the path he'll need to take in the future.

Mandy Cheng/AFP/GettyImages

National Security

A Tale of Two Mitts

We know where Barack Obama stands on the world's most dangerous weapons. But what's Mitt Romney's nuclear policy?

For a sense of what's at stake for nuclear policy in this year's election, consider this: The U.S. government is on track to spend $640 billion over the next 10 years on nuclear weapons and related programs -- more than the military's budget for an entire year. The next president will make key policy decisions early in his term that will have an impact on these budgets and global security more broadly. Four years ago, Barack Obama and John McCain largely agreed on the need to reduce and eventually eliminate nuclear weapons, but this year the candidates are poles apart.

Obama has a well-established agenda on this issue. But Mitt Romney's policies will depend on whether he brings into the Oval Office the hawkish positions that he staked out for most of the campaign or the moderate posture that he's assumed in the past month.

The president, for his part, has implemented only part of the comprehensive nuclear policies that he detailed early in his term. Having been frustrated by an entrenched bureaucracy, reluctant global partners, and political opponents for four years, he will likely pick up where he left off if he wins reelection. Senior aides insist Obama is personally committed to breaking with Cold War strategies and weapons. If so, we could expect early action on several fronts.

First, Obama will finally issue the presidential guidance the White House developed to implement the 2010 Nuclear Posture Review. "It is the key to all the nuclear decision-making for the next 20 years," Jon Wolfsthal, a former nuclear security advisor to Vice President Joe Biden, recently told Global Security Newswire. "It is the first commandment in setting all other nuclear decisions." The guidance could cut U.S. strategic warheads from the 1,550 permitted under New START, Obama's nuclear weapons treaty with Russia, to about 1,000. The White House completed the guidance during the summer but never sent the document to the Pentagon, presumably to mute it as a campaign issue. Once the guidance is issued, the president will then need to decide how to make these cuts. He could move to adjust U.S. nuclear forces to these levels quickly, either through unilateral reductions or reciprocal reductions with the Russians.

On that front, Obama is also likely to seek a new round of negotiations with Moscow on a cooperative approach to missile defense and on a treaty to spell out deeper reductions in each country's nuclear arsenal. The missile talks could take months; the new treaty talks, two or three years. Brookings scholars Steve Pifer and Michael O'Hanlon believe the new treaty should "limit each country to no more than 2,000-2,500 total nuclear warheads," down from the 8,000-10,000 that each side now possesses.

The Obama administration will also have to decide whether to push for Senate approval of the treaty banning all nuclear tests everywhere. President Bill Clinton negotiated the Comprehensive Nuclear Test Ban Treaty (CTBT) in 1996 but could not get Senate approval in 1999 during Republican impeachment efforts. If the president thinks he has a reasonable chance of securing Senate backing for the treaty, he may very well pursue what could prove to be a major part of his legacy -- and Clinton's.

Iran, of course, will remain at the top of the president's foreign-policy agenda as well. We will likely emerge from 2012 without military strikes on Iran (conducted by either Israel or the United States), without an Iranian dash toward the bomb, and with some political space for diplomacy intact. Obama's key strategic challenge will be to expand political support for a negotiated solution and to develop the process and substance for an agreement that restrains Iran's program.

And what if Romney emerges victorious this week? Should Romney the Hawk become president, he would deep-six most of this agenda. You could kiss CTBT goodbye, expect U.S. and Russian nuclear buildups rather than reductions, forget about negotiations with Russia, and get ready for a rough ride with Iran.

Romney's corral of advisors and acidic attacks on New START provide evidence for this view. Security expert Susan Eisenhower, who broke with the Republican Party to endorse Obama four years ago, worries that "[i]n the foreign policy realm, where Romney has little personal experience, he will be heavily reliant on his advisors, most of whom are neocons as well as former Bush administration officials." Eisenhower told MSNBC's Chris Matthews that a first-term Romney administration would likely hew to more conservative policies to avoid a far-right primary challenger four years hence.

This President Romney would likely abandon the process of negotiating reductions in nuclear weapons -- as the Bush administration did -- expand missile defense programs, increase nuclear weapons funding, and perhaps test new nuclear weapons. He would eschew arms control agreements based on the logic that they weaken America's security, pay scant attention to international forums like the Non-Proliferation Treaty conferences, and seek to overthrow hostile regimes in Iran and North Korea through either sabotage and sanctions or direct military action. John Bolton, whom Romney hinted could become his secretary of state, has said that "America should support an Israeli attack [on Iran] as the least-worst option."

While many experts consider Romney's promise to increase the military budget to 4 percent of GDP unrealistic, even moving toward that goal will likely mean major funding increases for nuclear weapons. He, like Obama, will have to decide in the next two or three years whether to produce the new nuclear-armed submarines, missiles, and bombers in development. Intended to replace the Cold War weapons due for retirement in the next decade, these systems would be with us for another 50 years -- and the price tag would be enormous. The Navy estimates that the new nuclear submarine fleet alone would cost $350 billion over the life of the program. Obama's policies could shrink this force and its budget; Romney's could increase it.

On the other hand, if conservative columnist David Brooks is right, Romney could decide to govern from the middle. "Mr. Romney's shape-shifting nature," Brooks writes, "would induce him to govern as a center-right moderate." He could implement an Obama-lite agenda -- or even outperform Obama. The truth is, Republicans do arms control better than Democrats. Freed from attacks from the right, Republican presidents can oversee reductions the GOP would never permit Democratic presidents to make. Ronald Reagan and George H.W. Bush cut the nuclear arsenal by 50 percent, and George W. Bush cut it another 50 percent -- including unilateral reductions implemented by executive order. The fact that this isn't widely known shows how uncontroversial cuts are when Republicans implement them.

Moderate Mitt, blocked by fiscal reality from ramping up the Pentagon budget, could squeeze budget savings out of the nuclear weapons programs, bring more nations into reduction talks, cut a deal with Iran and not test any new weapons (even if he refrains from ratifying the test ban treaty). And he could do it with overwhelming congressional support.

One can only hope.

Alex Wong/Getty Images