The U.S. economy grew at 2.5 percent in the first quarter of this year. That's better than the 1.7 percent rate of all of 2012, but with unemployment still at a hefty 7.6 percent, it's still awfully anemic nearly four years after the recession officially ended. Help, however, may be on the way. The Obama administration is at last turning to a surefire way to increase growth: more trade with the rest of the world.
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During the first three years of his first term, Barack Obama talked about boosting exports, but did little to expand trade. Unlike every president since Franklin Roosevelt, he declined to pursue trade promotion authority, necessary for any significant trade deal because it forces Congress to take an up-or-down vote, without amendments. Unlike his recent predecessors, he didn't push for multilateral agreements like the Doha Round, which focused on increasing trade links with developing countries. And he took nearly three years to get approval for the bilateral deals with Panama, Colombia, and South Korea that had been negotiated during President George W. Bush's tenure.
But in a dramatic about-face, Obama has embraced two large agreements that would open new markets to U.S. exporters. The Transatlantic Trade and Investment Partnership (TTIP) would remove tax and regulatory barriers with the European Union, while the Trans-Pacific Partnership (TPP) would increase trade with 11 Asian and Latin American countries. In February, President Obama and European leaders announced they would pursue a sweeping free-trade agreement, and on April 12, the United States approved Japan's entry into TPP negotiations, where it joins Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, and Vietnam; the deal will likely be completed by December.
These are trade openings on a grand scale. The E.U. is the largest economy in the world, the United States is second, and Japan is fourth. The dozen nations in the Trans-Pacific Partnership account for some 40 percent of global GDP. This joint-lowering of trade barriers would be the most powerful step taken to restore economic growth since the 2008 financial crisis, both for the United States and its partner countries. "Countries that liberalized their trade regimes experienced average annual growth rates that were about 1.5 percentage points higher than before liberalization," according to an often-cited study by Stanford's Romain Wacziarg and Karen Horn Welch in 2008.
More open trade lets Americans reap additional revenues from foreign sales, while profiting from the lower costs that imports provide -- both for finished consumer goods and for inputs into U.S. manufacturing. It's a lesson the Japanese have absorbed as well, as they embrace one of the greatest trade-expansion opportunities in history. In March, Prime Minister Shinzo Abe decided to boost trade, in order to re-ignite Japan's smoldering economic embers: the country's GDP has grown at an average annual rate of just 1 percent since 1990.
The Pacific deal faces opposition from Japanese farmers, as well as U.S. automakers and unions, but Obama and Abe, in hopes of sparking a new Japanese Miracle, are hanging tough.
Japan has a reputation as a closed market. In 2012, the United States exported $70 billion in merchandise to Japan, a new record but an increase of only 8 percent since 2000. Imports from Japan over the same period have been flat. Lately, however, there have been signs of progress. Exports of U.S. pork to Japan now total $2 billion, making it our highest-value foreign market, and in January, Japan loosened its controversial restrictions on U.S. beef imports. Exports of U.S. services, such as licensing fees and royalties, rose 50 percent from 2002 to 2011, while Japanese foreign direct investment in the United States, a potent form of trade, have nearly doubled.
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