Voice

Why are Americans feeling so good about trade?

What with all the horses**t about "currency wars" floating around over the past few months, the occasional reader might be tricked into thinking that protectionist sentiments are at a new high. After all, with a weak global economy, one would expect enthusiasm about trade to be about as vibrant as the Doha round -- i.e., deader than a doornail. As someone with a betting interest in the United States enacting an ambitious foreign economic policy agenda, you'd think I'd be pretty depressed right about now. 

Ha -- wrong!! In actuality, public sentiment on trade is pretty robust. And as Bruce Stokes notes, public sentiment for a transatlantic trade deal is pretty positive: 

[C]ontrary to the widespread assumption that protectionist sentiments are rising in the wake of the Great Recession, 58 percent of Americans say they support increased trade with the EU. The same feeling exists across the Atlantic. Three-quarters of the Italians, nearly two-thirds of the British (65 percent) and more than half of the French (58 percent) and Germans (57 percent) believe in deepening trade and investment ties between the European Union and the United States; 63 percent of Americans agree, according to a 2007 German Marshall Fund survey.

There is also strong support for one of the thorniest challenges that lie ahead: harmonization or mutual recognition of national regulations on goods and services, everything from food standards to insurance. Overwhelmingly Italians (87 percent), British (84 percent), French (82 percent), Americans (76 percent) and Germans (71 percent) support such efforts, according to the Marshall Fund survey.

That's just trade between two developed economies, however. Surely, in a slack economy, Americans are more wary of trade in general, right? 

Wrong again!! Gallup has the surprising polling results here:

Americans' views on foreign trade have become much more positive this year, departing from their more skeptical position of the last several years. Americans are now about as positive toward foreign trade as they were during the better economic times of the 1990s and early 2000s.

That means the Obama administration is likely operating in an environment more supportive of U.S. trade deals with other countries than has been the case in the recent past. The Obama administration is currently exploring an ambitious free-trade deal between the United States and the European Union, and continues to work toward a trade agreement with Australia and other Pacific nations.

Here's the key graph:

Americans are more positive about trade now than at any point in the last two decades

Now, first of all, astute readers might argue that this disproves my oft-repeated claim that the American people are stone cold mercantilists. To which I say, look at the question that's being asked -- exports good, imports bad. The mercantilism is baked into the polling question!! Essentially, what this poll reveals is enthusiasm for exports, not trade more generally. 

That said, a closer look at the poll also suggests something even more promising. It would appear that public enthusiasm about trade exports is a leading indicator for rational expectations of U.S. economic growth. The only other positive jump like this came just as the 1990s economic boom really kicked into gear. Even more intriguingly, Americans got much more pessimistic about trade prior to the 2008 finanmcial crisis. And, indeed, even Gallup points out that U.S. economic confidence is at a post-crisis high right now, sequester or no sequester. 

We're now in the realm of pure speculation, but another source of American optimism on trade comes from some of the underlying positive trends I talked about a year ago. U.S. consumers are almost done with their necessary deleveraging; the U.S. manufacturing sector continues its small boomlet; and projections about U.S. energy production have become even more optimistic

These are all intrinsically good trends, but the spillover effect on American attitudes towards trade is particularly promising. The spike in public enthusiasm from last yeear is politically significant. At a minimum, it suggests that president Obama won't face gale-force headwinds in trying to negotitae trade deals. Which means I could win my bet with Shadow Government's Phil Levy. Which is the only thing that matters. 

Developing...

Daniel W. Drezner

The pessimism bias on U.S. debt

Let's face it, Americans do not understand the current state of either macroeconomic policy or foreign policy terribly well. According to Bloomberg, only six percent of Americans know that the federal budget deficit is actually shrinking. According to Gallup, just a bare majority of Americans believe that the United States military remains "number one in the world militarily." In a world of these kind of epic media fails, where significant numbers of GOP legislators seem "more concerned about 2% inflation than 8% employment," it's important to to have recognized experts try to clear the air. 

Nobel Prize-winning economist and unusually-pithy-writer-for-an-economist Robert Solow has an op-ed in today's New York Times to offer a primer on the implications of U.S. debt. Here, in brief, are the "six facts about the debt that many Americans may not be aware of," in Solow's words. Let me number them here:

1) Roughly half of outstanding debt owed to the public, now $11.7 trillion, is owned by foreigners. This part of the debt is a direct burden on ourselves and future generations....

2) The Treasury owes dollars, America’s own currency (unlike Greece or Italy, whose debt is denominated in euros)...

3) One way to effectively repudiate our debt is to encourage inflation...

4) Treasury bonds owned by Americans are different from debt owed to foreigners. Debt owed to American households, businesses and banks is not a direct burden on the future....

5) The real burden of domestically owned Treasury debt is that it soaks up savings that might go into useful private investment.

6) But in bad times like now, Treasury bonds are not squeezing finance for investment out of the market. On the contrary, debt-financed government spending adds to the demand for privately produced goods and services, and the bonds provide a home for the excess savings. When employment returns to normal, we can return to debt reduction.

Some foreign pollicy experts think that Solow is being too sunny.  Take Council on Foreign Relations president Richard Haass:

 

With respect, I think Solow is actually being too pesssimistic, and Haass is being way too pessimistic. 

The problem is that, contra Solow, I suspect Americans are keenly aware of his points 1-5.  The United States owes a lot of money to China, but I'd wager that any poll of U.S. citizens would reveal that the public thinks we owe even more to China than we actually do. Similarly, much of the policy rhetoric coming from Washington focuses on fears of incipient inflation that have yet to pan out. 

It's Solow's last point that is the one Americans need to hear more: in an era of slack demand, bulging coporate cash coffers, and recovering personal savings rates, it's actually pretty stupid to have U.S. government spending and employment contract so quickly. I fear, however, that excessive concern about Solow's first, third, fourth and fifth points will swamp out the rest of his op-ed. 

As for Haass, I'm not exactly sure what "rising rates" he's talking about, as just about any chart you can throw up shows historically low borrowing rates for the United States government. Indeed, the U.S. Treasury is exploiting this fact by locking in U.S. long-term debt at these rates. As for foreign governments pressuring the United States, the fear of foreign financial statecraft has been somewhat hyped by the foreign policy community. And by "somewhat hyped," I mean "wildly, massively overblown." 

The bias in foreign policy circles and DC punditry is to bemoan staggering levels of U.S. debt. This bias does percolate down into the perceptions of ordinary Americans, which leads to wild misperceptions about the actual state of the U.S. economy and U.S. economic power. I'd like to see a lot more op-eds by Solow et al. that puncture these myths more effectively. 

Am I missing anything?