Three Levels to Bush Trade Policy

2. Three Levels to Bush Trade Policy

Global Round Regional FTAs Bilateral FTAs Global level: WTO Doha Round is in danger Partial success on the regional level Central American deal passed with one-vote margin Middle East FTA sees piecemeal progress South African talks not moving FTAA completely stalled by U.S.-Latin American discord Many bilateral FTA deals pending

3. Trade Deficit Shows Improvement

4. U.S. Exports Hit Record Level

Solid growth in exports driven by strong global economy U.S. exports up 11% through April year-on-year Exports to EU up 15% in 2007, up 5% to Japan Dollar depreciation should stimulate further exports

5. Doha Round Offers Big Challenges

Doha Round now entering critical phase U.S. hopes for gains in market access, transparency, IPR, government procurement, etc. U.S. wants to protect anti-dumping rights Intensifying talks may be the last hope Developing countries complicate deal-making Pressure on U.S., EU, and Japan to cut farm subsidies No agreement yet on non-agricultural market access and services Trade-off of limited agenda to complete Round quickly vs. complete failure?

6. Bilateral FTAs are Key to U.S.

Four FTAs await Congressional implementation Korean FTA is the most important pact since NAFTA Faces uncertain future over rice, beef, autos, etc. Panama and Peru accords likely to be approved by Congress by end of summer Colombia FTA attacked by liberals over drugs and crime Many bilateral talks pending Thailand talks suspended U.A.E. stalled by disputes and TPA Ecuador and Malaysia talks inactive Renewed talk of U.S.-Japan FTA??

7. Intensifying Trade Friction with China

$233 billion U.S. trade deficit with China last year 1.8 million U.S. jobs lost due to China trade surge Congressional critics angry over Beijing currency policy and �unfair� trade practices China increasing value-added production Moving into technology goods, cars, auto parts, etc. Study says U.S. loses $20 billion/year to counterfeiting New fears over safety of food and other goods Mid-May SED summit failed to reach breakthrough Treasury Secretary Paulson stymied in currency talks China�s $1.4 trillion in foreign currency reserves causes worries over potential buying binge

8. New U.S.-EU �Trans-Atlantic Market�

April 30 agreement between Bush and Merkel sets stage for deeper economic relationship Not willing or able to move to FTA negotiations Create new �Trans-Atlantic Economic Council� Goal of a �barrier-free market� through harmonized regulations and standards Move to common accounting rules Common standards for agriculture, food safety, and sanitary and phyto-sanitary measures Common standard for auto safety and fuel economy rules Common procedures for safety of electrical equipment Move toward de facto global standard setting

9. Bush Middle East Trade Goal

Middle East Free Trade Area (MEFTA) to cement friendly, market-oriented regimes U.S. has BITs with Bahrain, Egypt, Israel, Jordan, Morocco, and Tunisia Bilateral FTAs for best-performing countries 1985 U.S.-Israel FTA (includes Palestinian Authority) 2001 U.S.-Jordan FTA 2006 U.S.-Morocco FTA 2006 U.S.-Bahrain FTA 2006 U.S.-Oman FTA Eventual goal of merging FTAs into MEFTA regional pact

10. Congress More Reluctant on Trade

New Democratic Congress is more anti-trade Stronger influence of labor unions and more focus on worker protections Many lawmakers question the benefits of trade and globalization Top leaders Rangel and Baucus are relatively pro-trade Both Democrats have key trade interests to promote USTR and Congress agree on new trade approach International labor principals added to pacts Environmental rights to be integral to agreements IPR protections for pharma and other industries Little leadership on trade from Congress

11. Congress Divided on Trade Policy

Left-wing free-trade opponents: Labor unions Consumer groups Environmentalists Human rights advocates Mainstream churches Right-wing free-trade opponents: Populists �Christian Right� Protected companies Free-trade supporters: Big business Agriculture Congressional Democrats Delegation dominated by liberals Congressional Republicans Delegation dominated by conservatives

12. Bush�s Trade Negotiating Power Expires

�Trade Promotion Authority� expires at end of June �Fast track� allows speedy Congressional approval of trade deals without amendments to implementing legislation Real limits on trade negotiations without TPA for Bush USTR Susan Schwab now negotiating with Congressional Democrats on TPA renewal Extension not certain Possibility of a limited TPA for Doha only Bush and business lobbyists campaigning

13. Outlook for U.S. Trade Policy

Public and Congress grow skeptical of globalization Job insecurity, fears over healthcare and pension benefits, etc. Easy to rally anti-trade mood in 2008 elections Tougher rules for foreign investors in U.S. Tougher environment for new negotiations Strong pressure to enforce existing U.S. trade laws Continued use of sanctions with problem countries Sudan, Iran, Cuba, North Korea, etc. More scrutiny of new pacts but not �protectionism� and no revoking existing trade deals Limited U.S. leadership on global trade issues

14. Sharp Friction Over Currency

White House does not name China as �manipulator� Congress targets undervalued currencies Bills could win veto-proof majorities in Congress Bipartisan bill would allow trade actions and WTO cases Dodd-Shelby bill would redefine �manipulation� Legislation targeting �misaligned� currencies would also hit Japan, Taiwan, and other countries

15. Fed Not Likely to Ease Rates

Inflation remains the Fed�s �predominant policy concern� Bernanke still establishing his inflation credentials Chance of a rate increase by end of 2007 Energy inflation and low unemployment limit Fed options

16. Headline inflation at 2.2%, still above Fed�s 2% target Energy price jumps 5.4% in May, adds to risk of inflation Weak dollar will also feed inflationary pressures Fears of global inflation hits bond markets

Inflation Risk in U.S. and Globally

17. U.S. May be the �Weakest Link�

The �locomotive� of the global economy is looking shaky Unemployment rate falls to 4.5% Rate for adults is a five-year low of 3.9% Blue Chip forecast sees 2.8% rate in Q2 White House confident on 3.1% GDP for 2008

18. Oil and gas prices expected to remain at elevated levels Oil forecast shows higher prices through summer Natural gas to average $7.84 for 2007, up 90� from 2006 Gasoline sets all-time record price in May 2007 Growing risk of inflationary pressures on economy

Energy Prices Threaten Economy

19. Middle East critical to supply Iraqi output, still less than 2 million bpd Heavy reliance on Saudi excess capacity Risk of an Iranian/Persian Gulf oil cut-off Latin American leftists use energy as political tool Venezuela�s Chavez threatens U.S. supply Bolivia and Ecuador go after foreign energy firms Rebels in Nigeria disrupt exports U.S. gets more oil from Africa than Middle East Dependability of Russian supply a major concern U.S seeks alternative pipelines outside Russia

Washington Worries Over Energy

20. Middle East Crucial to U.S. Oil Imports

U.S. consumes 20.6 million bpd, of which 12.3 million bpd are imported Imports cover 60% of total demand Over 3 million bpd of U.S. oil imported from Middle East

21. Range of Tough Foreign Policy Issues

Terrorism and energy drive Bush foreign policy White House struggles to manage Iraq war plus Iranian and North Korean nuclear crises Lebanon and Palestine on the verge of chaos and war Troubling turn in U.S.-Russian relations Missile defense, WTO bid, democratic slippage, etc. Africa a key focus for Bush Tripling U.S. aid since 2001, plus Darfur and HIV-AIDS Seek South Asian security through India and Pakistan Try to revitalize alliances with Europe and Japan

22. U.S.-Russian Relations Hit New Low

Worst U.S.-Russia relations since end of Cold War U.S. missile defense plan outrages Russia Russian threat to target European capitals with nuclear missiles Complete disagreement on Kosovo independence Possible withdrawal from Conventional Forces pact Moscow calls for new global financial/trade framework Rejects �Western� domination of key international organizations Failure to complete Russian WTO accession deal Fears over Russian use of energy for political purposes U.S. decries democratic slippage in Russia Russia denounces U.S. �unilateralism�

24. Key question: Can Bush rebound?

Approve Disapprove Bush White House is in Trouble Bush Administration flounders with 18 months left in office Iraq war erodes authority Departures weaken staff as scandals and confusion reign Democrats attack often and effectively

25. 

Country is clearly in an unhappy mood Low unemployment, solid stock market, and modest growth not helpful Iraq is clearly driving public attitudes Republicans and Democrats both at risk Americans disapprove of Congress� performance by 65% to 27% Dissatisfied Satisfied Mood of U.S. is Grim

26. Slim Democratic Control of Senate

Democrats hold narrowest of margins of control in Senate Both Independents vote Democratic Majority Leader Harry Reid (Nevada) taking tough stands on Iraq, climate change, energy, etc. Senate rules mean compromise is required to pass any legislation Republicans have huge exposure in 2008 races 21 of the 34 seats up for election Senate

27. House Democrats Hold Solid Hand

Speaker Nancy Pelosi (California) leads fractious Democratic caucus Wide ideological split within caucus Many new Democrats represent conservative districts Margin of control is sufficient for most legislation due to strict House rules Iraq withdrawal language splits Democrats Entire House is up in 2008 House

28. Intense jockeying underway in Democratic Party A clash of Senators: Clinton, Obama, Dodd, and Biden all use Washington as springboard Former Senator and VP candidate John Edwards courts labor and left-wing voters Former VP, Senator, and Oscar-winner Gore has high visibility Governor Richardson brings very strong resume

Large Democratic Field for 2008 Democrats struggle over Iraq war and other liberal/moderate issues

29. Clinton Sees Her Lead Fade

Obama picking up strength Leads in some polls Hillary Clinton continues to slip Gore not running but has solid support Edwards slumping Other candidates fail to break out

30. Many Contenders on Republican Side

Former New York City Mayor Rudi Giuliani leads in polls but his social policies and divorces hurt him Independent Senator John McCain hurt by Iraq views Conservatives not happy with the leading candidates, looking for �Reagan-like� figure Mitt Romney has challenges of being Mormon and from Massachusetts Risk of an independent ticket with Senator Chuck Hagel and current New York Mayor Mike Bloomberg

31. Giuliani Holds on to Front-Runner Post

Giuliani keeps lead despite doubts Fred Thompson seeks conservatives� support Iraq policy takes toll on McCain Romney seeking to breakout Other candidates not getting traction

32. Volatile Outlook in U.S.

Iraq dominates Washington now Democrats also push tough investigations on Capitol Hill Firings of U.S. attorneys, global warming, CIA leaks, Iraqi WMD, veterans� health care, etc. Few issues with easy bipartisan solutions Immigration bill may pass, but now very political 2008 election campaigns now color all Washington activity Growing risk of frustration and gridlock Risk of weak U.S. leadership