The Return of Growth Economics
Passing a trade bill would mark the start of a new policy direction.
June 11, 2015 6:50 p.m. ET
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Photo: Getty Images
The House vote on trade-promotion authority scheduled for Friday is a key political test for Congress, and as we went to press Thursday Democrats and labor were making a last-ditch effort to kill it. But if a GOP majority puts the bill on President Obama’s desk, the moment could mark the start of a return to the politics of economic growth heading into the 2016 election.
The last major U.S. economic policy turn arrived in 2007 with the Pelosi Congress and the lame-duck Bush Administration. Keynesian “stimulus” spending became the policy default, accompanied by a wave of regulation across the private economy. The financial meltdown accelerated the trend by putting Washington back at the commanding heights of the economy, where it has remained. The result has been the weakest recovery in decades and stagnant real incomes.
Reviving so-called fast-track trade authority is a first step toward a return to the politics of growth over redistribution. The U.S. hasn’t negotiated a new trade pact from start to finish in nearly a decade, though in 2014 nearly half of U.S. goods exports went to our 20 free-trade partners. This has left U.S. companies at a disadvantage as competitors get an advantage in foreign markets.
But freer trade is about far more than increased exports or market share, as David Ricardo and Adam Smith taught. Open trade is more crucial for the imports that force U.S. firms to stay competitive.
Free trade breaks up domestic oligopolies the way Japanese autos did Detroit’s Big Three.
Americans benefit from lower-priced goods and stronger employers that can’t afford to become complacent.
Passing the trade bill will also open the way to a Pacific trade pact involving 12 nations that are some of the world’s fastest-growing markets. This includes Vietnam and the Philippines in Asia but also Chile, Peru and Mexico in this hemisphere.
A Pacific pact is central to Prime Minister Shinzo Abe’s reforms in Japan, which is essential to shake the world’s third largest economy out of 25 years of lethargy. It will also help the U.S. counter China’s growing clout in the Pacific, forcing Beijing to make further reforms if it wants to join a Pacific free-trade zone. More trade means faster growth which means expanding possibilities for political freedom—the opposite of the trend since 2006.
Some Republicans fret that Mr. Obama cannot be trusted with such negotiating power, though Presidents of both parties have had them. This gives his fading Presidency too much credit. The fast-track bill includes numerous provisions to block Mr. Obama from using a trade negotiation to impose an agenda he can’t otherwise get through Congress. If Mr. Obama’s Iran negotiations were subject to the same Congressional scrutiny that applies to trade, his nuclear deal would be dead on arrival.
Mr. Obama’s Presidency will vanish in 19 months, and his successor might be a Republican who will also want trade authority. A GOP White House and Congress will have a long list of priorities and limited political capital, so better to get fast track in the bank now.
Which brings us back to the potential for a return to growth economics. The House Republican majority is the largest since 1928, and key reformers are in place at key committees. Ways and Means Chairman Paul Ryan, who will deserve more credit than Mr. Obama if fast track passes, can then turn to setting the stage for tax and other reforms.
Trade may be the last major bipartisan accomplishment of this Congress given that Mr. Obama retains his veto. Democratic leaders are talking as if they will block spending bills and most other legislation to make the Senate look as dysfunctional as it was when they ran it.
But that shouldn’t deter the GOP from making incremental progress when possible. That could mean some corporate tax reform and income repatriation from overseas that could finance roads and bridges. They may also be able to ease the permitting for natural gas exports or lift the ban on oil exports.
Above all the GOP can set the stage for 2016 by pushing pro-growth initiatives that show voters what could happen if they elect a Republican President. The model here is the late 1970s when Jimmy Carter was President but the winds of reform fanned by William Steiger and Jack Kemp swept through even a Democratic Congress. Eventually House Republicans informed the Reagan agenda that led to the policy revolution that produced the boom of the 1980s.
It’s never easy to predict a major policy turn, and we’ve been too optimistic before. But Republicans have to start somewhere, and Friday’s trade vote is a down payment on their political sincerity and growth agenda. Mr. Obama will soon be yesterday’s man. The Republican Congress has a chance to set tomorrow’s agenda.
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