President Barack Obama should renew the U.S.’s historic commitment to a liberal order of global trade by announcing two main priorities in his State of the Union address. First, bring currency manipulation under effective multilateral oversight. Second, promote global (as opposed to regional) trade liberalization by developing a bold post-Doha Round strategy.
The U.S. and other advanced economies have resorted to unconventional methods of monetary expansion in recent years. They were right to. However, near-zero interest rates and quantitative easing have depressed their currencies and left many developing countries, especially in Latin America, at a trading disadvantage. The risk of competitive devaluation -- currency war -- is real, and with this danger come the dual threats of excessive use of capital controls and outright resorting to trade protection.
Currency policy is, among other things, a species of trade policy, so the World Trade Organization should be given effective oversight powers. When depreciation is a byproduct of necessary steps to stimulate domestic demand, it can work to everyone’s benefit. When it’s adopted to create an unfair competitive advantage, it should be disciplined -- not by governments acting unilaterally, but as part of an approved international process. The WTO already has dispute-resolution powers and remedies. Currency policy should be brought within their remit.
The Doha Round of trade talks has stalled. Obama should commit himself to salvaging what he can from the negotiations, even if the comprehensive global deal once envisaged can’t be done. Beyond this, the U.S. should lead the way in improving the emerging new model of trade reform -- by ensuring that future bilateral and regional trade agreements are open-ended. This should be the rule: Countries willing to make the same commitments and accept the same trade standards as existing members should be admitted.
Obama should say that new trade deals will be framed, and existing agreements revised, with this commitment to openness in mind. Without this promise, regional trade agreements risk distorting trade flows and even dividing the world into competing blocs. With it, regional trade agreements can serve the goal of genuinely liberal trade.
(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own. This is one of 11 suggestions Bloomberg View columnists made for the foreign policy section of Barack Obama's State of the Union address. Read more here.)
To contact the writer of this article: Clive Crook at email@example.com.
To contact the editor responsible for this article: James Gibney at firstname.lastname@example.org.