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What’s Romney is Really Up To? Softball Nationalism

ElectionOracle / US Presidential Election 2012 Sep 06, 2012 - 06:40 AM GMT

By: Ian_Fletcher

ElectionOracle

Best Financial Markets Analysis ArticleIn my 2010 book Free Trade Doesn’t Work, I speculated that the following might occur:

Both political parties are feeling the heat of an intensifying global economic challenge to the U.S. and are looking for ways to take the pressure off their voters.


Withdrawing from free trade (to an as yet undefined extent) is emerging as the consensus Democratic response, even if the party’s leadership doesn’t yet realize how deep are the forces driving this or how far it is likely to go.

The emerging Republican response seems to be keeping free trade while opposing immigration—which does not enlarge America’s shrinking economic pie, but does cut it into fewer slices per voter and is therefore politically salable.

The clearest sign of this emerging twin consensus was a pair of Congressional votes: on the Central America Free Trade Agreement on July 27, 2005 and on immigration amnesty on June 28, 2007. Prior to these votes, American politics was aligned on roughly nationalist vs. internationalist lines, with pro-free-trade and pro-immigration views tending to coincide on one side and anti-free-trade and anti-immigration views on the other.

But these two votes revealed a majority of Congressional Democrats embracing a pro-immigration, anti-free-trade position that may fairly be described as leftist, while a majority of Congressional Republicans embraced an anti-immigration, pro-free-trade position that may fairly be described as rightist. The nationalist and internationalist positions now have few remaining supporters in either party.

Both parties are thus inexorably reverting to their natural partisan positions of offering competing left- and right-wing solutions to the same underlying problem.

This firming of the ideological battle lines suggests that the trade issue may ultimately be resolved in a classic Left vs. Right firefight. This kind of transparent and accountable partisan choice is, of course, precisely the way democracy is supposed to work.

However, the trade issue has not yet fully crystallized in this way, so this process may well be aborted—most likely by the veto power of interest groups in each party—depriving the democratic process of a firm grip on the question. Or the debate could crystallize neatly along partisan lines but get bogged down in secondary issues, making other issues decisive for the electoral fortunes of the two parties. This could easily place a party in power whose trade position opposes what a majority of voters want.

I was wrong.

Instead of the Democrats turning against free trade and the Republicans turning against mass immigration, the Republican convention and platform reveal we’re getting something else.

The Democrats are plunging ahead with free trade and mass immigration both. Indeed, with Obama’s support of the Trans-Pacific Partnership and his partial amnesty by executive order, they’ve further upped the ante on both policies.

The Republicans have turned against illegal immigration, and appear reasonably serious about deporting millions of illegal aliens over time. And Romney has pledged to crack down on China’s currency manipulation. He has threatened the use of countervailing duties if necessary, a repudiation of free-trade purism which would upend currency manipulation more generally and thus significantly reduce America’s trade deficit.

So the Republicans have grabbed both horns of the anti-globalization agenda, rather than one horn going to each party in a left-right split.

But before economic nationalists rejoice, they should note that the price of this double enthusiasm has been an, er, lack of enthusiasm. Because while the Republican party and its present standard-bearer appear to be sincere in these positions, the positions they’ve actually taken are fairly tepid.

Immigration isn’t my issue, so I’m not going to comment on the merits of the Republican position per se. But the party’s proposal includes a guest-worker program. So what the Republican proposal amounts to is expelling illegal aliens and then taking back either the same or similar people, only this time within the ambit of the law.

From an economic standpoint, i.e. from the point of view of labor markets, this isn’t much of a change at all. It even preserves, for the convenience of employers, the reduced set of rights that non-citizen workers have—either because they’re illegal and afraid of being deported, or because they’re gastarbeiter and don’t have citizen rights any more than tourists or holders of student visas.

Of course, there’s some wiggle room here, depending on the relative number of guest workers admitted vs. illegal aliens deported.  So maybe it’s not a quantitative wash after all. But barring a radical tilt in one direction or the other, this is a soft-nationalist policy, not a hard one.

On the currency manipulation side, retaliating against Chinese currency manipulation while not specifying what other supporting policies will or will not be applied, is also a fairly mild gesture. It could mean a whole lot, or not that much.

If, for example, America forces China to stop manipulating the dollar-yuan exchange rate, but does nothing about the backdoor protectionism and industry subsidies of China and other nations that run surpluses with the U.S, the effect on our deficit will be muted.  Or if America responds to Chinese currency manipulation with countervailing duties, but these duties are too low to make a difference, again we will have pulled our punch.

Above all, currency manipulation is only one tool among many that mercantilist nations can use to manipulate their trade.  We need to stop it, but doing so is not a panacea.

Furthermore, Romney has counterbalanced his promise of a crackdown on China with a promise to negotiate more free-trade agreements.  So, as in the case of immigration, he’s playing nationalist softball, not hardball.

This mushiness and uncertainty in the Republican positions is maddening from the point of view of the voter.  It’s a tease.  The party is saying that it might give the voters two fairly big things the voters actually want, according to polls, but just how much is up for grabs.

Looked at one way, the Republican party is actually playing a fairly rational game.  It’s offering voters just enough to entice them away from the other side, but no more. There are good reasons the party doesn’t want to go hard core on either immigration or trade, most of them being Republican vested interests that benefit from one or the other.

Before the readers asks—I believe the Republican pledges on both immigration and trade are probably sincere.  For one thing, if the party were simply spinning lies to win votes, they could certainly gin up much more popular lies on these issues. Both positions have been hedged with the kind of equivocation that says “let’s not go too far on this, as we might actually have to live up to it if elected.” 

I suspect the Republicans’ tactical embrace of these policies stems from the fact that significant sections of the Republican establishment are actually getting comfortable with them on the policy merits.  It’s a lot easier for a political party to embrace something for political reasons when it feels it can accept the actual policy results.

It’s no secret that the business interests that fund—and feel entitled to control what they paid for—the Republican party like cheap foreign labor.  So they’ve pushed for mass immigration for years.  A majority of House and Senate Republicans voted for the epoch-defining Hart-Celler immigration act of 1965.  Ronald Reagan passed an amnesty in 1986. George W. Bush tried to in 2007.  The anti-immigration Tom Tancredo wing of the party hasn’t been in control until fairly recently.

But I think these same business interests realize that, in an America where immigrants can actually become citizens and vote, they vote mostly Democratic, threatening the party’s electoral grip and thus its ability to deliver the rest of the business agenda, from low taxes on down.

So it’s a trade-off for Republican kingpins.  More immigrants means more cheap labor, but also more immigrant votes.

For two decades now, they’ve tried various expedients to square that circle.  But none have succeeded in getting enough immigrants to vote Republican to neutralize their political threat, and immigrant numbers continue to grow.

So business interests have flipped to the obvious alternative: admit cheap foreign labor on a guest-worker program without a path to citizenship and thus voting.

Similarly, Chinese currency manipulation was tolerated for a long time because it was part of the corrupt bargain Beijing has with the Fortune 500: tolerate our manifold abuses, from slave labor to theft of American technology, and you get to make lots of profits producing in China.

Trouble is, this bargain can’t go on forever. Eventually, China’s stripping of America’s industrial base starts to become a problem. For example, as China grows in technological sophistication, there grows the threat of China cutting out the Fortune 500 middlemen and just selling direct to the U.S.

Profits are nice, but not if the ultimate price is being shoved aside entirely by a Chinese company. The bottom line is that there’s a growing restiveness about China in corporate America.  At the very least, they want China shown that America can stand up to it, if only to firm up their own bargaining position.

Why hasn’t this same logic had any traction on the Democratic side? 

On immigration, the party sees mass immigration as a political plus, as it ceased to care about the native-born working class per se in the 1960s.

On trade, I’m not sure. As noted in the quote at the beginning of this article, I actually expected the Democrats to shift on trade, not the Republicans.

One key to my mistake was probably just overestimating the power of organized labor in the Democratic coalition. This power is real, but it’s mostly based on government-sector unions, whose workers don’t compete with imports, not the old industrial unions of yore.

Another possible explanation is simply that, as the party out of power, the Republicans know they have to offer something different to give the voters a reason to reject the incumbent.  They know there are a limited number of things they can offer the voters, and they’re putting together the most generous package compatible with the need to possibly have to fulfill their promises if they’re elected.

If Romney actually gets elected, what will he do?  My guess is, enough on both promises to avoid looking like he’s broken them, but no more. 

If the election heats up on these issues, or the public warms to them in particular, he may double down his bet, at which point voters will need to ask if he’s outrun his sincere intentions.

Way the game is played, folks.

Ian Fletcher is the author of the new book Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, $24.95)  He is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933.  He was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net.

© 2012 Copyright  Ian Fletcher - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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