Lost Decade

Obama’s Industrial Policy—David Frum

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Bruce Bartlett warns against the Obama administration’s temptation toward Japanese-style industrial policy:

[T]he Obama administration appears enamored with exactly the sort of industrial policy that Japan rejected [when it abolished the Ministry of International Trade and Industry in 2002]. Last year, the president promised to double exports over five years, a goal most economists considered fanciful; has promoted “Buy America” requirements that have roiled trade relations with Canada, the United States’ largest trading partner; and often extols the special virtues of manufacturing companies, proposing more special tax breaks for them just last week.

One provision of Mr. Obama’s reorganization plan that is of particular concern to free traders is folding the Office of the Trade Representative into the Commerce Department.

I know from personal experience at the Treasury Department that in internal administration discussions of trade policy the various agencies are expected to play certain roles. Commerce always defends whatever business wants because that’s its job. The Council of Economic Advisers always takes the principled free trade position, and so on.

At the end, the Office of the Trade Representative is the “honest broker,” a role that would be impossible for it to play as part of the parochial Commerce Department. The Office of the Trade Representative’s ability to fulfill this function is now assured by its position as part of the executive office of the president. This allows it to take the broad view of what is in the best interest of the country as a whole and bargain with our trading partners in good faith.

To effectively abolish the Office of the Trade Representative is a dreadful idea. It is a small agency; there are no efficiency gains to be realized by making it another bureau within Commerce. And no matter what promises are made to guarantee its independence, placing the Office of the Trade Representative within Commerce will inevitably politicize the office.