James Pethokoukis

The Nobel Committee in Norway says it awarded President Barack Obama the 2009 Peace Prize for “his extraordinary efforts to strengthen international diplomacy and cooperation between peoples.” (Congratulations, Mr. President.) In particular, the committee noted Obama’s multilateral approach on the issues of climate chance and nuclear disarmament.

But where has the president been when it comes to using diplomacy and cooperation to promote global trade, which is essential to global peace and prosperity? Given the infamous role of protectionism in the Great Depression, it’s no surprise that open and expanded trade has been at the core of the post-World War Two economic order, particularly during the past two decades.

The Great Recession, though, has shattered that consensus. An analysis by economists Barry Eichengreen and Kevin O’Rourke has calculated that “world trade is falling much faster now than in 1929-30.” Paul Krugman says trade “has fallen through the floor in a way that it literally never has before, including in the Great Depression.” Global Trade Alert, a trade watchdog group with links to the World Bank, found at least 121 protectionist measures had been implemented by G-20 nations during the past year.

Just of late, the EU imposed anti-dumping duties on steel pipe from China, while Australia may impose ownership limits on foreign buyers of big companies. “So far, traditional trade protectionism has been a low-grade fever,” said World Bank President Robert Zoellick said in a recent speech. “But the temperature is rising.”

And actions by the Obama administration and Congress show that America is hardly immune. Indeed, they have been spreading the disease. Among the protectionist outbreaks: The “Buy American” provisions in the $787 billion stimulus package, the blocking of Mexican trucks from U.S highways, the G.M. and Ford bailouts, inaction on pending free-trade agreements with Colombia, Panama and South Korea, tariffs on Chinese tires.

An American administration that seems disinterested in free trade? “You can drop the word ‘seems,’” says Bruce Josten, head of governmental affairs for the U.S. Chamber of Commerce.

Looking for an explanation? Here’s one: Bad economics makes for convenient politics. Since the Obamacrats might not be able to deliver the top two items on Big Labor’s wish list — reopening the North American Free Trade Agreement and passing rules making it easier to organize workplaces — they’re giving union supporters just about everything else.

Obama’s political advisers may not understand the importance of free trade, but his economic ones do. Obama should listen to them and begin to lead. Give Congress the greenlight to pass the free-trade agreements with Colombia, Panama and South Korea. Commit to getting the Doha trade round concluded within a year. The centrist Democratic Leadership Council also suggests that Obama reconnect trade to national security by asking Congress for a broad long-term waiver of tariffs for low-income countries and large majority-Muslim-majority states. Instead of increasing boosting aid to Pakistan, for instance, why not eliminate $360 million a year in tariffs on its exports?.

If Obama did all that, not only would he actually be worthy of the Peace Prize, but probably the Nobel Prize for Economics as well.

David Goldman over at the Inner Workings blog, notes a key anniversary:

Inflation had crossed into double digits after four years of mismanagement by the Carter administration. The gold price was rising (and about to hit an all-time record when the Soviet Union invaded Afghanistan the following Christmas). America’s international position had collapsed; the European elites believed that America would lose the Cold War; America was in deep recession even while inflation soar. Volcker had no choice but to raise the federal funds rate to 15%. The dollar stabilized but the US economy went into free fall.

The San Francisco Fed reported, “Volcker returned from the annual IMF meetings in Belgrade in early October “with his ears still resonating with strongly stated European recommendations for stern action to stem severe dollar weakness on exchange markets. Volcker decided to call a special meeting of the FOMC, a meeting that was not publicly announced, to be held on Saturday, October 6.”

Are we due for a repeat of the Oct. 6 tightening? Not a chance for the time being. No-one wants it, least of all the Chinese — which is why they continue to buy US Treasury debt, albeit at a much reduced rate. But unless the Obama administration finds some way to stop monetizing debt, something like this has to happen.

Apparently there is no idea bad enough that it can’t be resurrected by desperate politicians, as veteran Capitol Hill watcher Pete Davis notes at the must-read Capital Gains and Games blog:

This morning at a closed House Democratic caucus, a proposal to impose a windfall profits tax on health insurers to help pay for health reform gained support.  No details were presented, but the politics were right as numerous members emerged to endorse the idea.  Some members said as much as $100 b. could be raised over ten years.  It’s doubtful the Senate could pass it, but this is definitely a shot across the bow of health insurers.

The last windfall profits tax on oil, actually an excise tax, was enacted on April 2, 1980 as price controls were phased out.  It was repealed on August 23, 1988.  It was projected to raise $393 b. based upon oil price assumptions that proved so incorrect that it only actually raised $80 b.  On a net basis, after taking into account income tax deductions and lower receipts from the sale of oil from federal properties, the windfall profits tax only raised $38 b.  To say the windfall profits tax failed to achieve its objectives is an understatement.  This Congressional Research Service report provides the evidence.

My quick thoughts:

1) The complete abdication by the Obama administration on trade should disqualify him from the Nobel Peace Prize. Free trade has lifted hundred of millions out of poverty worldwide and promoted a closer global society. But the Obama White House has been as protectionist as any in memory. Free trade is that the core of  foundation of the post-World War II economic order.

2) Maybe Obama should accept PP on behalf of Reagan (defeating USSR), Bush I (freeing Kuwait), Clinton (free trade) and Bush II (liberating 50m).

3) Certainly with his recessionary economic policies (more taxes, more government, weak dollar), he is not going to win a Nobel for economics anytime soon.

Here is the press release:

The Norwegian Nobel Committee has decided that the Nobel Peace Prize for 2009 is to be awarded to President Barack Obama for his extraordinary efforts to strengthen international diplomacy and cooperation between peoples. The Committee has attached special importance to Obama’s vision of and work for a world without nuclear weapons.

Obama has as President created a new climate in international politics. Multilateral diplomacy has regained a central position, with emphasis on the role that the United Nations and other international institutions can play. Dialogue and negotiations are preferred as instruments for resolving even the most difficult international conflicts. The vision of a world free from nuclear arms has powerfully stimulated disarmament and arms control negotiations. Thanks to Obama’s initiative, the USA is now playing a more constructive role in meeting the great climatic challenges the world is confronting. Democracy and human rights are to be strengthened.

Only very rarely has a person to the same extent as Obama captured the world’s attention and given its people hope for a better future. His diplomacy is founded in the concept that those who are to lead the world must do so on the basis of values and attitudes that are shared by the majority of the world’s population.

For 108 years, the Norwegian Nobel Committee has sought to stimulate precisely that international policy and those attitudes for which Obama is now the world’s leading spokesman. The Committee endorses Obama’s appeal that “Now is the time for all of us to take our share of responsibility for a global response to global challenges.”