Obama's messy free-trade message

The president is trying to satisfy free marketers without getting on the bad side of labor. He could just tick everyone off.

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By Nina Easton, Washington editor

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WASHINGTON (Fortune) -- Trying to decipher where President Obama really stands on free trade can be like trying to trace the U.S.-Mexico border with a Google map. There are words, and there are actions - but there is mostly that long squiggly line in between.

Here are the words: "Trade is an important engine for economic growth," Obama declared during last week's visit by Brazilian President Luiz Inacio Lula da Silva. One month earlier, as NAFTA partner and Canadian prime minister Stephen Harper stood at his side, he said, "We have to be very careful about any signals of protectionism."

Here are the actions: a "Buy America" provision in his stimulus bill; and in the omnibus spending bill he just signed, the cancellation of a NAFTA-created pilot program allowing limited fleets of regulated Mexican trucks to use U.S. highways.

And here are the squiggles: The Buy America provision was watered down to make it virtually toothless. And earlier this week, when Mexico threatened to retaliate over the trucking cancellation by imposing tariffs on U.S. goods, the White House insisted the program isn't kaput - it's just, well, being refined.

The Mexican government clearly didn't find the White House's latest squiggle to be a satisfying response. On Wednesday, the country released a list of products - ranging from Christmas trees to pet food and toilet paper - that would be subject to retaliatory tariffs. That sounds pretty close to the kind of trade war President Obama has insisted he's eager to avoid.

At a snail's pace

Obama's first budget (a brief 140 pages by historical standards) audaciously lays out an ambitious agenda to reshape the federal government's role in the economy. But on trade - the engine of a world economy now in crisis - the president remains timid.

Whereas he wants to move most of his massive agenda - including sweeping healthcare and energy reforms - at mind-numbing speed, on trade he intends to delay and delay. "It may be difficult for us to finalize a whole host of trade deals in the midst of an economic crisis like this one," he said last week.

Obama is awkwardly trying to figure out how to position himself as a reformist free-trader without angering the anti-trade labor leaders who remain a central piece of his political coalition.

The Mexican trucking program was supposed to launch in 2000, but it was delayed repeatedly until 2007 because of organized labor and its allies in Congress. The Teamsters union, which has maintained that Mexican trucks are unsafe, is virulently opposed to it. (The Mexican trucks in the program are required to undergo safety certifications, and their government - which exported $215.9 billion worth of goods here last year - argues that its transporters shouldn't be forced into the costly and inefficient process of unloading cargo onto U.S. trucks.)

By keeping Mexican trucks off U.S. roads, the president sends a message that he wants to protect U.S. workers' jobs. But as he saw first-hand last month on his visit to Caterpillar Inc., the interests of workers - especially unemployed workers - aren't always in sync with the interests of their protectionist unions.

The Peoria, Ill.-based company - the world's largest mining and construction equipment manufacturer - has been battered by layoffs, and the White House had hoped its location at the heart of the nation's rust belt would provide an apt symbolism for the President's visit. "In many ways," Obama said there, "you can measure America's bottom line by looking at Caterpillar's bottom line."

What he didn't say was that Caterpillar counts on 60% of its revenue from foreign sales. Obama also didn't mention that Jim Owens, whom he appointed to his Economic Recovery Advisory Board, made it a point to tell him on Air Force One on the way to Peoria that a Buy America provision would mean retaliation from trading partners against companies like Cat.

That conversation may have contributed to the president's decision to recalibrate his message - he now says any Buy America provision must not violate World Trade Organization accords. And he told reporters during the Peoria trip that "a downward protectionist spiral [is] very dangerous."

Protectionism isn't the only problem on the table. The U.S. already risks falling out of step with the rest of the world on other trade fronts. During the height of the Democrats' protectionist rhetoric in last year's presidential campaign, then-U.S. Trade Representative Susan Schwab raised a serious concern: Even if a new White House didn't backtrack on trade - by reopening NAFTA, for example - a failure to move forward on new trade deals would put the U.S at a competitive disadvantage.

That failure is beginning to become apparent. This week, the South Korean government announced that it is close to a free-trade deal with the European Union. Meanwhile, a U.S. deal with South Korea is one of three trade agreements now languishing in Congress.

Let's hope President Obama's inability to deliver a clear message and act quickly aren't kicking off that downward spiral he claims to fear. To top of page

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