Australian Financial Review

By Tom Switzer

Has America taken an isolationist and protectionist turn? Are we witnessing the demise of the Trans-Pacific Partnership (TPP), the 12-nation trade deal that includes Australia? And is Barack Obama pivoting away from the much-touted "pivot" to the Asia-Pacific region?

Given the Democratic Party's resounding rejection of Trade Promotion Authority (TPA) for the President, you could be forgiven for thinking so. But it's useful to put this great struggle in a broader context and recognise that, although Obama has suffered one of his biggest setbacks as President, it's (of all people) the Republicans who could salvage the trade legislation this week.

With a clear majority of Republicans, Obama rightly believes that the US has no choice but to fight for more open trading rules in a market that accounts for nearly 40 per cent of the global economy. Doing so also means the US can set high standards for worker rights while protecting intellectual property. In order to negotiate a trade deal that Congress can either approve or disapprove without amendments, the President needs TPA, or "fast track," which every post-war president — but Richard Nixon — has been granted.

So on Saturday morning [AEST], the Republican leadership ensured that the House of Representatives follow the Senate and pass the bill that would grant TPA to the President. But Democrats initiated a surprise attack — "imagine Pearl Harbor as an inside job," editorialised the Wall Street Journal — and did what they all too often accuse Republicans of doing: obstruct Obama's keynote legislation.

Booby-trap own

It was one thing for only 28 out of 181 House Democrats to support their own President on the TPA. It was another thing for Democratic leaders to booby-trap their own president.

By exploiting an arcane point of legislative procedure — making TPA conditional on financial aid to displaced workers (Trade Adjustment Assistance or TAA) and then joining enough skeptical Republicans to oppose those very measures they've supported for decades — Obama's party sank its president's entire trade agenda.

How did it come to this? The answer lies in understanding that, since the global financial crisis in 2008–09, US Democrats have lurched to the left.

Clintonian "triangulation" and the "Third Way" are out. Full-throated appeals to left-liberalism are back. From increasing taxes to toughening regulations on Wall Street, the Democratic grassroots want to party like it's 1969.

Nowhere is this ideological shift more evident than trade. For much of the post-war era, free trade was a bipartisan consensus in Washington. Those days are over. Democrats, in cahoots with labour unions, blame trade deals with low-wage countries for killing jobs and depressing real wages in manufacturing. Never mind that the expansion of globalisation and the information revolution are happening with or without the TPP.

Not that you know it from anything Obama or Hillary Clinton have said.

Fighter without stand

In her keynote address yesterday, Clinton defined herself as a "fighter." Far from fighting she has not even taken a stand in recent trade debates. Even the once proud author of the "pivot" has not resisted the Left's gravitational pull, lest she face a serious primary challenge to her Democratic presidential nomination.

As for Obama, he has utterly failed to persuade his own party about the merits of free trade. It is passing strange that Obama has yet to give a televised national address on what he insists is his second-term legislative priority. Nor has he dedicated much time to the TPP in his State of the Union addresses.

Fast track is not dead yet. Its fate depends on Obama's ability to persuade Democrats to change their minds this week when Republican leaders plan a revote on the TAA plank of the legislation.

The significance of a loss would be enormous. It would represent a setback for the US economy, deal another humiliating defeat for Obama and probably doom the TPP.

Asian leaders could also conclude, reasonably enough, that a less active and assertive America means China may write the new rules for trade, cyber security, intellectual property and so on.

A win, on the other hand, bolsters the economic pillar of Obama's legacy-defining pivot towards the region. Asia would be dealing with a stronger and more confident President who has just demonstrated his ability to keep his own country — and party — with him on a highly sensitive political issue.

The coming days in Washington could mark a watershed in US trade policy, America's claims to economic leadership and the regional balance of power.

This article was originally published at Australian Financial Review