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Back in 2007, there was a new Democratic majority in Congress and there were four free trade agreements ready to be passed: Peru, Colombia, Panama, and Korea. Peru was voted through, but the rest were waylaid. A key argument for the delay was that these agreements had been crafted by the Bush administration without sufficient attention to Democratic concerns. Democrats were not opposed to free trade agreements in general, the argument went, just to bad free trade agreements.

Enter President Obama. He argued that it was possible to do FTAs properly. He launched into new negotiations with the Koreans. His team reached an action plan to address labor concerns in Colombia. After two and a half years of reworking, last night the results were put to a vote. I previewed this last week, but now it was to be put to the test. Could a Democratic president lead his party into a new bipartisan consensus on trade?

Here was the outcome (with data from the invaluable govtrack.us):

So, after years of toil, the share of House Democrats voting for FTAs went from just over 48% for Peru in 2007, to 16% (Colombia), 35% (Panama), and 31% (Korea) last night. So trade is no longer an issue that divides House Democrats – they are now relatively unified in opposition. The low tally on Korea is particularly striking since this was the most extensive FTA reworking by the Obama White House; it won the support of the United Auto Workers and House Ways and Means Ranking Member Sandy Levin (D-MI);  and it was also the clearest response to long-standing criticisms that the Bush White House had sought FTAs predominantly with economically minor trading partners.

Imagine you were an Obama strategist, looking at these numbers. The question before you is whether to make a serious push to address big pending trade talks, such as the Trans-Pacific Partnership or the woe-begotten Doha Round of global talks at the World Trade Organization. There would only be two reasons to do so: 1) You discovered a deep new belief in the virtues of trade; 2) You’re moving to the center and looking to work with the Republicans. Even if these conditions held, you would be unlikely to take on anything so controversial until 2013.

For those who are not trade mavens (most of the population), the maneuverings during this past few days over the pending FTAs and federal assistance for U.S. workers must seem bewildering.

On Thursday, we were treated to the spectacle of Senate Republicans, who strongly support the FTAs, blocking a Finance Committee session that would have advanced the agreements, allowing Senate Democrats and the Obama administration, with brazen hypocrisy given their dubious and erratic record of supporting trade liberalization, to label the Republicans obstructionist for “boycotting … job creation legislation.” Most of the press picked up and followed this line, either implicitly or explicitly laying the blame at the feet of GOP senators.

Phil Levy argued in an earlier blog post that the administration’s handling of this whole affair was “clumsy,” “slapdash,” and risked jeopardizing months of work to reach a bipartisan accommodation on trade, and specifically the pending FTAs. Let’s stipulate that this is so—but, while we still don’t know all the details here, it also looks as if the Republican mixed signals certainly played into the administration’s hands. Last week, one assumes with the knowledge of the House leadership, Representative David Camp, chairman of the Ways and Means Committee, began negotiations with the White House aiming at a compromise that would both allow passage of the FTAs and some form of Trade Adjustment Assistance for American workers. The specific goal regarding TAA was to craft legislation that would essentially split the difference between the expansive (and expensive) 2009 version that was passed as part of the stimulus package, and the earlier, more restricted and less costly version authorized in 2002. On Tuesday, the White House and Senator Max Baucus, chairman of the Finance Committee, announced that a deal had been reached on TAA. They also sprang a surprise by announcing that the administration would combine in one trade bill (under rules that do not allow amendments) both the implementing legislation for the Korea FTA and the TAA compromise. Representative Camp issued a statement supporting the TAA substance compromise. He gave no indication that he opposed the combined Korea FTA/TAA approach, stating only that this “was a matter for the Republican leadership to determine.”

The attempt to slip TAA through in the FTA process took both the House majority leadership and Senate Republicans, who apparently not been privy to any of the negotiations, by surprise. And it infuriated Finance Committee Republicans, who felt particularly dissed by the substance and the process. The usually mild-mannered Senator Orrin Hatch gave a blistering critique of the administration and the president personally in his speech here at AEI. In addition, House Speaker John Boehner immediately disassociated the House Republican leadership from the president’s decision to combine the FTA and TAA legislation in one bill.

Under all of this, there is another complication—the belief by some Republicans that Camp had conceded too much on TAA to the administration, allowing too many provisions of the expanded 2009 TAA bill to remain in place. At the panel session we held here at AEI after Hatch’s speech on Thursday, the two speakers, Howard Rosen (long-time advocate for TAA) and Sallie James (a leading critic), who agreed on little else, both agreed that the “compromise” did not split the difference but went far in the direction of the administration’s position.

All of this presents real problems for congressional Republicans going forward. First, whatever its contents, when the compromise was announced, virtually every leading business trade association lauded the effort—and gave no indication that they cared about the technical details of combining FTA with TAA legislation in one package. Implicitly, they were and are saying to Republicans: just get on with it. Second, it will be very difficult for Republicans in either house to go back and change the substance details on TAA. Some Senate Republicans oppose any renewal of TAA, while others were willing to go along with a scaled-down TAA. Finally, the whole episode raises important questions about communications and tactical unity between the House majority leadership and the Ways and Means Committee.

In the end, the administration may well have the upper hand—it can demand that as the price for splitting the two issues, Republicans guarantee and bring up TAA first.

To close on a cynical note—yes, I know it’s the Fourth of July weekend where unified patriotism should prevail—politically, the administration may calculate that it wins either way: if the Republicans cave on TAA and the FTAs pass, the president will get credit; if TAA fails and the FTAs also go down, he can tell free traders he tried and still bask in union support for the same failure—not a bad outcome looking toward 2012.

It never fails. Every time oil prices rise or fluctuate, politicians are quick to blame speculators trading oil futures contracts for the high prices and price swings. If politicians are correct about speculators and they were able to pass legislation outlawing all oil futures trading, what would happen to the volatility of oil prices in the future—would it be higher or lower? Probably much higher if we look at the historical volatility of the prices for onions, which is one of the only commodities that has no futures market, thanks to legislation passed by Congress in 1958 that banned all futures trading in onions.

The chart above displays the monthly percentage changes in oil and onion prices over the last decade, and clearly shows that despite the ban on onion speculation, the volatility of onion prices has actually been significantly higher than the volatility of oil prices, even though thousands of speculators are taking positions every day on the future price of oil. Futures markets for oil and other commodities that allow speculation play a very beneficial role in the economy by smoothing out commodity prices over time. That was the main motivation for starting the Chicago Board of Trade back in 1848—to stabilize volatile commodity prices with futures trading. The extreme price volatility of onions in the chart above gives us an idea of how wildly oil prices might fluctuate in the future without the stabilizing effects of speculative trading in oil futures contracts—and that’s a “speculation-free” future that would make us all much worse off than we are today.

The Obama administration made an important step yesterday in unblocking the U.S. trade agenda. It asked Congress to begin technical discussions on passing the free trade agreement (FTA) with Colombia.

This was the move that trade advocates on the Hill had been waiting for. After a long history of stalling on trade issues, the administration negotiated some minor revisions and embraced the FTA with Korea at the end of last year. In the process, they won the backing of the United Auto Workers. Congressional leaders urged the administration not to stop there; they wanted the pending FTAs with Colombia and Panama to move as well.

The administration ultimately consented, but the Colombia agreement faces unified opposition from the U.S. labor movement. In explaining this opposition, AFL-CIO President Richard Trumka in March gave the graphic example of a Colombian unionist named Dario Hoyos who was murdered.

Dario was assassinated. It was on a bus. …They stopped the bus with all the workers on it, make you kneel down on the ground, and they put a bullet through Dario’s head. …

And (the Colombians) called us and said: We have great news. We’ve convicted the men that have killed Dario Hoyos. And I was excited about that, until I found out that they convicted them in absentia. They are still at large. They named four people convicted and then said, that one’s solved; let’s move to the next one.

… That’s why we oppose (the agreement) and that’s why we think before you go with a partner, you should choose them carefully so that you don’t aid and abet that type of thing.

Colombia is a violent country. It has made great strides in addressing that violence, but violence still remains. Dan Griswold and Juan Carlos Hidalgo of Cato have documented the country’s progress. Among their findings:

Union members enjoy greater security than other vulnerable groups of Colombian civil society, such as teachers, councilmen and journalists. … economists Daniel Mejía and María José Uribe of the Universidad de los Andes in Colombia … found no statistical evidence supporting the claim that trade unionists are targeted for their activities.

Trumka’s reasoning seems to be that it is unconscionable to deal with a country where there are murders. Yet, in its latest statistics, the FBI reports that there were 13,636 murders in the United States in 2009, in 20 of which employers were known to have murdered employees. The question, in both Colombia and the United States, is whether these crimes were supported or condoned by the government, or whether they were instances in which it proved impossible to enforce laws perfectly. In both cases, it appears that the governments are working hard to stop such crimes, with significant but partial success.

In neither country should the stubborn persistence of violence serve as an excuse for forgoing the closer relations and mutual benefits that a free trade agreement would bring.

World trade negotiators are to gather this week in Geneva to make a last-ditch effort to conclude the decade-old talks, the Doha Round. If that news inspires a sense of déja vu, you may be a veteran trade-watcher. There have been enough “last ditches” to inspire visions of a deeply furrowed field.

Prospects this time around do not seem much brighter. Global trade diplomacy has not flourished under the Obama administration’s “lead from behind” approach (with a hat tip to the New Yorker’s Ryan Lizza for the felicitous phrase). Even if expectations are low, however, the stakes may still be high. That’s a message of a new (free!) e-book compiled by Richard Baldwin and Simon Evenett on the Vox website. It has contributions from me, my colleague Claude Barfield, as well as luminaries such as Anne Krueger and Ernesto Zedillo.

This is unlikely to be enough to get the round out of its last ditch (the pen isn’t that mighty), but it will at least provide guidance on whom to blame and the implications of the failure.

The CPB Netherlands Bureau for Economic Policy Analysis released its monthly report today on world trade and world industrial production for the month of February. Here are some of the highlights:

1. World trade volume increased in February for the seventh consecutive month, bringing global trade to a new all-time record high (see chart below).  This was also the third month in a row that world trade was above the previous peaks during early 2008, when the U.S. recession and financial crisis started spreading, causing world trade to drop by 20 percent in 2009.

2. World trade in February was 10.5 percent above its year-ago level, and marked the 14th consecutive month of double-digit annual growth starting in December 2009. Compared to the cyclical high in April 2008, world trade volume has recovered to a level that is now 2 percent higher than its previous peak. Compared to the cyclical low in May 2009, global trade has increased by 28 percent through February of this year.

3. World industrial output was the same in February compared to January, but was above its year-ago level by 7.4 percent. World output in the first two months of 2011 established a new, all-time record high level, which is 5.2 percent above the previous cyclical high of 134.4 in March 2008 (see chart above).  After dropping by 12 percent during the global recession in 2008-2009, world output has increased by almost 20 percent during the last two years of a strong global rebound. Global output has increased in almost every month compared to the previous month during the worldwide recovery that started in 2009, with only one month of decline in industrial output in the last two years.

Bottom Line: Based on the ongoing and solid improvements in both international trade and world output, especially the fact that both are at all-time historical highs, I think we can safely say that the world economy has made a complete recovery from the financial crisis and global slowdown in 2008 and 2009. The remarkable recovery in the global economy over the last few years is a testament to the ability of markets to recover from even a severe financial crisis and the worst economic slowdown in generations. There are still many uncertainties and headwinds moving forward, but the strong world economic recovery to date is both remarkable and encouraging as we hopefully enter a new cycle of global growth, expansion, and prosperity. To paraphrase Warren Buffett, “The world economy’s best days lie ahead.”