Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Rogoff predicts a U.S. Debt Crisis
Harvard economics professor Ken Rogoff is predicting that within the next few years, higher interest rates will precipitate a debt crisis in the United States. He predicted this economic future in comments at an economic forum, as reported by Bloomberg.com:...
Morici expects good jobs report on Friday
Peter Morici has been following the numbers for durable goods orders and thinks that they predict a good jobs report on Friday when the Bureau of Labor Statistics releases the employment and unemployment numbers for March. In an article at Seeking Alpha (Breakthrough Jobs Report Expected), he wrote:...
Lies, Damned Lies, and Chinese Statistics
Although it isn't clear that the Obama administration has taken it seriously, the Chinese government has clearly taken Paul Krugman's call for a 25 percent tariff seriously. On March 14th, Chinese Premier Wen Jiabao argued that efforts by the U.S. and Europe to get China to allow its currency to appreciate were protectionist. He also asserted China's committment to balanced trade.
But all this depends upon what the meaning of balance is...
U.S. Corporations not helping China avoid Krugman's tariff
In the mystery story Silver Blaze, Sherlock Holmes uses the clue that a dog didn't bark to help unravel a mystery. The significant thing that happened in U.S.-Chinese relations last week was similar.
With the exception of Morgan Stanley, which is partially owned by the Chinese government, American corporations did not comply with the Chinese government's request that they oppose the 25% across-the-board tariff on Chinese goods proposed on March 14 by Nobel Prize winning international economist Paul Krugman.
On March 19, Canada's Globe and Mail, reported that the Chinese government was asking those American corporations doing business in China to intervene on its behalf:
The Chinese are also courting U.S. multinationals that benefit from low-cost Chinese exports, hoping they will use their considerable lobbying clout to blunt any protectionist retaliation. Analysts say that is already happening.
But on March 29, Reuters reported (U.S. Companies Suddenly Shy on Chinese Yuan Squabble) that they are not barking. Here is a selection:...
Sidney Sherman traces start of America's decline to giving away our manufacturing to Asia
In today's American Thinker, Sidney Sherman traces America's decline (The Looting of America). He starts with our willingness to give away our manufacturing to Asia. Here is a selection:
Phase 1: Manufacturing 1990-2000
Well before the Clinton era, in 1991, I remember an acquaintance telling me that California would no longer be a manufacturing power, that its future was as an import-export center. I laughed it off at the time, but within five years, I was startled by this acquaintance's prophecy. Locally, entire business parks became ghost towns. Machine shops, PC board fabrication, painting companies, and a host of other small enterprises that supported larger manufacturing operations vanished from the landscape.
As the Clinton years dragged on, we became numb to the looting. As it became grander and bolder, we watched entire factories pack up and move. We heard the "giant suckin' sound." However, it wasn't coming from the south, but from across the Pacific. By the end of the '90s, we were just beginning to realize that we couldn't buy anything that wasn't made in China. Welcome to the "global economy."...
Volcker is realistic about China
Former Federal Reserve Chairman Paul Volcker, now head of Obama's Economic Recovery Advisory Board, participated in the Wall Street Journal's Future of Finance Initiative. When asked about China, here's what he said:
I think the Chinese are a little disingenuous to say, ‘Now isn’t it so bad that we hold all these dollars.’ They hold all these dollars because they chose to buy the dollars, and they didn’t want to sell the dollars because they didn’t want to appreciate their currency. It was a very simple calculation on their part, so they shouldn’t come around blaming it all on us....
Carbon tax: Sarcozy backs off, Sen. Kerry pushes forward.
Sometimes political parties change course when they find themselves advocating policies that would both hurt their country and their own future electoral chances. Sometimes they don't.
French President Nicolas Sarkozy of France is scrapping plans for a carbon tax that would hurt French competitiveness. He was responding to the defeat of his party in recent French elections.
Meanwhile, Senator Kerry is advocating that the United States go forward with a carbon tax despite its negative effects upon American competitiveness and despite the huge defeat of his party in a recent Massachusetts election....
Peter Morici: Our current China policy is "appeasement"
University of Maryland economist Peter Morici had another excellent commentary published today by Seeking Alpha (Google and the Larger China Challenge). He discusses the relationship between free markets and democracy in China:...
Krugman vs. Roach on US-China trade deficits
On March 19, in response to Nobel-Prize winning international economist Paul Krugman's call for a 25% across-the-board tariff on Chinese products, Morgan Stanley Asia Chairman Stephen Roach opposed the measure, arguing that America's low savings rate causes our trade deficit with China. Bloomberg.com reported:
Morgan Stanley Asia Chairman Stephen Roach said that Paul Krugman’s call to push China to allow a stronger yuan is “very bad” advice and that increased Chinese spending is a better way of reducing trade imbalances.
“We should take out the baseball bat on Paul Krugman -- I mean I think that the advice is completely wrong,” Roach said in an Bloomberg Television interview in Beijing when asked about Krugman’s call, characterized as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which is raising U.S. savings, Roach said.
Roach is making two arguments, both of them suspicious:...
Needed, a Cross-the-Board Tariff on Imports From China
In a recent article in Barron’s magazine, Dan Dimicco, CEO of NUCOR Steel, and Peter Navarro, Prof. of Economics and Public Policy at the University of California at Irvine, have joined a number of prominent public figures, including Nobel-prize winner Prof. Paul Krugman, who are criticizing the Chinese government for keeping the value of its currency low, arguing that it is responsible for our huge trade deficits and world-wide instability. Prof. Krugman proposed a substantial temporary tariff to force China to revalue the Chinese yuan.
They write: "In a world of free trade and floating exchange rates, the U.S.-China trade imbalance couldn't persist. As the U.S. trade deficit rose, the dollar would fall relative to the yuan, U.S. exports to China would rise, imports from China would fall, and trade would rebalance." We do not believe that the historical evidence justifies this conclusion.
The value of the yuan is not the real cause of our trade deficits nor will revaluing its foreign exchange rate have much if any effect on our trade deficits. As I wrote on this blog a few days ago, “In 1971 the United States under Pres. Nixon imposed a 10 percent surcharge on imports, which was removed when Germany, Japan and other nations raised the dollar value of their currencies. The German and Japanese revaluations hardly interruupted the growth of their trade surpluses. We believe that China would respond as Germany and Japan did following the U.S. action. They appeared to be addressing U.S. concerns but it was an empty gesture. In any case, it had little long-term effect.” We do not need a temporary tariff. We need to impose a uniform tariff on all imports from China, whose rate will rise and fall as the trade deficit increases and falls.
NY Times ignores China's R&D Rules
In a story in the March 17 New York Times celebrating U.S. R&D moving to China (China Drawing High-Tech Research from U.S.), Keith Bradsher completely failed to mention the Chinese government’s new November and December rules requiring that American firms move their R&D and patents to China as a condition for doing business with the Chinese government....
Why Krugman's China Argument Matters
Those who favor particular policy goals are fond of finding a nobel laureate in Economics willing to sign on to their particular policy perspective. In the totting up of endorsements, sometimes what gets lost is the crtical consideration -- does this nobel laureate specialize in knowing well the area that the endorsement involves...
Relative currency values are not static
The Canadian Globe and Mail has an excellent report on the Chinese currency issue. It reports that Congress has gotten into the act with a bipartisan Senate Bill sponsored by Senators Charles Schumer and Lindsay Graham.
But, I was especially impressed when an argument of ours from Trading Away Our Future got into print in this article. Here it is:
The Chinese allowed the yuan to appreciate by 22.5 per cent against the U.S. dollar between 2006 and mid-2008, but then froze it at a level of about 6.8 to the greenback in response to the global crisis, where it has remained. But its implicit value has been rising steadily, thanks to the Chinese economic gains during that time.
Obama's Trade Policy Agenda -- we're published in American Thinker this morning
Here's how we begin:
On March 1, 2010, Ambassador Ron Kirk, United States Trade Representative, disclosed "The President's 2010 Trade Policy Agenda." Although the agenda claims that the Obama administration has brought substantial change to U.S. trade policy, the policies it outlines have fundamental limitations likely to render its goals mere talk and its results insubstantial.
The agenda asserts that the administration's goal is "Making Trade Work for America's Working Families." The agenda asserts that "President Obama's economic strategy halted the slide into a deep economic crisis and laid the foundation for renewed American prosperity that is more sustainable, fairer for more of our citizens, and more competitive globally." But the facts are not so rosy. Since Obama was inaugurated, America's working families have lost 1 million more manufacturing jobs, the unemployment rate has soared from 7.7% to 9.7%, and real U.S. GDP has declined by 2.4%. The United States may be out of the recession, but isn't yet out of the depression.
The agenda announces that President Obama has set a goal "of doubling U.S. exports in the next five years" to create 2 million jobs. It creates a new bureaucracy called the Export Promotion Cabinet which will fund export promotion programs, tools for small- and medium-sized businesses, reduction in barriers to trade, and open new markets. According to the agenda, government officials, in their extreme wisdom, have selected which industries should be promoted, specifically:...
Krugman on China currency
Revaluing the Yuan Will Not Balance Our Trade with China; Tariffs Will.
Nobel Prize-winning economist Prof. Paul Krugman, in a series of recent op-eds, has decried China’s policy of keeping its currency, the renminbi or yuan, undervalued to maintain and grow its chronic trade surpluses with the U.S. and other nations. An increase in the value of the rrenminbi relative to the dollar would make Chinese goods more expensive to Americans and U.S. goods less expensive to the Chinese which economists believe would stimulate demand for U.S. made goods and reduce demand for Chinese made goods. The trouble with this view is that the Chinese government denies consumers the foreign exchange required to import U.S. goods and services. In 2008, our trade deficit with China reached $268 billion, representing a loss of about 2.7 million US industrial jobs over the course of the last two decades. In 1989, our trade deficit with China amounted to $6.2 billion, or about 1/40th of the 2008 deficit. In 2008, our trade deficit with the rest of the world totaled over $800 billion, roughly equal to Pres. Obama’s economic stimulus plan to exit the recession. Balancing the trade deficit at the 2008 level of imports would create 8 million U.S. jobs.
In his most recent op-ed which appeared on the internet, March 14, Prof. Krugman called for a 25% percent increase in the value of the yuan relative to the US dollar, implying that such a revaluation of the renminbi would bring our trade with China into reasonable balance. A hundred and thirty US legislators of both parties have called for the U.S. to put pressure on China to revalue her currency. We do not believe that fluctuating exchange rates would be successful in reducing the trade imbalance. We believe there are many ways for mercantilist nations to restrict imports and subsidize exports in spite of a revaluation of currencies. ...
[The March 15 letter was circulated by Democratic Congressman Mike Michaud (ME) and Tim Ryan (OH) and was signed by 90 Democrats and 40 Republicans. Here is the text.]
Dear Secretary Geithner and Secretary Locke:
Paul Krugman calls for 25% cross-the-board tariff on Chinese goods
In a commentary in Sunday's New York Times (Taking on China), Nobel Prize winning economist Paul Krugman called for an accross the board 25% tariff on Chinese goods. Here is his specific recommendation:...
What is the real reason why the Obama administration won't do anything about China?
In a piece that extols Obama's trade policy, and recognizes that Chinese mercantilism is hurting the United States, the Washington Post excuses Obama's decision to do nothing, except talk, because of the danger that China might find "effective ways to retaliate." What retaliation are the Washington Post and the Obama administration afraid of?...
Washington Post: There's nothing that we can do about Chinese mercantilism
The business section of the Washington Post had an article which layed out Obama's trade agenda. When it came to China, they correctly identified Chinese trade policies as mercantilist and then concluded that there's nothing we can do about it. Here's the relevant passage in which they conclude that Obama is right in doing nothing:...
U.S. exports down in January
According to preliminary trade statistics released yesterday by the Bureau of Economics Analysis, U.S. exports decreased from $143.2 billion in December to $142.7 billion in January, showing that President Obama's plan to double U.S. exports over the next five years is off to a rocky start.
Meanwhile, U.S. imports in January went down even more, from $183.1 billion in December to $180.0 billion in January, suggesting that the American economy is headed downward into another recession....
The Obama administration has rejected the ideas we favor which would promote all American products indiscriminately. They prefer an industrial policy in which they get to choose the winners and losers. They have chosen the wind industry to be their winners and the industries that use energy to be their losers.
Christopher Horner had a commentary at Pajama's Media on March 9 on some shady practices within the relationship between the Obama administration and the American Wind Energy Association, a lobbying group. Here is how he begins:...
The Obama Administration's Agenda to Balance Trade
On March 1, 2010, Ambassador Ron Kirk, United States Trade Representative, disclosed “The President's 2010 Trade Policy Agenda”, a suicide pill for the U.S. economy. For three decades, every administration had more or less the same agenda and ideology: Ignore the trade deficits and just accept them as the inevitable result of competitive forces, which they are not. It follows that if China, Japan, Germany, and others want to exchange their valuable goods for mere greenbacks, why should we complain? We can print more.
It is hard to believe that that was and continues to be the attitude of the vast majority of economists. They’ve been brain-washed into believing that market forces must inevitably restore a balance of trade. Economic theory does not support that view. It applies only under certain conditions as we pointed out in our book, Trading Away Our Future (Ideal Taxes Assn, Jan., 2008). China, like Japan before it, was and continues to deliberately pursue the mercantilist policy of promoting a surplus of exports over imports by erecting all sorts of barriers to imports while subsidizing exports, keeping its currency artificially undervalued to make its imports expensive and its exports cheap, by buying U.S. financial assets to keep U.S.interest rates low to American consumers, to discourage savings and encourage consumption. Not until recently did an eminent economist like Prof. Paul Krugman condemn China’s mercantilist practices and suggest U.S. counteraction.
The slow-acting suicide pill suddenly accelerated in the mid-1990s. The result was the loss of millions of U.S. industrial jobs. How many? To balance trade at the level of imports in 2008, we would have to create eight million industrial jobs. The defenders of U.S. trade policy point to our achievement of full employment in 2007, neglecting to mention that the competition of factory workers who lost their well-paying jobs lowered the earnings of all workers. As a result, wages have stagnated over the past three decades, fewer workers enjoy middle class incomes, income distribution has worsened, and the U.S. is on the verge of becoming a second-rate industrial power if it has not already achieved that distinction. ...
British exports see biggest fall in three years
If wishful thinking were enough, then Britain's exports would be increasing right now, in time to get Gordon Brown reelected. However, in January they were falling not rising. Here's a selection from the story (Blow for Gordon Brown as exports see biggest fall in three years) from the London Evening Standard:
Gordon Brown's hopes of an export-led recovery before the general election were dealt a hefty blow today.
Official figures showed that UK exports suffered their biggest fall for more than three years in January....
Heritage Foundation's Terry Miller claims Obama is a mercantilist
Terry Miller, writing on the Heritage Foundation's website (Obama's Mercantilist Approach to Trade) claims that Obama is a mercantilist since he talks about balancing trade. Miller is making two fundamental mistakes: (1) he mistakes talk for action, and (2) he equates self-defense against mercantilism with mercantilism.
Here is the passage in which he mistakes talk for action:
We first heard Obama’s mercantilist approach in the State of the Union address. He called for greater exports, a “doubling” over five years. He proposed a National Export Initiative “to help farmers and small businesses increase their exports.” That’s policy code for export subsidies. He called for greater enforcement of trade agreements. That’s policy code for protectionism....
Here's the passage in which he equates self-defense against mercantilism with mercantilism:
[Obama's] 2010 Trade Agenda is a recipe for economic failure and stagnation. Much of the focus is on enforcing rules to restrict other countries’ access to the U.S. market. It’s a begger-thy-neighbor approach in which we would sell more to other countries while restricting their ability to sell to us. Such a model is unsustainable internationally: not every country can run a trade surplus....
Trading Away Productivity - Tonelson and Kearns in March 5 NY Times
Alan Tonelson and Keven Kearns of the US Business and Industry Council had a great commentary in he New York Times on Friday. They argue that US productivity measures are inaccurate:
But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.
The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.
This oversight is no secret: as Labor Department officials acknowledged at a 2004 conference, their statistical methods deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain.
They go on to argue that the United States needs a pro-manufacturing policy:...
Unemployment report shows stagnant economy in February
The latest unemployment report from the Bureau of Labor Statistics had unemployment stay at 9.7% while employment lost 36,000 jobs. In other words, the economy is still stagnating....
Prof. Ralph Gomory on Thomas Friedman's Innovation Delusion
What will post-industrial society look like? Why, just like pre-industrial society -- a few rich people and a lot of poor people. Like Brazil. Like India. Like Russia. The U.S. is becoming a post-industrial society. It is heading for bankruptcy, the inevitable result of the huge trade deficits we are running with the rest of the world. In 2008, our trade deficit on goods amounted to more than $800 billion, about equal to Pres. Obama's economic stimulus plan. Our industrial value-added in 2008 was $100,000 per worker. So the trade deficit on goods was the equivalent of 8,000,000 industrial jobs. Were our trade in balance with our imports, we would be experiencing full employment.
As Prof. Ralph Gomory, a mathematician turned economist, Pres. Emeritus of the Sloan Foundation, and former VP of Research and Development for IBM, put it in an opinion piece posted in The Huffington Post on-line entitled Manufacturing and the Limits of Comparative Advantage (7-8-09):
Each year we make up for the year's huge trade deficit, not by shipping gold, but by shipping IOU's: treasury bills which are essentially promises to pay later. As Warren Buffet puts it, "we are selling the nation out from under us." When we come to pay this enormous accumulation later we will then be poor indeed.
Prof. Gomory, who has become my favorite economist, has published another opinion piece in The Huffington Post (3-2-10) entitled “The Innovation Delusion,” this time lambasting Thomas Friedman, the well-known New York Times journalist and author, who believes we do not need to export manufactures – we can export innovation. Prof. Gomory writes:...
Commerce Dept. sets miniscule tariff on Chinese glossy paper
Yesterday, Commerce Secretary Gary Locke set a miniscule preliminary tariff, ranging from 3.92% to 12.83% on Chinese glossy magazine-quality paper to offset Chinese government subsidies to paper exporters. This miniscule tariff ignores the fact that Chinese currency manipulations alone provide a 20% to 40% subsidy on all Chinese exports as well as a 20% to 40% import duty on all American exports to China.
In February, a bipartisan group of 15 Senators wrote a letter to Secretary Locke asking him to "consider allegations that China's manipulation of its currency is a countervailable subsidy" when making this determination. The letter stated:...
Obama: 'It's very hard to ship windows from China'
President Obama is aware of the fact that his decision to stimulate the American economy without closing the trade deficit leak is producing jobs in China, not the United States. Even ABC News is onto this story. (See this report.)
In remarks on March 2 at Savannah Technical College, President Obama claimed that his "Homestar" program would subsidize American production because energy-efficient windows are produced in the United States and "it's very hard to ship windows from China":...
How not to export your way out of a recession
Wishful thinking is not working. Many trade deficit countries are hoping that growing exports will get their economies moving, but the trade surplus countries are not cooperating. The US economy is stagnating because of our trade deficit with China. The UK and Sourthern Europe are stagnating because of their trade deficits with Germany.
Bank of England Governor Merwyn King, UK's equivalent of Fed Chairman Ben Bernanke, understands the problem and sees a possible double-dip recession on the horizon as a result. The London Daily Telegraph (Europe at risk of a double-dip recession) reports:
Mr King said [trade] surplus countries around the world are not stimulating enough to offset belt-tightening by deficit states such as the UK, US and Spain, citing the eurozone as a "microcosm" of the problem. "I was struck by the mood at the G7 meeting in Canada, where several of the major economies around the world said quite openly that they were relying on external demand growth to generate growth in their economy. That can't be true of everybody," he said....
[Here is the text of the letter:]
We write to express our serious concern that the Commerce Department has failed to properly consider allegations that China's manipulation of its currency is a countervailable subsidy. U.S. manufacturers have filed at least 12 allegations - most recently on January 13 in the Coated Paper investigation - that the Chinese government is actively engaged in keeping the value of its currency artificially low to promote the growth of export-oriented industries. We urge the Department to properly consider the allegation and the information provided by petitioners in determining whether to investigate China's actions.
Around mid-July 2008, China abandoned any pretense of letting its currency appreciate. After a few years of modest progress, China's government, once again, has fixed the value of yuan against the dollar and walked away from its commitments to reform its currency policies. The result is continued undervaluation of China's currency - by some estimates as much as 40 percent - and serious economic harm to U.S. manufacturers forced to compete against subsidized Chinese imports.
For example, the value of China's paper and paperboard exports to the United States increased by 21 percent between 2006 and 2008, jumping from $1.9 billion to $2.3 billion. The dramatic increase in exports is due in large part to substantial Chinese government subsidies. Those government subsidies include China's continued devaluation of its currency vis-à-vis the U.S. dollar, a government policy designed to promote and fuel continued growth in export-oriented industries. As senators from key paper product-producing states, we are very concerned that domestic paper manufacturers and paper industry workers are substantially harmed by subsidized Chinese imports.
China's mercantilist policies are undermining the health of many U.S. industries - industries that inject billions of dollars into the U.S. economy and employ hundreds of thousands of American workers. In the face of China's actions to subsidize its exports at the expense of U.S. manufacturers and workers, the Department needs to act....
Journal of Economic Literature:
Atlantic Economic Journal: