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Richmans' Trade and Taxes Blog
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. ...
In an incredible display of sycophancy, the document asserts that the administration’s goal is “Making Trade Work for America’s Working Families.” America’s Working Families? They have been the big losers as a result of our tolerance of our huge chronic trade deficits. The document 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.” That remains to be seen. Since the President took office, the unemployment rate, including those who lost their factory jobs as a result of the trade deficits, has continued to grow and grow.
The Trade Representative gives lip service to the lip-service of the G-20 nations who pledged in 2009 to work toward balancing trade. It displays the same Pollyanna-ish reliance on market forces. All we have to do is increase our exports by $800 billion. His report states that the U.S. has reacted to unfair trade practices by imposing countervailing duties on countries committing infractions of trade rules like dumping (Chinese tires) and even getting China to further open its market to “American wind energy products.” Just the other day, there were protests in the Congress against imported wind turbines, which, to add injury to injury, are heavily subsidized by the U.S. government. The President has set a goal “of doubling U.S. exports in the next five years” to create 2 million jobs. He created 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. It joins hundred of federal agencies designed to do-good but end up doing-nothing.
The report recites: “Effective trade policy helps increase exports that yield well-paying jobs for Americans … studies show that firms engaged in trade usually grow faster, hire more, and on average pay better wages than those that do not. In recent years, exports of manufactured goods have become an important source of employment, supporting almost one in five of all manufacturing jobs.” No mention, not a single mention of the jobs lost to imports, the amount of the trade deficite, and the declining number of employees in industry, month after month after month! There is this acknowledgment, “We have to be frank in recognizing that some Americans lose jobs as markets shift in response to trade.” So we have enacted a Trade Adjustment Assistance Act to assist those who lose their jobs to adjust to their new status. No new export jobs are created by the Act.
That is about all the response the loss of millions of American jobs has occasioned. Nothing to balance trade except statements that we need to be more competitive and the international community (the G-20?) should increase their domestic consumption and imports as part of a more balanced growth strategy! Don’t hold your breath.
It announces to the world that the United States is committed to the multilateral trade rules of the WTO system, to trade liberalization “through negotiation and a defense against protectionism”, the strongest country in the world announcing that we will not take unilateral action against the mercantilist practices of such “weak” countries like China, Japan, Germany, and OPEC. They can continue their practices, impose barriers to our exports, grant subsidies to their exports until we petition the WTO for a remedy. The WTO rules already authorize countries experiencing chronic trade deficits to take unilateral action including the imposition of tariffs and other barriers to imports. Why haven’t we done anything to protect our industry and industrial workers from such destructive trade practices? La-de-da, it would be so unbecoming a great nation. Our elitists want to be loved by the world’s elite, who are by-and-large antii-American.
Attempting to counter the impression that it is doing nothing, the report points to its action responding to “a harmful surge of Chinese tire imports”, challenging restrictions on U.S. exports of agricultural products, and filing suit over Chinese export quotas and duties on raw materials needed by core U.S. industrial sectors from steel and aluminum to chemicals. Good, those are useful actions but the number of jobs created relative to the number of jobs lost to the trade deficits is infinitesimal.
What the U.S. has been engaged in is talk, talk, talk. It needs to concentrate on jobs, jobs, jobs. The government has engaged in discussions, just talk, with China, India, Brazil, Russia. It sponsored and entered into negotiations for a regional, Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement, with Australia, Brunei, Chile, NewZealand, Peru, Singapore, and Vietnam. Not one industrial job has been created or ever will be.
Another initiative is the Asia Pacific Economic Cooperation (APEC) forum. The U.S. will host APEC in 2011. The report writes, “To this end, we are coordinating with the 2010 host nation, Japan, on an ambitious agenda that engages APEC’s broad membership on crucial trade and investment topics for the region’s future. Initiatives in APEC are a successfully demonstrated way of building a stronger and constructive American role in the Asia-Pacific market.” Aside from costing a lot of money and providing a free vacation to a lot of anti-Americans, how many jobs producing goods for export will it create? Not a single job.
The report recites that “Bilateral relationships are crucial. But as we know, multi-faceted regional economic relationships are of major, and even growing, importance for United States and for the world.” Where is the evidence that it is important, let alone of increasing importance, to the U.S. The administration is doing and plans to do a lot of talking. In place of jobs, jobs, jobs, it is placing emphasis on talk, talk, talk.
Comment by Deb, 3/11/2010:
Thank you very much for your insights into our dysfunctional trade policies and the major players involved. Your efforts are greatly appreciated and wholeheartedly agreed with!
Comment by real_econ, 3/13/2010:
You write very well. Can you perhaps write a story on this subject:
Comment by Bruce Considine, 3/20/2010:
You think Krugman will make any headway?
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