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Robert Borosage

By Robert L. Borosage
Co-Director Campaign for America’s Future

“Vandalism” screams the cover of the Economist, depicting Obama leaving an ice pick in the tire of free trade. (No racial overtones there; after all, as the president explained, he was black before he was elected.) When the president imposed tariffs on Chinese tire imports, following the ruling of the independent International Trade Commission, the free trade establishment went ballistic. David Rockefeller took to the op-ed pages to warn of the threat of surrendering to the protectionist instincts of his union allies. Editorialists from the Washington Post to the New York Times sternly rebuked the president for deviating from the free trade gospel. Surely, the heavens will tremble; trade wars impend; the apocalypse of Depression era Smoot Hawley tariffs are about to descend upon us.

Nonsense. Obama isn’t descending into the old trade debate. Remarkably, he has added another explosive issue to his already crowded agenda: that of transforming America’s global economic strategy. At the G-20 meetings in Pittsburgh, he succeeded in gaining international approval – including that of the Chinese – for a continuing review of the unsustainable imbalances in the global economy. The decision on Chinese tires may just be the president suggesting that he may put some teeth into digesting that change.

Like health care, climate change, and financial reform, the challenge is inescapable. America can’t go back to borrowing $2 billion a day from abroad to act as the world’s consumer. Americans can’t go back to spending more than they make, maxing out credit cards, treating their homes as an ATM machine. Those days are over.

That means, as the president has said, the US must spend less and invest more. We must produce more at home, and export more. If that is the case, then inevitably the surplus countries, the mercantilist nations that have used export-led growth to drive their economies — China, Germany, Japan and others — also have to change course. They have to save less and spend more, import more and export less. If they don’t generate increased demand while the US cuts back, then the recession will return with a vengeance. This entails wrenching changes in public policy and private attitudes. But what’s clear is that the old imbalances were and are a constant peril, supplying the kerosene for the contagion that laid waste to the global economy.

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Robert Kuttner

By Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

You know how far politics has swung to the right when the most left wing guy in the room is the former chairman of the Federal Reserve. But that’s what financial reform has come to.

Paul Volcker was an early backer of Barack Obama. He counseled Obama on one of the best speeches of his campaign, his March 27, 2008 address on financial reform at Cooper Union, and sat in the front row as Obama delivered it. This was the speech where Obama declared that no corner of the financial system should be unregulated. And when Obama clinched the Democratic nomination, Volcker was introduced as a senior advisor.

But when it came time to allocate the jobs, the people with the real power managed to freeze out the grand old man of finance. Volcker, who had been touted as a possible treasury secretary, ended up chairing an advisory panel with little influence, the President’s Economic Recovery Advisory Board, and for the most part his phone doesn’t ring. The board, appointed last year, did not even have its first meeting until May 20.

Yet Volcker has continued to speak out, and he is worth listening to, even if the White House is ignoring him. In his recent testimony before the House Financial Services Committee, Volcker made it clear that he had serious reservations about the recent administration and Federal Reserve policy of propping up financial institutions deemed “too big to fail.” Volcker said that the actions amounted to an unintended and unanticipated extension of the official “safety net,” an arrangement designed decades ago to protect the stability of the commercial banking system. The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted. Ultimately, the possibility of further crises — even greater crises — will increase.

Volcker explicitly challenged the very centerpiece of the administration’s proposed reform program, the idea of focusing on “systemically significant institutions,” which presumably would come in for additional supervision, but would be rescued if they got into trouble. Volcker said:

The approach proposed by the Treasury is to designate in advance financial institutions “whose size, leverage, and interconnection could pose a threat to financial stability if it failed.” Those institutions, bank or non-bank, connected to a commercial firm or not, would be subject to particularly strict and conservative prudential supervision and regulation. The Federal Reserve would be designated as consolidated supervisor. The precise criteria for designation as “systemically important” have not, so far as I know, been set out. However, the clear implication of such designation, whether officially acknowledged or not, will be that such institutions, in whole or in part, will be sheltered by access to a Federal safety net in time of crisis; they will be broadly understood to be “too big to fail.”

Think of the practical difficulties of such designation. Can we really anticipate which institutions will be systemically significant amid the uncertainties in future crises and the complex inter-relationships of markets? Was Long Term Capital Management, a hedge fund, systemically significant in 1998? Was Bear Stearns, but not Lehman? How about General Electric’s huge financial affiliate, or the large affiliates of other substantial commercial firms? What about foreign institutions operating in the United States?

And, without using the words, Volcker in effect called for a restoration of the core principles of the Glass-Steagall Act, separating commercial banking from investment banking and proprietary trading. He said:

As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets. Ownership or sponsorship of hedge funds and private equity funds should be among those prohibited activities. So should in my view a heavy volume of proprietary trading with its inherent risks.

Volcker made similar remarks in a speech in Los Angeles earlier this month. The point is that there is an entirely orthodox view of how to reform the financial system well to the left of the administration’s. Similar criticisms have been made by progressives like Paul Krugman and Nobel Laureate Joseph Stiglitz, as well as relative conservatives such as former World Bank chief economist Simon Johnson. But it doesn’t get much more orthodox than Paul Volcker.

As Congress deliberates the details of financial reform, several of the key elements of the Obama program fall short — the idea that “systemic risk regulation” should just be bucked to the Federal Reserve; that immense financial conglomerates are perfectly fine as long as the Fed is keeping an eye on them — the same Fed that totally missed the sub-prime disaster and that is owned by its member banks; the acceptance of the premise that customized derivative securities need not be traded on exchanges; the continuing toleration of the business models of behemoth financial conglomerates such as Goldman Sachs, which mix investment banking, hedge-fund speculation, proprietary trading for their own accounts, and commercial banking — making them walking conflicts of interest.

Last week, there was a revealing skirmish on the House Financial Services Committee. The administration blueprint for reform, issued last June and currently being debated in several Congressional venues, includes a Consumer Financial Protection Agency (CFPA). In the draft sent to Congress, the proposed Agency had the authority to require that in addition to marketing other, more complex and risky retail products, banks and other institutions would be required to offer “plain vanilla” products. For example, a bank that marketed more lucrative and risky adjustable rate mortgages would also have to offer a traditional 30-year fixed rate mortgage. A similar “plain vanilla” requirement has been part of New York State banking law for three decades.

But when the White House endorsed the idea, the banking lobby went berserk. It targeted members of the Financial Services Committee, offering campaign contributions to friendly legislators and threatening to support the opponents of pro-consumer members. On September 22, Chairman Barney Frank sent his colleagues a letter declaring that he would oppose any “plain vanilla” language, adding that in his draft of the bill: “Financial institutions will not be required to offer plain vanilla products and services and CFPA will not have the authority to approve or change business plans.”

Testifying the next day, Treasury Secretary Timothy Geithner, never an enthusiast of the proposed consumer agency, said Frank’s changes were fine with him. But of course, the whole point of consumer regulation is to require banks to “change business plans” when those plans are built around insane products such as sub-prime loans or usurious credit cards. The bill is not even out of committee and the bankers’ lobby is having its way.

If the American financial system needs anything, it needs a lot more plain vanilla — fewer products of Byzantine complexity that serve no economic need other than the profit of their sponsors, less excessive risk, and more service by financial institutions to the real Main Street economy. We should be paying a lot more attention to plain vanilla type guys like Paul Volcker.

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Robert Kuttner is co-editor of  The American Prospect and a senior fellow at Demos. His best-selling book is Obama’s Challenge.

David Cay Johnston

 By David Cay Johnston
Pulitzer Prize winning investigative journalist

Atop the front page of the  Sept. 23 New York Times  is a color photo of Georgia homes flooded up to their rafters, an image that illustrates how when it comes to insurance our Congress applies two standards, separate and unequal, one for property and a lesser one for people.

Unlike people without health insurance, homeowners have access to public option flood insurance. 

Even those who fail to take personal responsibility to buy insurance to protect their property can get benefits, thanks in good part to politicians who are leading opponents of public option healthcare.

Consider the example of  Trent Lott of Mississippi, who was that state’s senior senator when Hurricane Katrina hit in 2005, flooding his home looking out on the Gulf. Lott had not exercised personal responsibility by taking out flood insurance even though it was available from the federal government at low cost. He did have private insurance, but his insurer refused to pay much of the claim, saying it was not wind damage (which was covered by the policy), but water damage (which was excluded).
    
Weeks later Lott introduced Senate Bill 1936, which would have authorized retroactive flood insurance. The idea came from Representative Gene Taylor, a Democrat who represented the Mississippi Gulf Coast, which should remind us that when there is voter demand for reform, and campaign contributions are not the driving force, the parties have worked together.    

Lott’s bill would have let flood victims pay 10 years of flood insurance premiums after-the-fact plus a 5 percent late payment penalty. Since this storm was rated a once in 500 years occurrence, even 10 years of premiums would not come close to covering the real costs, meaning a taxpayer subsidy was built into the Lott bill.

Instead of being laughed at by his fellow Republicans for promoting socialism, the concept of retroactive relief was warmly embraced, although not the idea for retroactive insurance. Instead the government went with handouts.

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Leo W. Gerard

By Leo W. Gerard
International President

My union, the United Steelworkers (USW), and three paper manufacturers will have free traders and editorial boards across the nation sputtering, spitting and name calling again this week.

They started labeling us “protectionist” last week when President Obama made what should have been considered a straightforward decision. He implemented a recommendation from the independent, bi-partisan International Trade Commission (ITC) to place tariffs on tires imported from China. The USW had started that process by seeking sanctions in April under special trade safeguard rules, called Section 421, which the Chinese had agreed to obey to gain entrance to the World Trade Organization.

Now we’ve filed a new trade case. We did it with no disrespect or lack of hospitality toward Chinese officials as they arrived in the city of our international headquarters  – Pittsburgh – for the G-20 summit. Proof of that is we included as a defendant in this case China’s fellow G-20 country of Indonesia, who can keep them company in court.

This is not a Section 421 but a more traditional unfair trade case about coated paper, the kind used for car brochures and annual reports. In 2007, the U.S. Department of Commerce found egregious dumping of this paper and improper subsidies by the Chinese and Indonesian governments. But later the ITC refused to impose sanctions because it decided the U.S. industry hadn’t been adequately injured.

We believe we’ve suffered sufficiently now.

But we know the free traders and editorial boarders will vilify us. They’ve taken up with the Chinese government. And let me be clear that I mean government. The USW is in solidarity with Chinese and Indonesian workers who suffer abuse at the hands of their employers. It is governmental policies that injure us both and that we oppose. Our intent is to hold governments to promises they made to abide by international trade regulations – pledges sworn to gain entrance to the World Trade Organization.

Those rules were meant to make free trade fair.

We want fair trade. Geez. They’ll call us “protectionist” for that – like they did with the tire tariff decision. The New York Times derided the tire tariff a “protectionist remedy.” The Chicago Tribune slammed it as “blatantly protectionist.” A Wall Street Journal columnist said Obama imposed the tariff, not because it was recommended by the ITC, but because the president “owed favors to his friends in Big Labor.” 

These people don’t know what they are talking about. The New York Times, for example, said, “China has not been competing unfairly on tires – just more effectively, mainly because of its far lower labor costs.”

It is unfair trade to abuse workers by not paying them your own country’s minimum wage, by failing to give them your own country’s required days off and other benefits, by exposing them  to grossly hazardous working conditions. Has the New York Times investigated the Chinese tire workers’ situation, the way it has other Chinese workers’, to determine if they are being mistreated in these ways like so many Chinese workers? If so, it provided no evidence.

In addition, just two paragraphs later, the Times lists numerous unfair trading practices it acknowledges China engages in, practices that give it unfair advantages when selling tires on the U.S. market, including manipulating its currency. Those advantages are far more significant to the price of tires than labor costs.

Similarly, the Chicago Tribune editorial was written by someone who apparently did precious little research. It claims the tire tariffs will cause “whopping price hikes,” even though Charles Uthus, vice president of the Automotive Trade Policy Council, which opposed sanctions, calculated that the additional cost per tire, at the tariffs recommended by the ITC but later lowered by Obama, would be no more than $3.50. The Tribune says the tariffs will not bring jobs back home – but the ITC determined they would. Best of all, the Tribune asserts that the tariffs will prompt manufacturers to move production from China to countries without tariffs. Really? Tariffs that will last only three years will prompt manufacturers to abandon plants that cost $180 million to build?

These people are in love with an ideal: Free trade. It doesn’t exist between the U.S. and China. The rules of free trade prohibit subsidizing exports, forcing foreign investors to transfer technology and mandating foreign manufacturers export all products made in the host country. China so routinely does such prohibited stuff that Cooper Tire provided sworn testimony about it in our Section 421 case. Cooper testified that China required Cooper to export all of the tires from its new Chinese plant for five years. 

China cheats. We’re just asking that they follow the rules they agreed to when they joined the World Trade Organization – the same sort of rules they will be discussing this week at the G-20. That’s not protectionism.

The free traders and the editorial boarders also belittled the tire case because none of the tire companies joined the USW. It should be obvious why companies like Cooper could not. And let’s make it clear, Goodyear, which has agreed to invest $600 million in its U.S. plants, made a point of remaining neutral.

In the paper case, the free traders are going to have to choke back that scorn. Three manufacturers are in it with us: Appleton Coated LLC, NewPage Corp., and Sappi Fine Paper North America . Two of them, Sappi and NewPage, have been forced to close plants in the two years since the ITC didn’t see enough damage in the U.S. market to impose sanctions in 2007. Those shut downs cost nearly 1,000 workers their jobs and severely injured the mill towns of Muskegon, Mich., and Kimberly, Wis.

Don’t just take my word, the word of someone who the Wall Street Journal would dismiss as “protectionist Big Labor,” owed a big favor by President Obama. Listen to what businessmen have to say about China and Indonesia:

This is John Cappy, president and CEO of Appleton, “Our goal is to restore fair competition to the marketplace. We are willing to compete with anyone on a fair playing field.”

Here is Rick Willett, president and CEO of NewPage talking about China, “What we want here is simply enforcement of the rules they signed on to in order to be part of the World Trade Organization.” 

And, finally, there’s Mark Gardner, president and CEO of Sappi, who explains that his company clearly believes in free trade because it imports paper made in its European mills to the United States as well as manufacturing paper here: “We want the laws enforced so we can compete on a fair basis.”

Hey, Wall Street Journal, how about those CEOs?

Dean Baker

By Dean Baker
Co-Director of the Center for Economic and Policy Research

The large number of people who protested against Barack Obama’s health care plan in Washington last week drew an enormous amount of media attention. Clearly some of the leaders are certifiably crazy, questioning whether Obama is an American and likening him to Hitler. But many of the protesters had reasonable concerns about how the plan would affect the quality of care that they and their loved ones receive.

It was also striking how often the protesters complained about a government that was out of control and not responsive to ordinary people. One of the items that often came up in the interviews reported in the media was the bank bailout. Clearly this is an enduring and deeply felt cause of resentment.

It would be very hard to tell these people that their concerns on this topic are misplaced. At a time when tens of millions of people are facing unemployment or underemployment, when millions are at immediate risk of losing their homes, the banks seem to be doing better than ever. Goldman Sachs used its government-guaranteed loans to make risky bets that paid off big time. It now plans to distribute $9bn in bonuses to its executives and top traders at the end of the year. Why shouldn’t the protesters be absolutely furious about an administration that used taxpayer dollars to make some of the richest people in the country even richer?

It would be great if the anger of these protesters could be turned in a productive direction. Instead of trying to prevent the government from extending health care coverage, how about going after the banks that pillaged the country?

The obvious place to start in this effort is the break-up of the “too big to fail” behemoths. It is now pretty much official policy that financial giants like Citigroup, Bank of America and Goldman Sachs will not be allowed to fail. If their bad investment decisions again bring them to the edge of bankruptcy, the federal government will again rush to the rescue, handing out whatever cash and loans are needed to keep the banks afloat.

This status gives these banks a clear edge in credit markets against their smaller competitors. If everyone knows that the government can be counted on to come to the rescue of these banks, then there is less risk in lending them money. Therefore, they pay lower interest rates than if they had to borrow in a free market.

The Obama administration has proposed to correct this inequity by having higher capital requirements and tighter restrictions on risk-taking that will make it undesirable for banks to be too big to fail. In principle, the government could impose restrictions that are sufficiently onerous to offset the advantages of the government safety net, but no one outside of the Obama administration believes this will happen.

The simpler course is to just break them up. We don’t have to turn Citigroup and Bank of America into hundreds of small community banks, just large regional banks that can be safely put through a bankruptcy/resolution process if they mismanage their assets. My guess is that most of people protesting health care reform last weekend would support this idea.

A second issue likely to draw the support of the protesters is the democratization of the Federal Reserve. There is already a left-right coalition in the House of Representatives behind a bill calling for an audit of the Fed.

This is a case where the centrist elites have shown complete contempt for the American public. In fact, Federal Reserve Board chairman Ben Bernanke had the gall to argue against an audit of the Fed, warning that it would lead to increased instability.

Did Bernanke forget that less than a year ago he told Congress that the policies pursued by him and his predecessor had brought the economy to the brink of a complete collapse? How do you get less stable than that? This is the sort of nonsense that shows the contempt that the elites have for the masses on both the left and right.

This suggests a great opportunity for a joint effort by the left and right to democratize the Fed. It is absurd that the US has a central bank that is more accountable to the financial industry than to the public.

A joint effort has enormous potential. It will be hard for the elites to even understand such a joint effort of the left and right against the center. As an example, the New York Times actually asserted that the bill to audit the Fed has “250 Republican” co-sponsors in the House, ignoring the fact that the Republicans are a minority in the 435 seat chamber.

But the ignorance of the elite only increases the probability of success. And, if there is one thing this economic crisis demonstrates, the elite can be very very ignorant.

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This piece first ran on Huffington Post

Read more at: http://www.huffingtonpost.com/dean-baker/the-rally-against-obamaca_b_294247.html

By Eric Lotke
Research Director at Campaign for America’s Future

The G-20 Summit is in Pittsburgh later this week. Leaders from the 20 countries that collectively represent two-thirds of the world’s population, 80 percent of world trade and 90 percent of global gross national product, will meet to discuss the global economy and terms of trade.

It is fitting that they meet in Pittsburgh. Steel City is renowned for the slump in its dominant industry, followed by what President Obama called a “world-class” transition to a diversified economy, including higher education, bio-tech and clean energy. The good news is true enough — credit where due — but the praise misses half the story.

Yes, some manufacturing jobs in Pittsburgh were replaced by high-end jobs in education or medicine. But many were replaced by jobs in hotels and food services — jobs that never paid as well and proved even more vulnerable in the recent downturn. Some manufacturing jobs were never replaced at all. That helps explain why the city’s population is declining, especially among youth, who seek opportunity elsewhere.

Two lessons from Pittsburgh are important for the United States and the G-20 Summit. We discuss them in our new report, Pittsburgh, G-20, and the New Economy — Lessons to Learn, Choices to Make.

The first lesson is the importance of the real economy. America grew up as an industrial superpower, from mass-produced automobiles to the Arsenal of Democracy. But our once-robust system of economic production — the invention, design and manufacture of products — has been steadily eroded. In its place has come an economy based on asset bubbles and foreign borrowing. That economy was never sustainable and is no longer available.

We need to dispel the notion that America has moved beyond the production of goods. From cars to computers to refrigerators, a country needs things. If we don’t make those things here, then someone else gets our money.

Too many modern Americans associate manufacturing with horse carts and buggy whips. We think of dirty old industries that economic evolution will naturally replace with high-end services in America and low-wage workers in other countries. We don’t appreciate that manufacturing still constitutes 12 percent of U.S. gross domestic product, 60 percent of U.S. exports and 70 percent of private sector research and development. If we hope to move beyond the production of goods, we need to think what would replace it.

We tried over the past thirty years to replace goods-producing jobs (down 54 percent) with service-providing jobs (up 34 percent). It hasn’t worked so well. First, because our deficit in goods far exceeds our surplus in services — $840 billion versus $160 billion– so our accounts are out of balance. Second, service jobs don’t pay as well. Even in the broad category of “services” — which includes high-end professionals like doctors, lawyers and investment brokers — service-providing jobs have an average weekly wage of $610 compared with $810 in the goods-producing sector. Service jobs pay 75 cents for every dollar paid a production job. Retail jobs pay 50 cents. 

 
Source: BEA and Campaign for America’s Future.

The second lesson from Pittsburgh is the connection between the production of goods and their sale. Trade, that is.

Many countries find it appropriate to enact protectionist and mercantilist polices to their individual advantage. The U.S. generally does not, however, citing its ideological commitment to free trade.

As a result, steel manufactured in Pittsburgh is competing against steel manufactured in China with devalued currency, government subsidies, deeply suppressed labor rights, and lower (cheaper) environmental and safety standards. Many products imported into America violate safety standards that U.S. manufacturers are required to obey, like lead-based paint in toys and pesticides in foods. American producers bear the cost of higher standards for the benefit of American citizens. Other countries avoid these costs with minimal consequences in the U.S. market.

The G-20 Summit in Pittsburgh provides an opportunity for Americans to look at what’s happening, and ask hard questions. It provides opportunity to move beyond shibboleths of free trade and protectionism, and to question the true functioning of the market. Obama’s decision to apply tariffs to remedy the “market disruption” of tires from China is a first step in this new direction.

The Summit also provides an opportunity to examine American patterns of production and consumption. Even when the economy was growing, America ran a current account deficit in excess of $700 billion every year. We borrowed $2 billion every day to cover the difference. That might have worked well for the countries we bought and borrowed from — but it worked less well for America. It was never sustainable, anyway.

As the G-20 leaders plan a recovery from the global downturn, they should not assume that the United States will remain the world’s consumer — spending more than we earn, and paying for it with personal and national debt. The G-20 must chart the process by which the global economy that emerges from the crisis is more balanced, and less dependent on U.S. consumption. Growth must be sustainable in Pittsburgh as well as Beijing.

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Eric Lotke also is author of the book “2044”

This piece originally appeared at the Campaign for America’s Future.  

David Sirota

By David Sirota
Political journalist, best-selling author and syndicated newspaper columnist

I wrote a newspaper column this week noting the rank hypocrisy in political and media circles when it comes to their supposed concerns about the deficit. I noted that Tea Party protesters are among the biggest hypocrites – and chief among them is political terrorist Glenn Beck, because, as you’ll see, the truth is the bailout is the Beck Bank Bailout.

As Frank Rich notes, Beck has been promoting himself not only as a racist culture warrior, but as an economic populist who rails on government giveaways to Wall Street. In that sense, he’s sort of trying to be a neo-Buchananite…except, there’s just one problem with his economic argument: Glenn Beck championed the Wall Street bailout he claims to be leading the fight against. In fact, when progressives were fighting tooth and nail against the bailout (and taking significant criticism for doing so) Beck was promoting it, offering criticism only for it not being bigger:

“I think the bailout is the right thing do. The “REAL STORY” is the $700 billion that you’re hearing about now is not only, I believe, necessary, it is also not nearly enough, and all of the weasels in Washington know it.” – Glenn Beck, CNN, 9/22/08

That’s right – this is the Beck Bank Bailout. So the next time you hear Glenn Beck railing on government spending and corporate giveaways and the failure to crack down on Wall Street largesse, remember – Glenn Beck is railing on the very largesse that Glenn Beck intensely promoted and supported on the national Glenn Beck television show.

(huge h/t to Jenkins Ear and ThinkProgress)

NOTE: Beck sometimes calls the stimulus bill a “bailout” – but let’s be clear: As you can see from the transcript, he’s referring not to the stimulus bill, but to the TARP bailout that he now rails on.

UPDATE: Time magazine, and its reporter David Von Drehle, just published a cover story puff piece on Beck. The fact that the magazine devoted substantial resources to such a piece – and didn’t bother to even mention this central hypocrisy of Beck – is not only an absolute embarrassment, it shows exactly why journalism is in a severe crisis.

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David Sirota is the bestselling author of the books “Hostile Takeover” (2006) and “The Uprising” (2008). Find his blog at OpenLeft.com or e-mail him at ds@davidsirota.com

Scott N. Paul

By Scott N. Paul
Executive Director Alliance for American Manufacturing

President Obama deserves credit for making a tough call on trade.  On September 11, he decided to impose tariffs on consumer tires from China for the next three years, resisting the pleas of most opinion elites across the nation and one of the principal financiers of our massive public debt: China’s government. 

Though many industries have been battered by imports from China, the safeguard mechanism permitted under rules China agreed to upon entering the World Trade Organization eight years ago has never been invoked before this month.  While the merits of the trade case filed by the United Steelworkers (USW) union seeking relief from a massive surge of imported Chinese consumer tires were quite clear, an absurd mythology has encompassed it.

Even though the International Trade Commission (ITC) recommended tariffs after hearing copious evidence from importers and the Chinese tire industry as well as from the USW (which represent tire workers), opponents of the tariffs still insist that the decision will be counterproductive, raising prices while creating jobs in other importing nations.  That is complete nonsense.  No other exporter can replace the market share of consumer tires that China currently holds.  Goodyear has indicated that it will invest $600 million in its American tire manufacturing facilities, making it highly likely that the tariffs will allow for some capital investments in the domestic tire industry and put tire workers back on the job.  Prices for tires—if they rise at all—will increase by $3 per tire according to the ITC, while the economic benefits to the nation, in the form of jobs and wages saved, taxes paid, and corporate profits—will more than double that. 

Some critics of the tariffs have pointed to potential retaliation by China against U.S.-produced chicken feet and auto parts.  This is merely bluster by Beijing, which is not normally held to account on trade issues.  For eight years, China has not faced serious sanctions for a beggar-thy-neighbor, mercantilist trade policy.  But remember this: China depends on access to the U.S. market for its own employment and growth, and will not ultimately risk its livelihood to make a point. 

Others believe that the outcome of this case will lead to the filing of even more import surge cases against China by industries such as textiles or steel.  The sad fact is that scores of American industries have seen an import surge from China.  While a few more cases may be in the offing, a far more likely outcome of the tire case is a serious bilateral negotiation between the U.S. and China to address a number of trade irritants, such as massive industrial subsidies, lack of market access, intellectual property theft, persistent dumping, and an exchange rate that most economists believe is dramatically undervalued and misaligned. 

Does anyone still believe it is a good thing to outsource not only our manufacturing but also our debt financing to China?  The tire decision alone will not change this equation, but it could chart a better course for America. 

Revitalizing manufacturing, reducing our trade imbalances and bringing down our public debt are interconnected.  The tire trade decision alone will not accomplish these goals, but it may lead lawmakers to embrace a new strategy to grow manufacturing in this nation.  Trade enforcement as articulated by President Obama is an essential component of that strategy, but it is only part of the equation.  We need a results-oriented trade policy, one that recognizes the importance of opening new markets as well as enforcing the rules.  It is refreshing to see a pragmatic national leader on trade after so many years of benign neglect.

***

This piece was first published in the Detroit News.

Tire, tariff, free trade, fair trade, manufacturing, President Barack Obama, China, United Steelworkers, USW, World Trade Organization, International Trade Commission, ITC, exports, Goodyear,

Dave Johnson

By Dave Johnson
Fellow with Campaign for America’s Future

President Obama has decided to enforce our trade laws and imposed a three year tariff on Chinese tires. I suspect the country is about to witness a corporate hissy fit that will surely rival any righteous teabagger’s demands to see the president’s birth certificate.

Here is what is going on: when the US endorsed China entering the World Trade Organization the agreement was that if any of our industries were significantly disrupted, we could call “time out” and give those industries 3 years to adjust. In case after case President Bush refused to enforce this agreement as China took over one industry after another. Since we then had to buy what we used to make, our balance of trade deteriorated and we now owe China vast sums.

In this case, the U.S. International Trade Commission found that America’s tire industry was, to say the least, disrupted by a surge of imports of cheap tires. As with so many industries, cheap Chinese imports quickly dominated the market, American factories closed, American workers were laid off, American communities were devastated and instead of having to pay wages and maintain factories, American CEOs and Wall Street executives pocketed more and more short-term profits at the long-term expense of their own companies and our country’s economy.

So this time President Obama is enforcing the agreement and applying tariffs. In fact he is applying a lower tariff than the 55% that was recommended, but the tariff of 35% is still substantial and may save jobs, preserve some manufacturing capacity, and hold the trade deficit down just a bit.

The corporate hissy fit is beginning right on schedule. The word being shouted loudest is “protectionism” and there are threats that this will lead to a trade war.

The headline at the Drudge Report screams: “CLASH OF THE TIRES LEADS TO TRADE WAR,” linking to a Financial Times story that doesn’t actually say anything about a “trade war.” In the story China’s minister of commerce Chen Deming says, “This is a grave act of trade protectionism,” and Eswar Prasad, professor of trade economics at Cornell University, calls the enforcement of the agreement “protectionist measures” while at the same time saying the tariffs are not “substantive restraints on trade.”

The Washington Post, rather than lead with the pro-American viewpoint, chose to lead with China’s, “China blasts US tire duties as protectionist blow.” Many other corporate-dominated media outlets followed in a similar vein, arguing how this is a bad decision. Wall Street Journal, “A Protectionist Wave” and “Tariff on Tires to Cost Consumers”. Others, like Business Week, just reported the news: “In China Tires Case, Obama Strikes Middle Ground.” (Forbes, to its credit, led with a neutral pun, “China and US: Tire-d of Fighting.”)

So what is “protectionism” and why is it supposed to be wrong for a government to protect a country’s manufacturing interests? Isn’t America borrowing so much money from other countries because we don’t manufacture enough goods here anymore to sell and thereby pay for the things we buy?

In the past a major portion of America’s tax revenue came from collecting tariffs on imported goods. This helped fund development of our competitive infrastructure while maintaining internal markets that encouraged development of industry to make goods here both for use in the country and for export. This led to manufacturing jobs. Every country that has built up a manufacturing base has done so by restricting competitive imports.

But there were problems with this “mercantilistic” approach. As with all rules, they can be manipulated by the currently-powerful. This was done to keep some prices unreasonably high, encourage monopolistic practices, reduce access to localized or regionalized specialties and discourage others from importing our domestically-made goods. So after we built up a manufacturing base the time came to start selling to others. This necessitated back-scratch trade agreements: you scratch my back by lowering your tariffs, we’ll scratch yours by lowering ours. Etc. And each country’s markets expand – as does the competition.

Unfair competition led to the idea of protecting our standard of living. Unfair labor costs, kept low by use of child or prison labor, exploitative wages in non-democratic countries, even use of forced labor or slaves undercuts our own companies’ ability to compete. Failing to provide worker safety protections, or allowing pollution also provide trade advantages to offshore competitors. So to protect ourselves we imposed tariffs that raised the store price on those goods to prevent them from undermining our own standard of living and safety and pollution standards. We protected our national interest.

The idea of these “protection” policies is to encourage these competitors to pay better wages, improve worker safety and/or stop polluting. This way their own economy and environment could improve and their workers would be able to buy the things that we make. Used this way, the policy of protectionism improves living standards for workers everywhere, while growing our economy and improving our standard of living in the process.

The idea of “free trade” theorizes that without “government” involvement these disadvantages will disappear and prices will eventually reflect supply and demand instead of tariffs and regulations. Of course, this ignores that government, as constituted in democracies, is a banding together of the citizens for mutual protection, empowerment and benefit. The result of “free trade’ is a downward spiral of wages, benefits, worker protection and environmental standards as countries race to the bottom in competition.

Expansion of trade is beneficial to all parties if done fairly. Of course, “fairly” is a difficult state to attain when powerful interests compete for dominance in rule-making. In this case we have the competing interests of American workers and manufacturers pitted against Chinese manufacturers. There are also the powerful interests of distributors and retailers who make a percentage off a sale, whatever the source of the goods, and Wall Streeters who buy up companies and demand short-term profits, and profit from debt.

This is where the opposition comes from. Certain powerful interests are doing just fine without any of this goody-goody do-gooder stuff, thank you, and they want things kept that way. So they will fight against change in the status quo, no matter how necessary or beneficial to the rest of us. We see this so clearly in the health care reform fight and soon we will be hearing some outrageous lie on the order of “death panels” and “government takeover” to try to scare people away from fighting for their own jobs, wages and benefits by asking for reasonable trade and manufacturing policies.

Their primary scare word in use today is “protectionism.”

Part II will examine some of the specific myths surrounding the mystical and powerful word “protectionism.”

***

This post originally appeared at the Campaign for America’s Future (CAF) Blog for OurFuture as part of the Making It In America project.

Johnson also is a fellow at the Commonweal Institute and a Senior Fellow at the Institute for the Renewal of the California Dream.

Follow Dave Johnson on Twitter: www.twitter.com/dcjohnson

Fred Redmond

By Fred Redmond
Vice President for Human Affairs

A. Philip Randolph spoke up for civil rights at an AFL-CIO convention during a different era. It was a time when women who got pregnant were fired the moment they showed; one in which America practiced apartheid at water fountains, on buses, and in schools; one that hid people with physical and mental disabilities away in institutions; one where no openly gay people lived.

It was 1959 when Randolph spoke at the AFL-CIO convention in San Francisco. As founder and leader of the International Brotherhood of Sleeping Car Porters, Randolph served on the AFL-CIO executive council. 

Normally dignified and composed, Randolph let loose a fiery speech seeking from the gathering a commitment to greater inclusion. Collective bargaining had given the members of his union – railroad porters, maids and cooks – the power they needed to secure middle class wages from the Pullman Company. Randolph wanted the AFL-CIO to help end racial injustice and provide that access to more minorities.

“The labor movement traditionally has been the only haven for the dispossessed, the despised, the neglected, the downtrodden and the poor,” he said. 

The delegates – a room of white men — booed him. George Meany, AFL-CIO president at that time, asked, “Who the hell appointed you as guardian of all the Negroes in America?”

A half century later, much has changed. At the AFL-CIO convention being held in Pittsburgh this week, the delegates elected a diverse set of top officers — a white man for president, Richard L. Trumka; a black woman for executive vice president, Arlene Holt Baker; and for the first time ever, a woman, for secretary-treasurer, Liz Shuler. And, by AFL-CIO standards, she’s young, at 39.

Arlene Holt Baker, Richard Trumka, Liz Shuler

In addition, 43 percent of the convention delegates who elected those officers are women or minorities. That resulted from a resolution the labor federation adopted four years ago requiring the AFL-CIO and its affiliate unions take steps so that leaders and representatives begin looking like membership. They named it, “A Diverse Movement Calls for Diverse Leadership.”

That stuff doesn’t always go down well, as Randolph experienced. But when this resolution passed, outgoing AFL-CIO president John J. Sweeney took it to heart. He provided the resources to make it happen and made it clear he expected change. He also gave moral support, something Randolph clearly didn’t receive.

“The moral imperatives move us,” Sweeney said at the “Power in Diversity” summit held before the AFL-CIO convention this week. “But there is also the practical,” he explained. Unions cannot expect women, minority, gay, physically challenged and young members to step up and participate in union activities if union leadership opportunities are closed to them. “We do not have a two-tier dues rate and we cannot afford to have a two-tier leadership culture,” Sweeney said.

It just took 50 years for the AFL-CIO to get a leader who understood that.

The man elected as the next AFL-CIO president, Richard Trumka, made it clear at the diversity summit that he apprenticed under Sweeney well. He pledged himself to implement bold resolutions passed by the AFL-CIO delegates this week that support full inclusion and participation in the union movement by lesbian, gay, bisexual and transgender workers and increasing inclusion of workers with disabilities.

And Trumka committed the AFL-CIO to implementing resolutions passed this week for recruitment and training of young workers in the union movement and to continue the struggle to aid women and workers of color in the movement.

“We are going to insist on more and more,” Trumka said, referring to diversity, “We aren’t going to settle for anything less from now on.”

This is historic from the president of the AFL-CIO. This is a new day, one that realizes Randolph’s dream that collective bargaining could give everyone, including the “despised, the neglected, the downtrodden and the poor” a path to the middle class.