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Dave Johnson

By Dave Johnson
Fellow with Campaign for America’s Future

In his State of the Union speech President Obama announced the National Export Initiative, a campaign to double US exports within 5 years. Today he gave a progress report and announced the members of his Export Council, with a number of CEOs (and one labor leader) including Alan Mulally of the Ford Motor Company, Scott Davis of U.P.S., Glenn Tilton, United Airlines Chairman and CEO and Robert A. Iger of the Walt Disney Company.

The White House says that with a 17% increase in exports in the first 4 months of the year we are on track to double exports within 5 years.

Announcing the Export Council, Obama said, “We’ve got to compete for those customers. We mean to compete for those jobs and compete to win.” For example, they are setting up “business assistance centers” abroad to help American companies get business, and increasing credit through the Export/Import bank.. They are fighting barriers that other countries have set up to keep out American products, so far increasing our export of things like pork by $1 billion. “When we give other countries the privilege of free and fair access we expect it in return.” (more…)

Gilbert B. Kaplan

 By Gilbert B. Kaplan
Former Deputy Assistant and Acting Assistant Secretary of the U.S. Department of Commerce

Most Americans think we are giving it away for free when it comes to trade, and in many respects they are right.

The last decade has not been a good one for the United States in the international trade arena. We have lost over five million manufacturing jobs, and total manufacturing employment in the U.S. is at a historic low of about twelve million. At the same time there are about 100 million people at work in manufacturing in China. This picture doesn’t bode well for people looking for jobs in the U.S. If we want to turn it around we have to radically change what we are doing here in the trade arena.

The simple fact is that U.S. jobs are flowing off-shore. We can create more, which President Obama and Congress are trying to do, but then they will flow off-shore too. The conditions of competition in this country do not favor keeping jobs here. President Obama’s plan to double exports is very unlikely to change this. The Chinese, the Koreans, the Taiwanese did not create an export driven economy by simply setting an export goal of doubling exports. They changed the basic terms of trade in their countries, by creating big tax benefits for exports, big subsidies to build-up industries, and closed markets to allow their industries to have a secure base with no competition from which to export. We will not double exports without a major shift in trade policy, nor will we bring jobs back home that should have never left in the first place.

What should our trade policy be? First, the President has to take action to off-set Chinese currency manipulation. The President has talked about this problem recently, and I applaud him for doing that. Now he has to solve it, and he could do that today by simply applying our anti-subsidy law (also called the countervailing duty law) to exports from China, putting on a duty to off-set this currency subsidy.

President Obama should also announce stronger action against China related to its internet censorship. U.S. companies trying to access the Chinese internet — now having the largest number of users in the world — have to somehow transverse the Chinese “great firewall.” This firewall should be brought down, and there are trade laws and negotiation mechanisms, including bringing a WTO case, that can make that happen.

In his State of the Union address, President Obama was right to say that we should conclude the long-stalled Doha Round. But the President at this point should demand a clear deadline for negotiations, and if we can’t reach it, we should set off in a new, more important direction.

What would that direction be? I would propose a three-fold agenda. First, we should focus on free, unfettered, and unencumbered access for United States’ innovation and creativity-based products anywhere in the world. Secondly, we need to switch our focus to helping U.S. manufacturing. This is where we have lost millions of United States jobs and seen entire towns shut down by unfair trade practices. And thirdly we need to equalize the tax treatment our exports get in comparison to exports from other countries. Due to a grossly unfair peculiarity in the WTO system, when foreign producers export their products, they receive a rebate of their VAT taxes. U.S. exporters do not get a rebate of the income taxes they pay, creating a disadvantage equal to as much as a 17% in every potential shipment from our shores.

President Obama should also call on the Congress to do a major overhaul of the U.S. trade laws, making them faster, more accessible, and more reliable tools for US companies and workers harmed by unfair trade. There are a series of bills that have been proposed over time, by Senator Rockefeller, Senator Snowe, Congressman Levin and others, that could make a real difference, and these changes should be put in place now. In addition there should be fast, real recompense to companies and workers harmed by unfair trade, and these payments should be financed by duties on the unfairly traded goods, so they would not increase the deficit.

We also need to deal with the problems of foreign subsidies to industry and agriculture in one of two ways. Either we need to reach agreements to eliminate these subsidies — a world-wide stand-still agreement on subsidies — or we need to give our producers and workers the same benefits. We can’t expect them to compete against foreign governments empty handed.

Enforcement of existing trade laws and agreements should be a key part of the trade policy. This is a goal the President and Commerce Secretary Gary Locke have already spoken up on forcefully. They should now create an Unfair Trade Strike Force that would work across agency and sectoral lines to take strong, quick action on unfair trade. Cases should be self-initiated and problems solved on a real time basis. We cannot wait one or two years for issues to be resolved. The Strike Force should also take action against circumvention and evasion of existing trade case orders.

In the trade and environmental area, President Obama needs to lead the way in resolving the apparent conflict between strong U.S. environmental laws and their potential trade effect on U. S. companies and workers. We cannot require U.S. manufacturers to pay millions of dollars to clean up their plants if our foreign competitors do not have the same requirements. We will simply become uncompetitive and there will be substantial “leakage” of U.S. jobs abroad. One way to deal with this is border measures, pursuant to which imports that come from plants that are not environmentally sound and that are causing global warming have to pay an extra tax at the border.

Finally, we need to take a stronger stand when it comes to our existing free trade agreements. To some extent these agreements have helped U. S. companies and workers, but there have also been significant downsides. Our trade deficit with Mexico, for example, has steadily been increasing over the last decade, and more and more factories are moving down there. It is hard to find an example of a Mexican company coming to the U. S. and adding jobs here. With employment stuck at over 10 percent and the job base migrating outside the country, it is time to revisit this issue.

The high levels of unemployment we have in this country are caused not just by the recession, but also by the unfair terms of trade that our manufacturers and workers are subjected to. We will not solve one problem without dealing with the other. The American job base cannot fight bare-handed against foreign governments arming their industries with enormous structural advantages. The program above will create jobs in the United States, and consistent with one of the President’s other goals, with the exception of personnel costs in the trade agencies, it is free.

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,

Robert Borosage

 

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

Last year we worried about homes below water; now it is the economy itself that is sinking. Warren Buffett says the US economy has “fallen off a cliff.” And, as bad as the US is, the rest of the world is worse. Germany’s exports have collapsed; Japan is in free fall; much of Eastern Europe may join Iceland in bankruptcy. The Asian Development Bank estimates the loss to financial assets worldwide at $50 trillion dollars – the equivalent of a full year of annual global output. It’s not for nothing that National Intelligence Director Dennis Blair announced that the economic collapse trumps terrorism and catastrophic climate change as the greatest threat to US security.

After slogging through the stimulus, the banking mess and the foreclosure crisis, our besieged president now must turn his attention to organizing global cooperation to lift the world economy. Finance ministers of the group of 20 countries (G-20) meet near London this week; the heads of state gather on April 2. The agenda: whether to expand national stimulus plans, how to forestall a banking collapse, and help for the weaker countries that can’t help themselves. Rhetoric won’t cut it; real commitments have to be made. As the anti-Bush, Obama has been celebrated by much of the world as if he walks on water. Now, we’ll see if they will follow the savior rather than crucify him.

We need every major economy – particularly those like Germany, Japan and China in the best position to do so – to help boost the global economy with bold national, deficit financed, recovery plans. We can’t do this alone. Our own stimulus – about 2% of GDP in 2009 – is too small even to lift this economy. Everyone has to grab a bucket and start bailing.

Moreover, gaining this consensus will help put the world on notice that the old ways are gone. We’re not going back to an economy in which the US borrows $2 billion a day from abroad, while serving as the world’s consumer of last resort. The Chinese, Japanese, Germans and other nations have to move away from export-led growth. The unsustainable trade imbalances – with the US absorbing 70% of the world’s savings – provided the flood of cheap capital that eventually capsized the global economy.

That world is over. US consumers are already tightening their belts. Exports have collapsed. If we ever begin a recovery, the US should seek more balanced trade. That means we will have to sell stuff beyond toxic financial paper to the rest of the world. Obama anticipates this with his drive for new energy, an industrial policy that may allow the US to gain an edge in the green markets of the future.

At the same time, China, Germany, Japan and the mercantilist nations will have to stop relying on exports for their growth. For Germany, the world’s largest exporter, exports made up an estimated 41% of GDP last year. That can’t go on. The first step is for the countries to stimulate internal demand to help get the global economy going once more, and thereby begin the wrenching journey they will have to make to more balanced growth.

Here as elsewhere in this economic debacle, the leaders remain behind the curve. On Monday, the European finance ministers announced that they had no plans to add to recent stimulus plans, dismissing US pleas for expansion as, in the words of the European Chair, “not to our liking.”

The Chinese initially trumpeted a large internal public works stimulus, much of which turned out to already be in the five year plan. Now Chen Deming, the commerce minister, declares China plans to subsidize exporters and lower export taxes, saying that we “should increase our share of the global market. We must transform ourselves from a big export nation to a strong export nation.” Nightmare.

G-20 conferences have generally been for show. The stakes are real this time – and the odds going in are against the president in gaining the bold action needed. And once more he’ll be out there virtually on his own, taking on the real deal in stark contrast with his opposition here at home. The conservative claque is ranting about socialism. Blue dog Democrats like Sen. Kent Conrad are mobilizing to defend agribusiness subsidies, while the Republican leaders simply don’t get it. Rep. John Boehner, the perpetually tanned House minority leader, last week called for a freeze on all spending over the next year, something like putting a pillow over the mouth of someone suffocating to death. And Sen. John McCain, the party’s nominee, woke to deliver one of his dyspeptic lectures against earmarks; the patient is hemorrhaging blood, but the Senator is worried about the pimples on his face.

The Europeans want to wait and see. The Chinese are subsidizing exporters. The Republicans are railing about earmarks and socialism. Obama’s call for a new responsibility hasn’t exactly taken hold.

Peter Morici

 

 

By Peter Morici

Professor, Robert H. Smith School of Business, University of Maryland

 
Today, the Commerce Department reported the November trade deficit was $40.4 billion. This was down from $56.7 billion in October, largely because oil prices fell and the recession is curbing demand for imported consumer goods and petroleum.

To the extent stimulus packages expected to be enacted in the United States, Europe and China lift the global economy, the reduction in the trade deficit will reverse. Oil prices will rise again, and with China increasing subsidies on exports, U.S. imports of consumer goods will soar. The trade deficit will emerge as a major drag on the demand for U.S. made goods and services, and pull the U.S. economy back into recession as the effects of stimulus spending wear off.

At 3.4 percent of GDP, the huge trade deficit indicates Americans continue to consume much more than they produce and borrow too much from the rest of the world, especially China and the Middle East oil exporters.

The huge trade deficit is nearly entirely by trade with China, imports and automobiles and parts. These are caused by a combination of an overvalued dollar against the Chinese yuan and Chinese protectionism, a dysfunctional national energy policy that increases U.S. dependence on foreign oil, and the competitive woes of the three domestic automakers. Together, the trade deficit with China and on petroleum and automotive products account for virtually the entire deficit on trade in goods and services.

To finance the trade deficit, Americans are borrowing and selling assets at a pace of about $400 billion a year. U.S. foreign debt exceeds $6.5 trillion, and the debt service comes to nearly $2,000 a year for every working American.

The trade deficit will make the recession longer and deeper, and lessen the positive benefits of President-elect Obama’s proposed stimulus package. If Obama does not fix the banks and significantly reduce the trade deficit, stimulus spending will not permanently pull the economy out of recession, and the economy will slip into a prolonged malaise or depression.

Simply, money spent on Middle East oil, Chinese televisions and coffee markers, Japanese and Korean cars can’t be spent on U.S. made goods and services, unless offset by a comparable amount of exports. Since U.S. imports exceed exports by 3.4 percent of GDP, the trade deficit creates an enormous drag on demand for U.S.-made goods and services. Along with the credit crisis and resulting slowdown in new housing and commercial construction, the banking crisis and trade deficit could push unemployment above 10 percent for a long time.

The trade deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital.  In 2009 the trade deficit is slicing $400 billion to $600 billion off GDP, and longer term, it reduces potential annual GDP growth to 3 percent from 4 percent.

Cutting the trade deficit in half would pull the country out of recession and get the economy on a stable growth path. A fiscal stimulus package, increasing the federal budget deficit by two or three percent of GDP, will make things much better for a period of time; however, successive stimulus spending and permanently larger federal budget deficits will be needed to sustain the GDP and employment gains. Whereas, cutting the trade deficit in half would yield lasting benefits for U.S. GDP and employment growth, far transcending any fiscal stimulus in its permanent effects. Cutting the trade deficit would substantially increase tax revenues and reduce the federal budget deficit.

Each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment, and shifts workers into activities where productivity is lower. Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.

Were the trade deficit cut in half, the movement of workers and capital into more productive export and import-competing industries would increase by at least $400 billion or about $2500 for every working American.  Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.

Manufacturers are particularly hard hit by this subsidized competition. Through recession and recovery, the manufacturing sector has lost more than 4 million jobs since 2000. Following the pattern of past economic recoveries, the manufacturing sector should have regained at least 2 million of those jobs, especially given the very strong productivity growth accomplished in durable goods and throughout manufacturing.

Longer-term, persistent U.S. trade deficits are a substantial drag on productivity growth. U.S. import-competing and export industries spend three-times the national average on industrial R&D, and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from trade-competing industries, the trade deficit reduces U.S. investments in new methods and products, and skilled labor.

Cutting the trade deficit in half would boost U.S. GDP growth by one percentage point a year, and the trade deficits of the last two decades have reduced U.S. growth by one percentage point a year.

Lost growth is cumulative. Thanks to the record trade deficits accumulated over the last 10 years, the U.S. economy is about $1.5 trillion smaller.  This comes to about $10000 per worker.

Had the Administration and the Congress acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, and the federal deficit could be eliminated without cutting spending.

The damage grows larger each month, as the Administration and Congress dally and ignore the corrosive consequences of the trade deficit.

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

So much for the $700 billion bailout of Wall Street. Clearly, once the bailout passed, investors took a good look at the real economy and went to the mattresses. We’re headed into a great reckoning. And at the heart of that, as illustrated in the new Institute for America’s Future op ad in the New York Times – “Even the Rope we’re Hanging Ourselves with is made in China”: — is this country’s unsustainable global strategy. To see the ad and supporting charts go here.
This is a result, as Barack Obama has stated, of a failed economic philosophy – the “market fundamentalism” that dominated Washington over the last thirty years, the notion that markets are efficient and self-correcting and, as Sarah Palin repeated in the last debate, governments should just get out of the way.
What that meant in practice was the worst forms of crony capitalism. Abroad, global corporations and banks essentially wrote the constitution of the new global economy, protecting property rights but not workers, consumers or the environment. Financial flows were deregulated opening the casino up for business. Banks were favored; the military industries protected; agribusiness subsidized.
At home, Reagan launched the war on unions, and rolled back government and regulation. The minimum wage was frozen for a decade. Undocumented workers exploited to undermine wages and standards. Banks got rid of the protections built during the Great Depression. Companies used globalization as a club against workers. Pensions and health care benefits were rolled back… Over the last eight years, productivity and profits rose, but wages lost ground. We lost one in five manufacturing jobs. Now some 15 million service jobs are at risk of off-shoring.

Global economy

Yet this global economy depends on American consumers as the buyers of last resort. Sustaining a low wage, high consumption economy is no mean trick. The gulf was bridged by mountains of debt and successive asset bubbles. Household debt soared to unprecedented levels, as Americans loaded up on credit cards and cashed out their homes. And the US is now the world’s largest debtor, having added over $4.4 trillion in foreign debt since 2001. We must borrow or sell off assets with $2 billion a day simply to cover our trade deficits. We now run a high tech trade deficit with China. Mexico exports 50% more cars to the US than the US exports to the rest of the world.
What can’t go on indefinitely, won’t. And with the bursting of the housing bubble, the reckoning is here.
Clearly we need to change course. We need a national economic strategy for a global economy, a strategy for the nation, not for the multinationals that have very different interests.
Yet our political debate is still frozen into a silly spit ball fight about “free trade” and “protectionism.” Barack Obama questions NAFTA-type accords and is charged with “protectionism” in editorials across the country. John McCain, a stalwart of the failed policies of the last two decades, still intones the old “free trade” mantras, denouncing critics as lacking “faith in the American worker.”
This mindless debate has been going on for three decades, as the country has sunk deeper and deeper in debt. Surely in the wake of the current crisis, it is time for an adult conversation about a strategy that would sustain a prosperous middle class in a global economy.
That means deciding if America will remain a center of innovative manufacture. A concerted drive for energy independence will not only reduce the half of our trade deficits that go to oil, but could capture the green technologies that will drive the markets of the future.

Broad middle class

It means deciding if we are going to sustain a broad middle class. That would require forcing business to compete within the framework of a high wage economy – not by tearing that framework down. Empower workers to organize, raise the minimum wage, and build a public social contract starting with health care and pensions to replace the promises the corporations are shredding.
Then we’ve got to change our federal priorities from policing the globe and top end tax cuts to making the vital investments here at home — in education and life long learning, in R and D, in the most efficient infrastructure.
Finally we’ll need to dispel the myth that the mercantilist nations like China are playing by the same set of rules. With China now our leading creditor, this won’t be easy. But we must find ways to bring our trade with that country into balance – either by currency adjustment, by managing our trade, or by a surcharge on imports that will force the change.
These aren’t the only answers; they may not be the best ones. But surely the question of our national strategy in the global economy can’t be put off. That’s why McCain’s decision to turn his campaign over to the Karl Rove’s protégés in character assassination is so dishonorable. We deserve a debate worthy of a great nation in trouble. Brickbats about Bill Ayers or Palin’s Alaskan separatist husband are simply insults. Americans deserve better. And McCain and Palin may find out that they just may demand it.