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Dave Johnson

By Dave Johnson
Fellow with Campaign for America’s Future 

China has a national economic/industrial policy and we don’t. They create the conditions for key industries to thrive and we don’t. They make sure all of the infrastructure, finance, supply chain, educational, legal, technical and policy elements are in place for an industry to take hold and take off and we don’t. 

If they don’t have an industry or a technology they want, they build it or get it. And they make sure that they get it. They invite a company in to their potentially huge market, they require that company share a technology with one of theirs, they make sure that their companies learn how to build what they need to build with the processes they need to do it, they make sure their designers know how to design what they need to design, they make sure that the parts are made there, the materials are made there, the people are trained there. The policy is called “indigenous innovation.” 

And when everything is in place, they spring the trap: they don’t need the outside partners anymore. Thanks for the help, now go away. (But don’t try to do anything about it, that would be “protectionism.”) (more…)

Stan Sorscher

By Stan Sorscher
Labor Representative, Society for Professional Engineering Employees in Aerospace (SPEEA)

One popular position on trade is to “level the playing field.”

I’m not always sure what that means, but I’m in favor of it.

Any intention to level the playing field starts with a simple realization — that rules of trade can favor one outcome over another. For instance, our current free trade policies tip the playing field steeply in favor of more imports, and movement of production to low-wage countries. This is good for multinational businesses and investors, but bad for workers and communities. Trade agreements spell out investor rights in fine detail, while pushing aside environmental conditions, labor rights, human rights and public health.

 
Fig. 1 Our trade policies are tipped in favor of imports and against domestic industry.

One central outcome of globalization is to make capital mobile in new ways with greater ease. Free trade rules encourage GE to invest billions in China, Microsoft to invest billions in India and Boeing to invest billions in Russia. Our current policy makes low-wage countries attractive, and makes new investment in our domestic economy unattractive. Andy Grove made this point quite clearly in his July 1 commentary in BusinessWeek. (more…)

Scott N. Paul

By Scott Paul
Executive Director of Alliance for American Manufacturing (AAM)

You may have heard by now that China’s Central Bank has said that it will begin to allow its currency, the yuan, to follow a more flexible exchange rate. So, can we all celebrate now? After all, many economists, American businesses, unions, lawmakers, Obama Administration officials, and other industrial countries have been demanding such a change for months now.

I’m here to report that the fight is just beginning.

China would like nothing more than pressure from American lawmakers to disappear after its big announcement. Just over the past two weeks, Senators and Members of Congress of both parties have raised serious concerns over China’s currency policy and grilled the Obama Administration on their response.

China’s currency will undoubtedly rise against the dollar, but the change may not be significant or fast enough to put a real dent in our enormous trade deficit or boost our exports enough to create a considerable number of manufacturing jobs. As I said over the weekend: “I will believe it when I see it. Unless the move is rapid and significant, China’s announcement is nothing more than a cynical ploy ahead of the G-20 and in the wake of mounting congressional pressure. America’s workers and businesses still believe that a strong response from Congress is warranted.”

World leaders — including President Obama and President Hu of China — are scheduled to gather in Toronto on June 26-27 for the G-20 summit. We hope that President Obama sets out objective criteria to China instead of merely offering praise for the announcement. We hope that our leaders in Congress on this issue — Senators like Chuck Schumer (D-NY), Debbie Stabenow (D-MI), Sherrod Brown (D-OH) and Representative Tim Ryan (D-OH) — will push forward with their efforts to deter China from cheating on its currency now and in the future.

Leading economists estimate that the yuan is undervalued by up to 40 percent. So, unless we see a 40 percent increase in the value of the yuan compared to the dollar over the coming weeks and months, we still have work to do. And even if the yuan does appreciate that much, we must make sure that other barriers to trade and jobs — China’s dumping, subsidies, and lax labor and environmental regulations — are addressed.

China may well surpass America as the world’s leading manufacturer next year. Many Americans think we’ve already lost our lead. And millions of American manufacturing workers remain unemployed. Stopping China’s currency manipulation is not the only challenge facing our manufacturing sector, but it is a prerequisite for progress.

America’s workers and businesses are guaranteed a level playing field under our own trade laws, and in theory, under the World Trade Organization. We’re not asking for special treatment, we just want the opportunity to compete.

So far, China’s announcement has been nothing but hot air. The President must demand results in Toronto this weekend and Congress must proceed swiftly with a legislative response. Acting otherwise will fulfill every Chinese wish: to make our demands for change disappear. We can’t let that happen.

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Follow Scott Paul on Twitter: www.twitter.com/ScottPaulAAM

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?

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,

Leo W. Gerard

By Leo W. Gerard
International President

Barack Obama proved Friday he’s got grit. He enforced trade laws.

These are special trade safeguard rules, called “Section 421,”  that the Chinese had agreed to obey to gain entrance to the World Trade Organization (WTO). They are, however, laws that had gone unenforced by the U.S. in the past.

President Obama used these safeguard rules to imposed tariffs on tires manufactured in China and imported into the U.S., following a recommendation by the International Trade Commission, an independent, bi-partisan group. The action made Obama the first president to execute sanctions under “Section 421.”

The International Trade Commission recommended sanctions under “Section 421” four times before Obama took office. Nothing was done. The result was closed American factories, lost American manufacturing jobs, diminished American dreams.

Not this time though. Not this president. Obama showed he’s made of tougher stuff. By placing tariffs on imported Chinese tires, President Obama put himself in the line of fire for the jobs of U.S. workers, for the preservation of U.S. manufacturing and, ultimately, for the stabilization of the U.S. economy.

Don’t kid yourself. This is a battle. For the U.S. to maintain a viable economy, it must sustain a strong manufacturing base. It must make products of value that can be sold here and overseas – not just swap paper, some of it bogus on Wall Street.

The U.S. economy is under attack by countries engaging in unfair trade. In the past decade, we’ve lost 40,000 manufacturing facilities. In just the 21 months since the Great Recession began, more than 2 million manufacturing workers have lost their jobs, making their unemployment rate 11.8 percent, significantly higher than the 9.7 percent rate for the average worker.

That’s what the Chinese tire case was all about. My union, the United Steelworkers (USW) filed it in April. We demanded penalties against China because it has smothered the U.S. market with tires. In 2004, its share of the U.S market was 4.7 percent. Four years later, it was 16.7 percent. In that time, the number of tires it sold rose from 14.6 million to 46 million. As a result, four U.S. tire manufacturing plants closed and 5,100 workers lost their jobs. Another three plants will close before year’s end, throwing 3,000 more U.S. workers on the street.

We filed for relief under “Section 421” for two reasons. One is that it provides quicker relief than other trade remedies. The other is that China consented to its provisions. When China wanted to get into the World Trade Organization in 2000, it secured U.S. support by agreeing to abide by Section 421 until 2013. Section 421 was designed to protect the U.S. economy by providing ways to combat unfair and damaging surges of particular Chinese imports.

In the past, corporations had asked for Section 421 tariffs. And we had joined them. This time, not one tire company joined us, though, to be clear, Goodyear was openly neutral. By contrast, Ohio-based Cooper, fought us. As did a collection of rag-tag import firms, one of which had nearly gone bankrupt after importing defective Chinese tires that had to be recalled after a series of crashes.

 Cooper, in testimony to the International Trade Commission, reported that all of the tires it makes at its Chinese plant, under its licensing agreement with the Chinese, must be exported until May, 2012. So it has a clear financial interest in preventing tariffs on imported tires to the U.S. The tire import companies have the same interest. For them, it’s about the money they make today, no matter how or where it’s made. They’ve got no allegiance to the U.S. and don’t care what happens to America’s future manufacturing capability or financial stability.

President Obama, by contrast, is a patriot who sees the big picture and takes the long view. U.S. Sen. Sherrod Brown of Ohio was right when he said after the tire tariffs were announced:

“Today the President courageously stood up and enforced fair trade rules that will save jobs and help our communities. Since China joined the World Trade Organization, American workers have not been assured that the government would defend them against unfair trade. With this “Section 421” decision, President Obama has taken the side of American workers and manufacturers.

“Rigorous trade enforcement is a major piece of our manufacturing and global competitiveness strategy. If American workers and manufacturers are going to compete in the global market, they need to have a government that uses trade enforcement tools, including the Section 421 safeguard.”

American workers and American manufacturers can compete – when trade is fair. It’s unfair when countries don’t enforce their own labor regulations, including their own minimum wage laws. It’s unfair when U.S. companies abide by strict environmental regulations and those in other countries openly pollute air and water. It’s unfair when other countries allow their firms to steal trade secrets, when other countries demand that firms export all of their products for a certain number of years and when other countries manipulate the value of their currencies.

If trade laws aren’t enforced, America will lose virtually all manufacturing and become nothing but a dumping ground – a place where the rest of the world sells the stuff it makes. Fewer and fewer citizens in that America would be able to buy stuff after the factories close and all the jobs that they support disappear.

In announcing the tire trade sanctions — tariffs of 35 percent for a year beginning Sept. 26, 30 percent for a year after that, and 25 percent in the final year — U.S. Trade Representative Ron Kirk said, “Enforcing trade laws is key to maintaining an open and free trading system.”

Unfair trade isn’t free.

President Obama is bold enough to draw that line of distinction for America.

Peter Navarro and Leo Gerard

Leo W. Gerard: Your chapter in the new book, “Benchmarking the Advantages Foreign Nationals Provide their Manufacturers,” describes in devastating detail how China in particular, but also other major U.S. trading partners, violate international rules. The abuses you document make clear that it’s impossible for American manufactures to compete internationally. U.S. corporations responded by off-shoring manufacturing and millions of American jobs. Why does the U.S. put up with this unfair trade?

Peter Navarro: The Bush administration put up with unfair trade because it was distracted by the war on terrorism and because of its blind ideological commitment to free trade, regardless of the unfair trading practices adopted by our trading partners. The Obama administration is putting up with unfair trade with China because it is under the mistaken notion that it’s more important for China to keep financing our budget and trade deficits than for this country to crack down on unfair Chinese trade practices so that we can restore our manufacturing base. Consumers — oblivious to the destruction that the Chinese have done to our job base — have put up with this unfair trade because in the short run they get cheap Chinese goods. The National Association of Manufacturers puts up with this unfair trade because many of its members have offshored their production to China and now find it in their interests to oppose trade reform. What is critical in the politics of this whole situation is that the American people clearly understand how unfair trade practices translate into fewer jobs and lower wages and a bleak future. Only when the American people see the chessboard more clearly will our politicians act appropriately.

Gerard: The result of decades of losses is, as you put, the “hollowing out” of the U.S. economy. It depressed wages, lowered the standard of living, created recession conditions in the Midwest – even before the current great recession. Typically, in the mainstream media, the loss of industry routinely is blamed on unions seeking what we believe is decent wages and benefits. Your chapter provides a shockingly different story. Why don’t we hear that?

Navarro: Labor unions have become a common “whipping boy” for the recessionary ills that have afflicted the US economy off and on for several decades now. One problem is that much of the financial press has a strong, antiunion bias. A second problem is the far too parochial nature of American politics. Far too many Americans — and I include many members of the American press corps here as well — simply don’t understand some of the complexities of the global economic environment that have helped trigger the US recession. The case of Chinese currency manipulation is a perfect example. Very few politicians or pundits — much less the American people — understand how China pegs the yuan to the dollar and how an undervalued yuan acts as a subsidy to Chinese exports to the United States and a tax on US exports to China. Nor do these politicians and pundits understand how this currency manipulation affects the stock market or interest rates or the rate of off shoring. Because the effects of globalization are complex, labor unions make an easy target.

Gerard:  For those unfamiliar, because it isn’t covered much, would you explain how China can be both a mercantilist and a protectionist state, and the effect of that economic behavior on the U.S.?

Navarro:  In thinking about the issue of trade reform, it is important to distinguish between mercantilism and protectionism. A mercantilist state uses tools like illegal export subsidies and currency manipulation to increase its level of exports to other nations at the expense of jobs and income in those nations. In contrast, a protectionist state uses unfair trade practices like quotas, forced technology transfer, and regulatory barriers to prevent foreign competitors from entering its markets. As a practical matter, any state that engages in protectionism likely also is a mercantilist as well. In the world arena today, China is the reigning Emperor of both mercantilist and protectionist practices. The scope of what this “beggar thy neighbor” country does in direct violation of the World Trade Organization rules is breathtaking, and it is precisely these mercantilist and protectionist practices that I outline in my chapter in the book.

Gerard:  Can we talk for a minute about currency manipulation because this is something you hear a lot, but, again, it’s rarely explained. You provide great descriptions in the chapter of why China’s undervaluing the yuan “makes exports cheap and imports dear,” as you put it. Can you give us a primer here?

Navarro:  As a practical matter, any given country can choose between a fixed or a floating exchange rate system for its currency. In a floating exchange rate system, the value of the country’s currency is determined by supply and demand conditions in the international market. Currencies that float and trade freely everyday include the dollar, the euro, the yen, and the Swiss franc.

In fact, floating exchange rates represent a crucial element of any free trade regime that benefits all nations. The reason is that floating exchange rates act as a natural market mechanism to prevent any trade imbalances between countries. If one country like the United States runs a trade deficit with another country like China, the value of its currency should fall relative to the other currency. A falling currency will boost that country’s exports because its exports will be cheaper to sell while it will reduce its imports, because imports will become more expensive. In this way, the trade will come back into balance in a floating exchange rate system.

The problem is that some countries like China embrace the alternative of a fixed exchange rate system. In China’s case, it tightly pegs the value of the yuan to the US dollar. This means that no matter how big the US-Chinese trade imbalance, the dollar can’t fall relative to the yuan and bring trade back into balance. 

China pegs the yuan to the dollar in a very complex process, but in a simplified example you can think of it this way. American consumers go into Wal-Mart and buy a bunch of cheap Chinese goods with American dollars, and these dollars are exported over to China. Ordinarily, the surplus dollars would put downward pressure on the value of the dollar relative to the yuan. However, to reduce these pressures the Chinese government sweeps up these dollars in a “sterilization” process which involves selling bonds to Chinese citizens at interest rates of a little more than 4%. China then turns around and uses these sterilized dollars to buy US government bonds at interest rates of less than 2% — thereby losing a considerable amount of money on the deal. The Chinese government is willing to incur these losses, however, because by buying US government bonds, it bids the value of the dollar back up so that China can maintain its dollar-yuan peg. At the same time, China’s purchase of US government securities also helps lower US interest and mortgage rates — a kind of financial heroin that makes America feel good even as China steals its jobs and destroys its manufacturing base using this currency manipulation as a weapon.

Gerard:  I think that after the Olympics were held in China, a lot of people became aware of the high level of pollution there. So while American companies must pay decent wages and control pollution, Chinese companies don’t. But you detail much more insidious internationally illegal competitive advantages China has over the U.S. One of those is forced technology transfer. Can you describe that?

Navarro:  While currency manipulation and China’s high levels of illegal export subsidies rank as two of its most important mercantilist practices, China’s forced technology transfer represents one of its most insidious protectionist practices. The idea of forced technology transfer is that if a company like General Motors and General Electric or Intel wants to set up production facilities in China and sail into the Chinese market, it must surrender some of its technology to the Chinese in order to do this. This practice is, of course, one of the most blatant violations of the World Trade Organization. However, American corporate executives rarely challenge this practice because they are all too eager to play in the Chinese market. Over time, however, the practice of forced technology transfer in China is a one-way ticket to the destruction of the American technology base. If in the short run, American corporations surrender their technologies to China, eventually, over the longer run, China won’t need these American corporations, and they will be quite ironically run out of China by their own evolved technologies.

Gerard:  You describe virtually all of these practices as being illegal under international treaties or World Trade Organization rules. People who are so hot for free trade must know that China is violating these rules. Is it correct to say that the U.S. simply is not demanding enforcement of the regulations to its own detriment?

Navarro: That is absolutely correct — the US government has failed abysmally at using the tools at its disposal to crack down on Chinese mercantilism and protectionism. The Bush administration failed to do so because of its preoccupation with the war on terror and its misguided ideology. The Obama administration is even more culpable because it fully understands the damage that China is doing to the American economy. However, the President, the Treasury Secretary, and the United States Secretary of State have all decided that it’s more important that China continue to finance our budget and trade deficits than it is to challenge China on trade reform. The problem with this strategy is that it guarantees the long run secular decline of the American economy, which will come as an inevitable result of a further erosion of America’s already weakened manufacturing base.

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Peter Navarro is a best-selling author and CNBC contributor. His most recent book is “Always a Winner: Finding Your Competitive Advantage in and Up and Down Economy.” Mr. Navarro is also the author of the worldwide bestseller, “The Coming China Wars,” and the bestselling investment book, “If It Rains in Brazil, Buy Starbucks.” He also wrote the management book, “The Well-Timed Strategy.” With a Ph.D in economics from Harvard, Mr. Navarro is a business professor at the Merage School of Business at the University of California, Irvine. He is an expert in macroeconomic analysis of the business environment and financial markets. He has been featured on “60 Minutes,” and his articles have appeared in publications such as “Business Week,” “The New York Times,” and “The Wall Street Journal.”

Robert Kutner

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

Barack Obama may soon find that he is committing a big sin against one of the major premises of the reigning ideology. As part of his plan to restructure the auto industry, rebuild infrastructure, and create new green industries and jobs, he will be committing industrial policy. And this will create a head-on collision with one of the cherished dogmas of market fundamentalism — “free trade.”

This clash is long overdue. For several decades, American elites of both parties have been preaching the same gospel of free trade. Supposedly, if we just leave markets alone, different countries will produce and export what they naturally do best, and import products at which their partners excel. In the tidy and oversimplified textbook world, there is no room for questions about pollution, labor standards, product safety, financial engineering, or industrial policy.

But the real world doesn’t work like the Econ. 101 fable. In much of the rest of the world, governments help their industries develop.

However, in the hierarchy of America’s diplomatic priorities, countries like China that subsidize industries (and violate human rights) get a free pass. Other nations like Japan, that basically closed their borders to most imports for several decades while they became industrial powerhouses, got a seal of approval, too. Supposedly, what we lose in jobs and industries, we make up in cheap imports.

While other nations care about what they produce, the United States disdains having industrial policies, in order to set a good example. Indeed, we have been the principal architect of the World Trade Organization, which discourages government involvement in economic development as an illicit thumb on the free-trade scale.

Now, with the crash of 2008, it is clear that the US economy was built on a financial mirage. Our reliance on asset bubbles – inflated stock and real estate prices – disguised the fact that we were not paying our way. Much of our prosperity was simply borrowed.

Having let so many industries and jobs just go offshore, we don’t make enough to pay for our imports. Instead, we have been relying on loans from foreign central banks to finance our trade imbalance.

Looking at this economic calamity, President-elect Obama has proposed several sensible policies. He wants the U.S. auto industry to reinvent itself, with government aid and government standards. He wants to incubate other domestic industries around the goal of clean energy. And he wants to spend serious money on all of this, to help avoid a depression. The only historical counterpart is the vast industrial mobilization of World War II, which finally cured the Great Depression.

But these ideas about government involvement in the economy violate the sacred dogma of free trade. If the Obama administration is serious about reviving American manufacturing industry, it is only a matter of time before a foreign government hauls the U.S. before the World Trade Organization and charges us with the crime of industrial policy.

To quote our beloved leader George W. Bush in a different context, bring it on. The current version of the W.T.O., designed by and for US multinational corporations to make it easier to outsource jobs and production, has not served the national interest. It is indeed time to use industrial policy to rebuild long neglected domestic industries; and if something has to give, let it be the W.T.O.

As a mark of the total intellectual muddle in how policymakers have thought about these issues, the fact is that we have several implicit industrial policies. For instance, American commercial leadership in aerospace is no naturally occurring phenomenon. It reflects trillions of dollars of subsidy from the Pentagon and from NASA. Likewise, U.S. dominance in pharmaceuticals is the result of government subsidy of basic research, favorable patent treatment, and the fact that the American consumer of prescription drugs is made to overpay, giving the industry exorbitant profits to plow back into research. Throwing $700 billion at America’s wounded banks is also an industrial policy

So if we can have implicit industrial policies for these industries, why not explicit policies to rebuild our auto industry, our steel industry, our machine tool industry, and the industries of the next century such as green energy and high-speed rail? And why not devise some clear standards for which industries deserve help, and why, and what they owe America in return?

The new administration is already a bit schizophrenic on the subject. On the one hand, President-elect Obama has been saying bold things about building the industries of the future. On the other hand, he just appointed as America’s top trade official Dallas Mayor Ron Kirk, a man with no serious diplomatic experience and one whose main claim to fame on the trade issue is that he has been a big booster of NAFTA, a badly flawed deal that Obama has pledged to reopen.

Kirk’s appointment was meant to signal that Obama will not challenge the current orthodoxy on trade policy. It was cheered by the U.S. business establishment. What is truly bizarre is that Obama’s reported first choice for the job was California Congressman Xavier Becerra, a critic of NAFTA and other recent trade deals. Kirk will also vehemently disagree on trade and industry with Obama’s new labor secretary-designate, Rep. Hilda Solis, another NAFTA critic.

Maybe, like Lincoln, Obama has the genius to fuse this “team of rivals” into an effective administration; perhaps he will listen to the divergent advice and forge the best course. When the historian Doris Kearns Goodwin coined that phrase to describe Lincoln’s manner of governing, she was referring to the fact that Lincoln literally brought into his cabinet men who had been Lincoln’s rivals for the Republican presidential nomination in 1860. These were people of real stature and of fierce differences, representing a party that was badly fractured on the key issues of how to save the union and whether to free the slaves.

Obama has prided himself building bridges and transcending ideology. We are now beginning to see what that means in practice–a cabinet that represents people of thoroughly contradictory views, with some members who are public figures of real consequence and others who are surprisingly weak. This pattern puts all the more pressure on Obama himself to create coherence out of the stew.

Despite these gestures of broad inclusion, there is no escaping the fact that Obama must quickly make some difficult decisions about which path to follow. And one path precludes another. He can’t have both his industrial policies and his free trade.

Robert Kuttner’s new bestselling book is “Obama’s Challenge: America’s Economic Policy and the Power of a Transformative Presidency.”

Robert Kuttner’s new bestselling book is “Obama’s Challenge: America’s Economic Policy and the Power of a Transformative Presidency.”

Column first published on The Huffington Post

By Leo W. Gerard
International President

Republicans in the House contend that critical words by Speaker Nancy Pelosi compelled them to vote against the initial $700 billion Wall Street bailout bill that their GOP President had asserted was essential to save the country from certain economic doom.
But, really, they were pressured by something far less ethereal than Pelosi’s commentary, something far more grassroots: livid constituents calling and e-mailing so fast and furious — with furious being the operative word — that they nearly shut down networks.
It was an uprising. It showed that under the right set of circumstances –  like  impending balloting on their re-election — they would respond to public outcry. That occurred just as a filmmaker Stuart Townsend’s new movie, “Battle in Seattle” debuted around the country, highlighting an uprising that changed the course of global events.
“Battle in Seattle” recounts the massive protests in 1999 that shut down the World Trade Organization talks scheduled to occur in that Washington city, the first time the ministers were to meet in the U.S. The movie depicts the diverse group of protestors — idealist college kids, environmentalists, endangered species activists, and trade unionists concerned about so-called free trade — who converged on the city for five days of mostly peaceful demonstrations only to be met by tear gas, rubber bullets, police batons and concussion bombs.
Stopping these talks forced the all-powerful WTO to recognize the deep layers of opposition to its secretive actions that created trade deals disregarding the human condition, the environment and endangered species while favoring global corporations and large nations. And, in the case of the U.S., these agreements could circumvent the will of Congress.

Marginalized nations empowered

In addition, the protest and shutdown empowered small, marginalized nations to stand up and object to the process that enabled global corporations to profiteer from their national resources as cheap raw materials and their people as cheap labor. This recovery of rights by small nations contributed to the disintegration of the Doha Round of WTO talks that broke off in July without resolution.
Mark Engler, a senior analyst with Foreign Policy in Focus and author of “How to Rule the World: The Coming Battle Over the Global Economy,” wrote about it in an essay entitled, “The Impact of the Battle in Seattle.” He describes the insurrection in Seattle by ministers for some small countries and quotes Sir Shridath Ramphal, chief negotiator for the Caribbean: “This should not be a game about enhancing corporate profits. This should not be a time when big countries, strong countries, the world’s wealthiest countries, are setting about a process designed to enrich themselves.”
Engler goes on to say:

“Given that less powerful countries had typically been bullied into compliance at trade ministerials, this was highly unusual stuff. Yet it would become increasingly normal. Seattle launched a series of setbacks for the WTO and, to this day, the institution has yet to recover. Efforts to expand the reach of the WTO have repeatedly failed.”

The two events – the collective uprising in Seattle that shut down the WTO talks and the angry public uprising that prompted the initial House vote rejecting the bailout bill — share another important connection.
In both cases, the protestors believed the governing agency was kowtowing to corporate interests at the expense of individuals. In Seattle, the protestors felt that the WTO would make any deal to increase trade between nations for the profit and pleasure of global corporations, no matter what indigenous people, fragile eco-system, endangered Queen Alexandra’s Birdwing Butterfly or threatened Knysna Banana Frog stood in the way. The wealth created by this increased commerce was supposed to create economic growth and stability within nations and trickle down to the poor. But, as small nations in particular experienced, that didn’t seem to occur.  The rich corporations and rich countries just got richer – at the expense of the small.

Angry constituents called

Similarly, with the initial House vote on the bailout bill, a thin majority of U.S. representatives opposed it after angry constituents called demanding to know why their tax dollars should be used to salvage giant banks that would never forgive a depositor an overdraft, that paid executives obscene salaries while the rest of America increasingly got layoff notices, and that had taken the risks that resulted in pulling the American economy down.
At the same time, these taxpayers knew the federal government had tightened bankruptcy regulations to make it more difficult for citizens like them to get a bailout. They could recite the Reagan Republican economic mantra that government should deregulate so that corporations could do whatever they wanted, and, eventually, the resulting massive profits were supposed to trickle down to the great unwashed. It had never worked for the American middle class as corporations shipped jobs oversees to exploit labor there. And now a new Republican president was telling them to begin paying for a reverse philosophy –  their tax dollars would trickle up into the pockets of reckless corporations. This time, the public revolted.
Again, there’s a connection between Seattle and Washington, D.C.  Engler writes, “Privatization, deregulation and corporate market access have failed to reduce inequality or create sustained growth. . .”  He finishes that sentence with “in developing countries” because he is writing about the WTO. But if it changes to: “Privatization, deregulation and corporate market access have failed to reduce inequality or create sustained growth. . .in the United States,” it remains true.
Those who feel defeated by the events on Wall Street and in Washington or feel depressed by the prospect that nothing they do can change that, should go take a dose of “Battle in Seattle.” It’s a tonic because it shows people still have power.

By Leo W. Gerard

International President

Lies, traderous lies and statistics

In the free for all Twenty-First Century, it all sounds terrific – free markets, free trade and free commerce. But really, it’s lies, traderous lies and statistics.

The d in trader is deliberate. This is about the sleight of hand billed as free trade.

We’re constantly told it’s a win-win. In 2000, when China was admitted to the World Trade Organization, for example, a former president said that exports to China already supported hundreds of thousands of American jobs, and this figure would grow substantially with the new access to Chinese markets that the WTO agreement would create. Politicians also promised the U.S. would benefit from exports to the rapidly growing consumer market in China.

The opposite, however, has occurred: China has exploited the U.S. consumer market while U.S. companies have been restricted to selling to China bulk goods such as grains, scrap, and chemicals, some intermediate products such as semiconductors and some durable products such as aircraft.

The China trade promises were snake oil.

The Economic Policy Institute released a study Wednesday revealing what happened to American jobs since China was admitted to the WTO. Between 2001 and 2007, 2.3 million workers lost their jobs or were displaced because of trade deficits with China.

Annual earnings lower

Annual earnings for all U.S. workers without a college degree are $1,400 lower because of competition with China’s low-wage workers and because China now accounts for such a huge percent of all of our imports. Displaced American workers, who did find new jobs, lost an average of $8,146 a year in earnings each. That is $156 less each week to use to feed the kids, to pay the mortgage, to meet the car payments.

Coincidentally, on the very same day EPI released its report, talks in Geneva, Switzerland to open global markets even further collapsed as China and India refused to allow free trade when it came to their own agricultural products. Both countries wanted to impose or raise tariffs on imported agricultural goods to protect their indigenous farmers.

Remember, it is for the most part, bulk goods, such as agricultural products, that the U.S. is exporting to China. A sticking point in the negotiations, for example, was soybeans. U.S. trade representative Susan C. Schwab had agreed that China could increase tariffs on soybeans in 8 of every 10 years, and still China walked away from the Geneva talks.

So here is the question: how can this relationship possibly be called free trade when China wanted to impose tariffs on our soybeans in 8 of 10 years, when it is manipulating its currency, when it is subsidizing its manufacturing, when it is failing to enforce even the most basic environmental and labor regulations?

That is snake oil.

We need fair trade. And so do Chinese workers and families, who are being abused by this so-called free trade system that benefits only CEOs and major shareholders of global corporations.

Unfair trade kills

What do Americans workers and families get out of so called free trade? A report, “The Toxic Truth: Unfair Trade Kills” issued recently by the United Steelworkers details the gross destruction, including a four-year-old who died after swallowing a lead pendant that was attached to his shoe imported from China; two Philadelphia carpenters killed when their van crashed while they were traveling home from work on defective tires manufactured in China, and 81 patients from across the country poisoned by contaminated heparin, a blood thinner imported from China.

In addition, the U.S. Consumer Products Safety Commission recalled 30 million toys made in China last year because they were doused with dangerous leaded paint; Chinese-made pet food sickened and killed untold numbers of American cats and dogs because it contained tainted wheat protein; officials pulled off the market poisonous Chinese toothpaste; children were sickened by Aqua Dots toy kits made in China with a substitute chemical that turned into the “date rape” drug when swallowed, and the U.S. blocked import of Chinese fish containing banned antibiotics.

That’s just the consumer viewpoint. The EPI study dispelled the myth that a good education is insurance against job displacement. EPI found that 31 percent of the jobs lost since China entered the WTO were among workers with college degrees and more than half – 55.6 percent — of the displaced were in the top half of American wage earners. The China trade deficits have contributed to the loss of 200,000 scientist and engineer jobs within this nation’s manufacturing base, a 10.7 percent drop.

This is what free trade has given the U.S. Poisonous products. Lost jobs. Lower earning power.

It’s not just us though. Think about this: One effect of free trade is polluted air wafting all the way across the Pacific Ocean to the shores of California, a state that enforces environmental standards higher than the national ones. Twenty-five percent of the pollutants in the Los Angeles basin come from China. That’s tragic for Californians who try so hard.

Tragic for China too

That’s also tragic for the Chinese people who live with befouled air every day. (Well, except during the brief period of the Olympic Games when the country is attempting to impress the world. After that, the cars, trucks and industrial pollution will return full force.) More than half of the rivers in China are too polluted to serve as a source of drinking water – often because of untreated pollution pouring into them from factories.

An investigative report issued earlier this month by the National Labor Committee describes conditions in the Kai Da Toy factory in Shenzhen, China where the Sesame Street’s Kid K’Nex Ernie construction toys are made. In violation of local and national laws, the factory’s employees are forced to work 13 to 15 hours a day, 7 days a week without health care. After deductions for room and board, they are paid 28 cents an hour, far below the requisite minimum wage. The 600 workers include 100 16-year-olds, and earlier this year, included numerous children who “disappeared” after an investigation by a Chinese newspaper.

NLC inquiries have repeatedly uncovered violations of Chinese labor law. Chinese firms don’t have to pay U.S. minimum wage. But they need to follow their own rules and not make virtual slaves of their country’s own adolescents.

Adult American factory workers trying to support families cannot compete with Chinese teenagers living four to a dormitory room on the factory site without any health or other benefits, working sweatshop hours, seven days a week.

What kind of “free trade” system is this? Those Chinese adolescents aren’t free. The American factory workers who have lost their jobs have forfeited financial freedom.

Still, the Kai Da factory will make big money. And the American corporations selling the Ernie construction toys will make big profits. Free trade works just fine for them.

If so-called free trade is ever to be replaced with fair trade, workers and families in China and America and every other trading country must demand it. Fair trade means that at the very least, labor and environmental regulations must be respected and enforced, so that people are not enslaved and the environment destroyed in the name of global corporate profit.

Really, at some point, when politicians claim these free trade deals are a win-win, and the actual result is 16-year-old Chinese youngsters working 16 hour days and American workers idled while their youngsters play with toxic imported toys, aren’t the lies traitorous?