Posted on 03/24/2005 4:29:28 PM PST by A. Pole
A man-bites-dog story of momentous implications is unfolding in Washington: The US multinational establishment, having successfully championed free-trade orthodoxy for decades, may now be flirting with protectionist heresy--a stiff tariff against China to stanch America's hemorrhaging trade deficits. Fred Bergsten, the multinationals' leading economic authority, warns that the United States is in "big trouble," taking on foreign debt beyond anything any industrial nation has experienced and comparable to Mexico and Thailand just before they crashed in the 1990s. Bergsten, director of the Institute for International Economics, is lobbying elite circles to demand decisive action by the Bush Administration--an "import surcharge" as high as 50 percent on all Chinese imports--to avert financial meltdown.
Meantime, a bipartisan group of senators--nine Democrats, five Republicans--has introduced Senate Bill 295, which targets China with a 27.5 percent tariff. Charles Schumer, the lead sponsor, calls it "a tough-love effort." The co-sponsors include Democratic minority leader Harry Reid and, more surprising, Hillary Clinton, a longtime free trader close to financial leaders like former Treasury Secretary Robert Rubin, now an executive at Citigroup. The bill lets politicians express solidarity with constituents who lost their jobs, without offending big hitters.
Conceivably, we could be witnessing the start of a break from the era of US-led globalization in which Washington preached unfettered trade to the rest of the world. Now it is America that needs protection, its trade deficits swollen to more than $600 billion a year, its capital borrowing from abroad approaching 7 percent of GDP. Bergsten predicts that, unless there is dramatic action, the deficits will keep rising until something truly awful happens to the US economy and, therefore, the global economy too.
Bergsten, Assistant Treasury Secretary in the Carter Administration, is a high-church free trader offended by the protectionist label. His institute's board of directors includes heavyweights from Citigroup, Morgan, United Technologies, ChevronTexaco and the Carlyle Group, plus former Federal Reserve chairman Paul Volcker, David Rockefeller and Jean-Claude Trichet. Alan Greenspan is listed as an "honorary director." Improbable as it sounds, Bergsten insists he is freelancing this explosive proposition. "The big companies and financial firms are not goosing China," he told me. "They all like the status quo and are very much in disagreement." He does acknowledge, however, heightened anxiety among financiers about America's swollen debt position. The declining dollar has not reversed the US trade deficits, as experts like Bergsten had predicted, and it must fall much further to do so. "Wall Street," Bergsten explains, "faces a risk of precipitous decline--an overshooting free fall that would shatter confidence, drive US interest rates toward double digits and crash equities à la Black Monday in 1987."
The multinational club does not intend to abandon free-trade dogma. Bergsten's strategy--threatening tariffs--is meant to bluff China and other Asian nations into letting their currencies appreciate and allowing the dollar to fall much further so the US trade deficits will shrink, at least enough to avert a financial crisis. The strategy is also designed to light a fire under George W. Bush. "It is virtually inconceivable," Bergsten wrote in the Financial Times, "that the Bush Administration could skate through four more years without addressing these issues decisively." In a sense, Bush is being handed a weapon to use to intimidate the trading partners: Work out a deal with us or protectionist politics may engulf us all.
Schumer's bill provides for a six-month negotiating period-- time enough for Beijing to relent--before the ax would fall (other Asian nations can't move on currencies unless China does because they'd lose their own export sales to Chinese goods). Bergsten has worked out a clever but strained rationale for how his import surcharge defends free trade: China and the others, he says, are manipulating their currencies to gain trading advantage. But all important nations manage their currencies for economic advantage; furthermore, during the 1990s, American experts encouraged developing nations to peg their currency to the dollar, exactly what China's doing now. Bergsten argues that the United States should take his accusation to the IMF and WTO, but the threat seems hollow since such a case would take years. The bleeding is now.
Waving the tariff "stick" to pressure others can be risky, however. When Bergsten presented his case before the Council on Foreign Relations in February, financier and former Commerce Secretary Pete Peterson sounded in agreement but cited the risks. "I don't suggest using sticks lightly," he said. "They're a very dangerous thing to get started because they can result in retaliation and so forth." But they can also work, Bergsten responded. "Absolutely," Peterson said.
These events also pose a large domestic political risk for the multinationals: When "responsible" players break the taboo and talk up tariffs, it could ignite a more honest public debate on globalization. The major news media seem not to have noticed that Democratic leaders and some conservative Republicans are waving the big stick. The establishment probably prefers that this remain an inside-the-Beltway story. Why confuse the public with front-page stories explaining that tariffs are actually useful and legal? Organized labor and others should make sure this story becomes big news. People might begin to ask deeper questions. If free-trade agreements are the road to greater US prosperity, how did the United States wind up in this deep hole? If the government is willing to invoke the tariff weapon to protect US financial interests, why can't it use it to protect US workers and jobs? Why does US trade policy serve the multinational interests but not the nation as a whole? The trade crisis is a new opening in politics, but its origins are bipartisan, spawned by Republican and Democratic Presidents adhering to the orthodoxy. Imagine if John Kerry had had the nerve last year to talk about an emergency tariff to protect America. He might have carried Ohio.
Tariffs bump!
Could someone explain to me why China has MFN status????
Because everytime you shop at Wal-Mart, thirty pieces of silver from China greases the palm of every politician that helped push it through.
Tariffs might be problematic (WTO), but if one could organize a massive boycott of everything made in China (might require a serious and sustained PR campaign focusing on Chinese human rights/ environment/ intellectual property piracy/ espionage) one could probably achieve much the same results.
The real melt-down in our economy will occur on the day that people realize that US currency and pretty much every currency in the world is worthless. The currencies are just instruments of trade and they have no inherent value of their own.
There is NOTHING but pure faith backing the US dollar.
The Federal Reserve prints up money or creates "funds" electronically and then lends that 'money' to the government.
Since 1953 our currency has been worthless and has had nothing backing it but faith.
As long as you believe that a dollar is something more than a piece of paper then it will continue to have value.
But what happens when people start to decide that dollars aren't really worth anything?
At some point our debt will cause foreign banks to devalue the dollar against their currencies. The reason they don't do this right now is becuase their markets would suffer as US goods became cheaper with a declining dollar.
So everyone plays ball until the debt load will become insurmountable and then the whole thing could crash like the house of cards that it truly is.
At that point people will revert to using gold and silver as their principle units of trade.
They call it "fiat money" according to my EC102 prof. Of course that was in 1970.
Those who champion free and open markets should be the first to demand that the Chinese currency trade freely.
???
I say slap tariffs on any nation that violates human rights.
The buck should stop there. Human dignity is more important than profits.
What if the losing industries weren't "losing" rather simply being destroyed by predatory pricing?
China's reasons for aggressively seeking the dismantling of the US manufacturing and economic base go far beyond simple trade terms.
Did the free traders not expect this to happen? The US is where the market is. In third world countries the workers don't normally bring home enough money to buy the products they make so it was inevitable the flood would be one way.
Instead of a failed orthodox philosophy this country must remain flexible to deal with those who take advantage of us. If that means imposing temporary tariffs on China until they play fair so be it.
There is nothing but faith backing gold, silver or diamonds as valuables. Those things are only valuable as long as humans agree they are valuable.
The trade deficit is no problem. When we buy stuff from other nations and pay cash, the merchants in the other nations can only do a few things with the dollars they get for their merchandise. They can of course spent those dollars on things we make. If they spent them all on things we make,there would be no trade deficit. But they don't. The dollars that make up the trade deficit are either saved or invested in the USA. If lots of dollars are held by foreign nationals and the dollar becomes worthless .. who gets hurt? Of course the Japanese that earned the dollars could trade them to a German for Marks or to the english for pounds, but the dollars to maintain any value have to be spend or invested in the USA.
The foreign nationals are buying stocks and bonds in US companies and investing in us notes and bonds. If foreign nationals invest in a United states company that company spends the money on people or things. It puts Americans to work. If foreign nationals just put the money in bank notes or bonds, that money is borrowed by Americans and spent on wages or things. It puts Americans to work.
The line the protectionists always play is what would happen if the foreigners sold all their stock and with drew all their deposits? Well they would have lots of pieces of paper money. The only thing they could do with those dollars is buy stuff from us or reinvest them in the US.
What would happen if the Japanese and Germans with drew their money and demanded Fords, Chevies, eletrical components from GE, and tons of MS Software. Imagine how terrible it would be if all those foreigners ended the trade deficit by spending the money on stuff we make.
It is so funny to me. Time after time people decry the fact that the poor nations of third world must get foreign investment if they are to ever be prosperous.
But foreign investment in the US is supposed to make us poorer. Imagine how terrible it would be if I bought a car from GM and GM took the profits and invested them in my business. How could I ever survive such a trade deficit with GM? What if it were a Chinese or Japanese company that sold me a car and then invested the profits in my Business. I'd cry all the way to the bank.
Gold has significant intrinsic value. So is with silver and so is with copper :)
Who determines that gold, silver, platinum, etc. are valuable as well too? Gold is just a metal.
I knew the Federal Reserve conspiracists would arrive sooner or later.
Why high tariffs? Moderate tariffs which would reduce trade deficit, encouraged foreign investors to move production into USA and spent on reducing budget deficit would help.
Most favoured nation status could be restricted to the countries with similar costs and standards of living like Canada.
Because they are multinational and not the Nation's -- but Americans are expected to don uniforms and protect them.
Ask the Davos crowd that includes the New Democrat Third Way "progressives" and their Republican "free trader" useful idiots. "Free trade" transfer of technology, wealth, and production to China is gooooooooooood. Import the goods and sell 'em here. Much money. Much help for the Chi-coms. Boats rise. Everybody happy.
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