Posted on 08/16/2002 8:06:30 AM PDT by madeinchina
President George W. Bush's economic forum in Waco, Texas brings to mind a similar conference held by the then newly elected (but not yet sworn in) president, Bill Clinton, in Little Rock, Arkansas in December, 1992. Both gatherings featured a mix of businessmen, academic economists and labor leaders, seeking ways to speed up the country's recovery from a recession.
Clinton had run his 1992 election campaign on the theme that the American economy was in the worst shape in fifty years. In actuality, recovery from the mild 1990 downturn had already started by mid-1991, but it had been too slow to convince the public that the country was on its way back to sustained economic growth.
More than just campaign rhetoric was at work. Clinton was convinced that the economy was in deep trouble. As late as 1995, the annual report of the U.S. Trade Representative was claiming that "The U.S. market has hard limits on its growth; we have a mature economy and slow population growth." Clinton was under the influence of the old liberal belief, born of the Great Depression and Keynesian economics, that the American economy was inherently weak and in need of outside stimulus.
Clinton believed that the moribund U.S. economy had to hitch its wagon to more dynamic economies overseas. The high growth rates on the Pacific Rim were a particular lure, as was Latin America. Within days of winning Congressional approval of the North American Free Trade Agreement, Clinton was rushing off to Seattle for an Asian economic summit. A Washington Post editorial on November 20, 1993 summed up the importance of the trip to Clinton: "It gives him a dramatic setting for his continuing campaign to persuade Americans to look to foreign markets for economic growth and new jobs here."
The hunt was on for "big emerging markets (BEM)" for exports. Jeffrey E. Garten, Undersecretary of Commerce for International Trade (1993-1995), drew up a list of "the Big 10" nations that "were big, ambitious, and gaining power in their geographical neighborhoods."
President Clinton even changed a central piece of his foreign policy by shifting away from concern over Chinese tyranny to the "engagement" of Beijing as a strategic partner. China was, after all, the biggest of the BEMs. And in the supposedly peaceful post-Cold War world, the "economy, stupid" was all that mattered.
But financially unstable states, whose people have incomes only a fraction of that of Americans, could not be the economic saviors of the colossal United States. And larger "ambitious" states were not going to sacrifice their own economic development by opening to a flood of U.S. exports.
Of Garten's Big 10, six have sought bailouts from the International Monetary Fund since 1994: Mexico, South Korea, Indonesia, Argentina, Brazil and Turkey. The $30 billion the IMF just gave Brazil is that country's second trip to the well. And it is not that these problems were unpredictable. All of these countries had experienced debt and currency crises in the 1980s.
The first great bailout was Mexico in 1994. The Clinton administration had to act, having pinned its hopes on Mexico in NAFTA. The 1994 Economic Report of the President stated, "Most scholars estimate that NAFTA will create additional American jobs over the next several years because it will boost U.S. net exports to Mexico." Despite the bailout, net exports collapsed; turning from a positive $1.7 billion in 1993 to a negative $29.9 billion in 2001, with entire factories moving south of the border, costing tens of thousands of American jobs.
Even trade with BEMs which did not suffer financial collapse has been disappointing. Net exports to China, already in the red by $22.7 billion in 1993, have only gotten worse, reaching a negative $83.5 billion in 2001. Meanwhile, Beijing has become a more assertive rival to U.S. interests around the world. By sacrificing foreign policy to economic delusion, Washington lost on both fronts.
The American economy grew despite Clinton's trade policies, not because of them. Indeed, America became the engine for world economic growth, especially when most of the rest of the world went into recession after the 1997 Asian financial crisis, the economic meltdown in Russia and renewed turmoil in Latin America.
Clinton compounded his initial mistake by adopting "free trade" rather than a more targeted approach. He lost control of the process, allowing other states to export their problems to America in ever more damaging ways.
What does this history lesson have to do with President Bush's economic summit? Only that the Bush administration seems intent on following the Clinton approach rather than learning from past mistakes.
President Bush did not take the role of lead participant in the Waco forum the way President Clinton did in Little Rock, so clues must come from Bush's actions before the summit.
Bush devoted considerable political capital to winning narrow passage of "fast track" trade negotiating authority. At the August 6 signing ceremony, Bush said, "We'll move quickly to build free trade relationships with individual nations, such as Chile and Singapore and Morocco....The United States will negotiate a Free Trade Area of the Americas, and pursue regional agreements with the nations of Central America and the Southern Africa Customs Union" -- as if any amount of trade with these Liliputian economies could produce any significant blip in America's $10 trillion economy. (Chile, for example, has an economy roughly the size of Cleveland, Ohio.)
Bush repeated the false claim that "exports accounted for roughly one-quarter of all U.S. economic growth in the 1990s." The net effect of trade in the 1990s was to slow the U.S. economy, with the trade deficit almost quadrupling to $408.7 billion last year. The 2001 Economic Report of the President, the first written by the Bush team, notes, "In 2000 net exports depressed real GDP [Gross Domestic Product] by 0.8 percentage points." This is certainly an underestimate, but it gets right the fact that trade deficits are damaging. Negative net exports are on track to be even a larger drag on the economy in 2002, yet there is no sign that the administration intends to change inherited trade policy to reduce the deficit.
President Bush said at the Waco forum, "I am terribly optimistic about the future of this country, because I understand the strength of the country. The strength of our country is its people." But will his policies really reflect a focus on American production? Does he understand that to a large continental economy and great world power like the United States, trade is a peripheral concern that must not undermine the nation's core capabilities?
The "biggest emerging market" is the American market, especially that segment that has been lost to foreign imports in high-end manufacturing. Eliminating the damaging trade deficit is the most direct way to create more middle-class American job opportunities and to put the country back on the path of sustained economic growth.
If policies are formulated to support domestic investment, job creation, productive technology and sound finance, the American people will thrive - and so will those political leaders who put America's interests first.
What does this history lesson have to do with President Bush's economic summit? Only that the Bush administration seems intent on following the Clinton approach rather than learning from past mistakes.
The blind leading the blind forums and in this case monkey see monkey do. Time to restore the 'production' engine economy, smoke stack or otherwise. The 'information-service' engine is not cutting it. Do you want 'information (audited) with those fries'? We need a lot more 'producin going on out there'. We are eating our seed corn. Remember in November.
Mistake #2. Holding the summit behind the curve. Clinton had enough luck or wisdom(?) to throw a summit when the market was rebounding instead of going in the tank.
Mistake #3. Maintaining since passage of the trade authority package that he can bring the economy around by opening markets in Morocco and other thirld world nations. Most of these countries have a GDP comparable to counties in the US.
Mistake #4. Continuing to harp on the dangers of Iraq when everybody knows you could cross the border with any number of weapons and material. If the average citizen can't have confidence in sensible solutions to security problems, how can they have any confidence in financial matters?
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