Some Establishment Breakthroughs on Trade Policy

Wonder of wonder, miracle of miracles, as they sang in 'Fiddler on the Roof.' Signs are growing more and more common that the economic establishment -- including even the national media -- are starting to get it on U.S. globalization policy. Although editorial writers remain stubborn holdouts, government officials, economists, and reporters are regularly acknowledging major arguments made for years by globalization critics -- especially we in the economic nationalist camp.

Take trade deficits. Globalization cheerleaders still deride the notion that trade deficits of any size could weaken the American economy. Some even continue to insist that these imbalances are a sign of U.S. economic strength (signaling our still world-beating growth rates, our continuing ability to buy robustly from abroad, and the world's continuing willingness to lend us the money to do so).

But journalists are finally starting to present the official interpretation of trade deficits held by the U.S. government's professional economists -- that they detract from economic growth by replacing goods and services made in the U.S.A. (the very components of economic growth) with goods and services made abroad.

Thus in late August, a Reuters story stated that the "longstanding and huge trade deficit is a drag on the U.S. economy because every dollar spent on imports supports overseas production at the expense of domestic production." Not only did Reuters present this point as a reality, not a mere opinion, it did so in a stunningly matter-of-fact way.

Journalists are also finally recognizing that a large and growing share of these trade deficits now consists of high tech products. On August 21, after noting the explosive rise in Chinese exports of computer accessories to the United States, The Wall Street Journal reported, "Only in the areas of aircraft and agricultural commodities does the U.S. still run a sizable trade surplus with China."

In late June, a somewhat less perceptive New York Times article on Mexico described the movement of U.S. aerospace parts production to Mexico -- a far cry from the low-end garments and consumer electronics that still dominate globalizers' picture of the country's manufacturing activity. Unfortunately, Times reporter Ginger Thompson said absolutely nothing about the fact that such high-wage aerospace work used to be done in the United States.

At the same time, broad U.S. trade and investment patterns with Mexico are finally being described accurately. During the first years after NAFTA's signing in late 1993, the press uncritically swallowed Clinton White House and Fortune 500 propaganda observing that U.S. exports to Mexico were surging and claiming that all exports affect the American economy in the same positive way.

They almost willfully ignored NAFTA critics, who argued that most U.S. exports to Mexico represent a new kind of trade. As opposed to exchanges of finished products between unrelated buyers and sellers, most cross-border trade consists of the parts, components, and other inputs of final products. And they were being traded within the international production chains of multinational companies. Another big chunk of U.S. exports to Mexico consists of the building blocks of factories (capital goods).

When U.S.-based factories send Mexican customers final products, U.S. workers and the economy's long-term health do indeed benefit. But most of the other kinds of goods (called intermediate or producer goods) are exported, assembled in Mexico, and sent back to the United States as final products to be consumed by Americans. Their effects on the U.S. economy are very different, because the original U.S. exports were simply supplying Mexican factories that used to be located in the United States -- and that used to employ American workers.

How sweet it was, therefore, to read the August 15 USA Today article pointing out that Mexican and Canadian exports to the United States are "very different. Mexico makes more intermediate products, like car doors, that are then shipped to U.S. factories to be included in the final product. Canada, however, manufactures products that are ready to be sold as is, like stereo speakers."

In addition, recent news articles and even editorials have spotlighted some major weaknesses in the World Trade Organization. An August 21 Wall Street Journal editorial ridiculed the hopes of U.S. companies with big China investments that China's entry into the WTO would solve their problems anytime soon.

"Without a thorough reform of the judiciary," the Journal's free trade crusaders wrote, "we expect that in three or four years time our pages will be full of stories of multinationals who piled into China in 2002, only to have their high hopes dashed by a marketplace in which the most basic rules needed to conduct business are only sporadically enforced." If only such editorial writers were sounding these warnings before Congress approved China's WTO entry.

And then there's Alan Greenspan, steadily slipping off his pedestal as the maestro of the U.S. and world economies. At an early September conference, the somewhat defensive Fed Chairman insisted that his critics were wrong, and that he could have done nothing to safely deflate the late-1990s stock market bubble whose bursting has created so much economic turmoil lately.

Greenspan's reasoning was widely reported: Raising interest rates high enough to undercut the stock market bubble would have probably thrown the economy into recession. But the implications of this remark went largely unnoticed (especially by Greenspan): that the late-90s economic boom itself was a bubble.

At the very least Greenspan's arguments implicitly conceded that low interest rates (and hence growth itself) were possible to sustain only by permitting a dangerous speculative frenzy to gather momentum. Does that really sound like a Goldilocks Economy? And since so much of the establishment's case for current globalization policies was based on the U.S. economy's superficially sterling performance, doesn't this mean that there has been less to these policies, too, than meets the eye?

The economic establishment and its rubber stamp media still have a long way to go. But clearly not even they can keep ignoring the cracks appearing in the facade of the current version of globalization.

During the first years after NAFTA's signing in late 1993, the press uncritically swallowed Clinton White House and Fortune 500 propaganda observing that U.S. exports to Mexico were surging and claiming that all exports affect the American economy in the same positive way.

TRADE DEFICIT: Formally termed a balance of trade deficit, a condition in which a nation's imports are greater than exports. In other words, a country is buying more stuff for foreigners than foreigners are buying from domestic producers. A trade deficit is usually thought to be bad for a country. For this reason, some countries seek to reduce their trade deficit by--

establishing trade barriers on imports,

reducing the exchange rate (termed devaluation) such that exports are less expensive and imports more expensive, or

invading foreign countries with sizable armies.

Sadly, Dubya has fully embraced international Klintonomics. He has emphaticly sworn off solution #1 and has committed to suffering #2 while practicing #3.

the americans have been and still are very foolish on trade policy. Bush has ridiculed people who don't agree with him on the WTO agenda, but then Bush himself imposed tariffs for steel. Therefore, bush according to his own behavior, his own words of ridicule towards others, is an idiot.

We've learned through experience the last 30 years that when we negotiate trade agreements with foreign nations that the foreign nations frequently behave in bad faith throughout the whole process and do not enforce the agreement in their home country. But the elites in our nation, lusting after an opportunity to take power from the constitutional process that empowers our citizens to elect lawmakers who set our trade policies, have chosen to ignore this experience. They've actually imposed, without any real meaningful public discussion or even sanction by the elected lawmakers, this WTO system which means all decisions on trade are to be made by un-elected negotiators who cut different deals with every country involved in order to get them to agree. We don't like different deals, different standards to apply to every country. We like equal standards applying to the nations, not different standards.

The US congress and the president should be concerned with america's welfare. They should not be concerned about fanatical application of their free trade ideologies. Free trade is only a means to an end. It helps our nation build wealth for the people of america, that is its' purpose. But the republicans have raised this free trade up as a god and made it an end in itself. When aspects of our trade policy do not benefit our nation they are blind to it because they've made free trade into a god, that's why.

Our number 1 manufacturer, Boeing, is now going to produce its' jets in China. We import 5 times from china what we export to china. The Chinese will negotiate with the WTO in such a way as to result in unfair rules that will not benefit us, yet the republican ideologues in america don't care. They are lost in their ideology.

Was it really in our nation's interest in 1934 for Henry Ford to build factories in Germany? Those who feel that China is not a potential military opponent are fools. Those who wish to sabotage the american effort to protect its interests by not letting congress pass laws governing trade policy are globalist ideologues who've buried their heads in the sand just as Henry Ford in 1934 was blind towards the dark side of the nazis.

When an american job goes to china, that means that the means to support social security through taxes on that job also goes, as does the means to support children and families. A bean-counter republican does not see this as having any value at all, interpreting all reality through their ideological prism that says somehow by magic we will benefit from free trade no matter what. Those who delude themselves into thinking that the Chinese government is going to allow chinese companies to avoid a favoritism for chinese products are very irresponsible people.

the ratio used to be 7 to 1; It has improved to 5 to 1.

A few years ago they would charge 35% tariffs on american products while we charged 3% tariffs on their products. On top of that they restricted severely what we could sell while we had no limitations on what they could sell. Today it is more balanced, but they still have higher tariffs on our products than we put on theirs'. We simply can't control the restrictions they put on our products. It doesn't matter what they agree to in WTO framework, they will instruct their companies to discriminate against our products if they choose to, we, nor the WTO, will really be able to stop it. If they want to be mercantilist, then they will be able to.

But the biggest reason for the trade deficit is that they simply produce less expensively than we do. If the chinese did allow american products & services full access, then the trade gap would be much smaller, perhaps only 2 to 1.

In future decades we will want to pay for medicaire and social security. We will not be able to do that merely by importing inexpensive chinese products. We can only do that by taxing american production. If we don't have american production because it all went to china, then we won't be able to pay for those programs.

When we're faced with a country like china that is very mercantilist and simply won't buy american products even though we buy their's, then that's fine. We should merely impose 100% tariffs when the trade balance is 5 to 1 like this and keep the high tariffs until it goes down to 1.5 to 1, then drop the tariffs and see if they can do better. In this way it becomes in their interest to find a way to buy american.

It is not in our interest to trade unless it is a two way street. The american elite profits either way whether the trade relationship is good for the majority of americans or not.

we pay for those goods with money, it is not a gift. our ability to pay for it is partly financed by the very large amount of debt that people in america have. It is an unsustainable transfer of wealth. We need to value the supply side of our economy. Without production we cannot consume. As our ability to produce is exported we are not replacing it, many americans are merely borrowing money to pay the bills as well. it spells trouble.

on top of that china is potentially dangerous, we could be merely enabling a monster. We shouldn't forget that china invaded tibet and killed 25% of its people, that current chinese ruling regime killed 50 million or more of its own people, that they publicly state they want to take taiwan with force, that they have human rights problems domestically, etc. The free trade ideologies that say we profit no matter who we trade with and no matter how bad the mercantilism from the other side is are false.

I appreciate your view. But it has some flaws in it. the US dollar is used as the international currency. Several other countries use it as their domestic means of currencies. Virtually every country uses it for trading. So, the old theories that dollars that flow out will flow back don't necessarilly apply.

I would only advise tariffs for excessively mercantilist countries like china. I wouldn't even trigger such tariffs unless the imbalance was worse than 2 to 1. Then I'd lift them when the flow of trade is at least reasonable in both directions. I don't advise any tariffs at all on imports from nations that readily buy even about as much from us as we buy from them.

In other words the average tariffs on imports under such a system after mercantilist nations get used to it are probably lower than what china charges now. So if we charge what they charge we'll have a depression? then how does the free trade ideology explain that they haven't had a depression for the high tariffs in last 10 years they charge? Their economy grows at 13% a year or so.

Countries like Ecuador that have adopted the USD are so insignificant in the statistics of world trade that they'd barely make a dent on anything.

I would only advise tariffs for excessively mercantilist countries like china.

A tariff is a tax on imports. Like all taxes, it is paid by American citizens. if you impose a tariff, it will hurt some Chinese and a lot of Americans. Please tell me how raising taxes on trade will improve my economic well being.

So if we charge what they charge we'll have a depression?

Either a depression or an unnecessary slowdown. Study the effect of the Smoot-Hawley bill on the prolongement of the Depression.

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