James Pethokoukis

Politics and policy from inside Washington

There’s supporting free trade, and then there’s being a sucker

Jun 22, 2011 13:04 UTC

When the country engaging in mercantilist-protectionist policies is also your banker, I guess you tend to look the other way. My fellow CNBC contributor Peter Navarro makes the devastating case:

For starters, we must puncture the myth that China’s main manufacturing edge is solely its cheap labor. Indeed, while low labor costs are a factor, when you carefully research the biggest source of China’s manufacturing advantage, it is actually a complex array of unfair trade practices, all of which are illegal under free-trade rules.

The most potent of China’s “weapons of job destruction” are an elaborate web of export subsidies; the blatant piracy of America’s technologies and trade secrets; the counterfeiting of valuable brand names like Nike and Chevy; a cleverly manipulated and grossly undervalued currency; and the forced transfer of the technology of any American company wishing to operate on Chinese soil or sell into the Chinese market.

Each of these unfair trade practices is expressly prohibited both by World Trade Organization rules as well as rules established by the U.S. government, e.g., the Treasury Department has sanctions against currency manipulation (which, alas, the Obama administration refuses to use against China despite campaign promises to do so).

Make no mistake. All of these real economic weapons have led to the shutdown of thousands of American factories and turned millions of American workers into collateral damage, all under the false flag of so-called free trade.

The second myth we must expose if we are to ever reverse the job-killing trade deficits we now run with China is the idea that free trade always benefits both countries. That doesn’t hold true if one country cheats on the other. Instead, when a mercantilist China uses unfair trade practices to wage war on our manufacturing base, the American economy is the big loser.

I am not sure of the solution here, though more vigorous pursuit of these issues in the World Trade Organization would be part of it, certainly. (And reducing our debt would reduce China’s leverage.) Otherwise, I mean, what is the point having a WTO? Though if you wanted to go further, especially on the currency issue, there is this idea from economist Peter Morici:

The United States should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—about 35%. That would neutralize China’s currency subsidies that steal US factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.

I am for open trade and subjecting the U.S. economy to maximum competitive intensity. That will spur more innovation, productivity and economic growth.  China should do the same.

COMMENT

The bottom line on trade is that free trade should be the goal, but not the means to the goal.

Free trade deals should be a PATH to free trade. Meaning, an agreement detailing steps that must be taken that will end in free and fair trade. The path must include incentives (moving closer to free trade) for fair trade, and penalties (tariffs) for unfair trade.

So what is unfair trade? Unfair trade is any behavior violating international norms. That could be currency manipulation, subsidies, force labor, human rights violations, lack of labor rights, disregard of environmental norms, and so forth.

It is cheaper to break the rules. Preserving the environment, paying a minimal wage, and allowing workers to organize costs more money. So companies that play by the rules are penalized, while companies (and countries) that ignore the rules are rewarded. Because free traders act like cult followers and no amount of evidence will convince them otherwise, the current policies are destroying this country’s base.

The reason that not a single one of our trade agreements work and result in massive trade deficits on our part is because we refuse to punish unfair trade. Instead, we punish the American companies and workers who play by the rules.

Posted by relawson | Report as abusive

Obama, trade and the echoes of 1929

Nov 13, 2009 14:04 UTC

This is the most disturbing thing I have read in a while (via AP):

Trade agreements with South Korea, Colombia and Panama won’t be put before Congress until it grapples first with President Barack Obama’s pressing legislative goals, the U.S. commerce secretary said Friday. Commerce Secretary Gary Locke said Obama has an ambitious high-priority legislative agenda focusing on health care, financial regulation and alternative energy. “Trade agreements are going to have to wait,” he said at a luncheon hosted by the American Chamber of Commerce in Singapore. “Right now, the administration is focused on a very aggressive and very tight legislative agenda.”

Me: This sounds like Hillary’s “time out” from free trade during the campaign.

COMMENT

Time for a reality check here. In 1929 the US raised tariffs on over 20,000 imported items, sparking retaliations by all its major trading partners. Can you explain how putting a few minor bilateral free trade agreements on hold equates to that disastrous situation? The situation today is nowhere near as disturbing as you make out.

Posted by Kramer | Report as abusive

How Obama can earn that Nobel Peace Prize

Oct 9, 2009 17:51 UTC

The Nobel Committee in Norway says it awarded President Barack Obama the 2009 Peace Prize for “his extraordinary efforts to strengthen international diplomacy and cooperation between peoples.” (Congratulations, Mr. President.) In particular, the committee noted Obama’s multilateral approach on the issues of climate chance and nuclear disarmament.

But where has the president been when it comes to using diplomacy and cooperation to promote global trade, which is essential to global peace and prosperity? Given the infamous role of protectionism in the Great Depression, it’s no surprise that open and expanded trade has been at the core of the post-World War Two economic order, particularly during the past two decades.

The Great Recession, though, has shattered that consensus. An analysis by economists Barry Eichengreen and Kevin O’Rourke has calculated that “world trade is falling much faster now than in 1929-30.” Paul Krugman says trade “has fallen through the floor in a way that it literally never has before, including in the Great Depression.” Global Trade Alert, a trade watchdog group with links to the World Bank, found at least 121 protectionist measures had been implemented by G-20 nations during the past year.

Just of late, the EU imposed anti-dumping duties on steel pipe from China, while Australia may impose ownership limits on foreign buyers of big companies. “So far, traditional trade protectionism has been a low-grade fever,” said World Bank President Robert Zoellick said in a recent speech. “But the temperature is rising.”

And actions by the Obama administration and Congress show that America is hardly immune. Indeed, they have been spreading the disease. Among the protectionist outbreaks: The “Buy American” provisions in the $787 billion stimulus package, the blocking of Mexican trucks from U.S highways, the G.M. and Ford bailouts, inaction on pending free-trade agreements with Colombia, Panama and South Korea, tariffs on Chinese tires.

An American administration that seems disinterested in free trade? “You can drop the word ‘seems,’” says Bruce Josten, head of governmental affairs for the U.S. Chamber of Commerce.

Looking for an explanation? Here’s one: Bad economics makes for convenient politics. Since the Obamacrats might not be able to deliver the top two items on Big Labor’s wish list — reopening the North American Free Trade Agreement and passing rules making it easier to organize workplaces — they’re giving union supporters just about everything else.

Obama’s political advisers may not understand the importance of free trade, but his economic ones do. Obama should listen to them and begin to lead. Give Congress the greenlight to pass the free-trade agreements with Colombia, Panama and South Korea. Commit to getting the Doha trade round concluded within a year. The centrist Democratic Leadership Council also suggests that Obama reconnect trade to national security by asking Congress for a broad long-term waiver of tariffs for low-income countries and large majority-Muslim-majority states. Instead of increasing boosting aid to Pakistan, for instance, why not eliminate $360 million a year in tariffs on its exports?.

If Obama did all that, not only would he actually be worthy of the Peace Prize, but probably the Nobel Prize for Economics as well.

COMMENT

The entire NOBEL PEACE PRIZE COMMITY should resign in shame they have given it to a tyrant,despot and communists liar OBAMA

Posted by Flu-Bird | Report as abusive

Robert Zoellick and the return of the Washington Consensus

Sep 29, 2009 17:27 UTC

If World Bank President Robert Zoellick were running a stealth campaign to become the next Republican Treasury Secretary, he might have given a speech very much like the one he just gave at Johns Hopkins University.

In it, Zoellick, who was nominated by President George W. Bush in 2007, advocated policies to reinforce the dollar, warned about rising protectionism and told the Obama administration that the core of its financial regulatory reform effort was wrongheaded.

Then again, we’re a mere nine months into the current U.S. presidential administration. So it is probably safer to assume that Zoellick was merely doing his part to provide a useful blueprint for how the world’s largest and most important economy should best operate.

And a smart and savvy blueprint it is. Probably the piece getting the most attention is Zoellick’s skepticism about the White House plan for making the Federal Reserve the regulator of systemically important financial institutions.
“In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority,” he said.

Difficult, at least, if you value keeping the Fed independent from political meddling, which Zoellick certainly does. He would prefer the Treasury gain an expanded regulatory role, with the Fed focusing on monetary policy and perhaps monitoring markets for systemic risk and financial bubbles.

Of course, this is exactly the opposite of the reform being pushed by the Obama administration, where Treasury would head a systemic risk monitoring council with the Fed keeping watch on the actual firms.

Zoellick also outlined the challenges to the dollar. Yes, he acknowledged, America is entering a multipolar financial reality where the euro, yen and yuan will be increasingly viable currency options. There is nothing to be done about that. In fact, it is good news to the extent that it reflects the success of capitalism in Asia.

What the United States does need to do is get control of its fiscal deficit and take measures to speed the “return of a dynamic, innovative private sector economy.”

A strong economy will result in a strong and stable dollar. Zoellick certainly gave no indication that he agreed with the Obama policy of benign neglect in order to help exports and de-emphasize the long-term role of the U.S. consumer in global growth.

But perhaps Zoellick’s most important comments were those warning the United States and other advanced economies that if they don’t keep pushing forward on trade, the forces of protectionism — such as those encouraging tire tariffs today and carbon tariffs tomorrow — will fill the policy void.

“Given the local pulls of protectionist producers in most countries, the only way to counter their gravitational force is by forging forward with a liberalizing trade agenda,” he said.

But trade hasn’t been a priority with the Obama administration. C. Fred Bergsten, director of the Peterson Institute for International Economics, speculates that this disinterest is a result of a) Democrats being split on the issue and b) an overstuffed policy agenda.

But maybe Zoellick’s word can serve as a nudge in the right direction for Washington, as well as London, Berlin, Paris, Tokyo and Beijing.

His speech served as a great reminder that fiscal discipline, independent central banks, free trade and the leading role of the private sector — the tenets that used to be called the Washington Consensus — will continue to be important in creating global economic growth and prosperity in the future.

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