James Pethokoukis

Politics and policy from inside Washington

Geithner’s view may be askew

Oct 26, 2010 13:35 UTC

Ed Yardeni thinks Tim Geithner is off point:

Tim Geithner thinks he can solve the world’s economic problems by getting countries with large trade surpluses to reduce their surpluses and by getting countries with large deficits to reduce their deficits. The problem is that fixing the world economy isn’t as simple as suggested by Mr. Geithner. Multilateral approaches rarely work because it is so hard to get universal agreement on what to do.

China’s competitive advantage has less to do with the foreign exchange value of its currency than the pitiful provision of social welfare by the nation’s government compared to the abundance of social welfare provided by the American government. This is the major source of the global economy’s imbalance. This is why the US trade deficit with China has totaled $1.8tn since December 2001, when China joined the World Trade Organization. That number contributed greatly to China’s record hoard of international reserves, which totaled $2.6tn during August. Think of that sum as the money that the Chinese did not spend on social welfare at home, but did so abroad, especially in the United States.

Problems must be recognized to be solved. There is, in fact, growing recognition of the causes of the global imbalance. The Chinese may be starting to move toward providing a better standard of living for their workers, though there is little discussion yet about providing a comprehensive social welfare safety net anytime soon. European social welfare states are moving to downsize their safety nets. In the US, the November 2 congressional elections will determine if Americans have the determination to bring back a modicum of fiscal discipline.


Chinese Supplier Survey: Yuan Appreciation Will Hurt Exports

We talk so much about how China needs to allow its currency, the renminbi (or yuan) to appreciate. We talk some about how an appreciation of the renminbi will bring back American jobs (by making Chinese exports relatively more expensive and U.S. exports relative less so) ­– though that is debatable. But we talk very little, if at all, about the effect of a renminbi appreciation on manufacturers, on workers, and on consumers in China.

It’s a gap I have been lamenting (and the reason we’re working to ask small and medium-sized suppliers in China what their perspectives are on U.S./China trade). So I was absolutely thrilled this morning to get a press release highlighting the results of a survey of Chinese suppliers. The bottom line? “China suppliers are convinced the yuan’s appreciation will affect exports negatively, even if the currency strengthens only 2 percent against the US dollar.” (It has already strengthened about that much since the summer.)

Find more survey results at http://futureofuschinatrade.com/article/ chinese-supplier-survey-yuan-appreciatio n-will-hurt-exports

Posted by USChinaFuture | Report as abusive

Dems want to use trade as a political weapon

Oct 6, 2010 20:21 UTC

Here is what James Carville and Stan Greenberg want Democrats to say about trade to voters (Via Sean Higgins at Investor’s Business Daily:

My passion is “made in America,” working to support small businesses, American companies and new American industries. (REPUBLICAN HOUSE CANDIDATE) has pledged to support the free trade agreements with Colombia, Panama, and South Korea and protect the loophole for companies outsourcing American jobs. I have a different approach to give tax breaks for small businesses that hire workers and give tax subsidies for companies that create jobs right here in America.


As I wrote the other day, the Democrats care not a whit about tax policies or trade policies or whatever. For the present it is all about appealing to their ill-informed blue collar union base with a lot of anti-free trade rubbish. Unfortunately, there is a lot more to come.

P.S. This Carville guy was last seen shrieking hysterically on the tube in the wake of last spring’s BP oil spill. Is he really the kinda guy from whom you want to seek advice?

Posted by Gotthardbahn | Report as abusive

Another enlistee for the trade war with China

Oct 6, 2010 18:54 UTC

China just lost Martin Wolf. The FT columnist spends a good chunk of his latest column on why the yuan needs to rise. He then outlines a plan of action:

This leads to the final question: how might China be cajoled or coerced into changing its policies? Negotiation remains a hope. The rest of Group of 20 leading countries should unite in calling for these changes. But if negotiation continues to fail, alternatives must be considered. Import surcharges are one possibility. Fred Bergsten of Washington’s Peterson Institute called for countervailing currency intervention in the FT this week; and Daniel Gros of the Centre for European Policy Studies in Brussels recommends capital account reciprocity: affected countries could prevent other countries from purchasing their financial instruments, unless the latter offered reciprocal access to their financial markets. This idea would also make the Bergsten plan more effective.

I find ideas for intervention in capital markets far more attractive than those involving action against trade, as the US House of Representatives proposed last week. First, action on trade would have to be discriminatory: there is no reason to attack all imports, merely to change Chinese behaviour. But this would almost certainly be a violation of the rules of the World Trade Organisation. A trade war would be very dangerous. Insisting that China stop purchasing the liabilities of other countries so long as it operates tight controls on capital inflows is, instead, direct and proportionate and, above all, moves the world towards market opening.

Some fear that a cessation of Chinese purchases of US government bonds would lead to a collapse. Nothing is less likely, given the massive financial surpluses of the private sectors of the world and the continuing role of the dollar. If it weakened the dollar, however, that would be helpful, not damaging.

Me: In addition, China is losing big US multinationals and the GOP, both key members of the old free-trade lobby. This will be a major US political issues next year with unemployment continuing to stay an elevated levels.

An economic double whammy

Oct 4, 2010 16:38 UTC

My pal Don Luskin  gets it just right in the WSJ today: America is wrong on both taxes and trade.

All else being equal, if the Bush tax cuts don’t get extended, that’s a 2.3% hit to 2011 GDP. That means instant double-dip recession, starting at midnight, Dec. 31. … Now to protectionism. Last week the House passed the Currency Reform for Fair Trade Act. … The bill, if passed by the Senate and signed by the president, would mandate that the Department of Commerce take a foreign country’s currency interventions into account in determining whether its trading practices are unfair. In the case of China—the target at which this bill is aimed—Commerce would determine that the amount by which the yuan is allegedly undervalued.  … Surely China would retaliate. That makes the bill a nuclear threat of mutual assured economic destruction. If carried out, it would crush trade between China and the United States, which are huge export markets for each other.

As Luskin also points out,  a rising yuan is no silver bullet — there’s lots of risk with little potential reward. Along with the tax increases, Washington is amazingly anti-growth right now. Instead, they need to make growth the new government initiative.


Perhaps, perhaps not. Is it possible Team Obama is spending all its spare time reading polls and predictions for the mid-terms? Trying to figure out how to get the Democratic Party back on the rails, and letting policy slide in the meantime?

With respect to Mr. Luskin’s excellent points, it’s not like anybody in the White House a) understands what Mr. Luskin is saying or b) cares. Everything is about appealing to the LCD blue-collar union vote. Watch for more class warfare rhetoric. So sad. Mr. Obama is facing being just a half-term president.

Posted by Gotthardbahn | Report as abusive

A 25 percent rise in the yuan would create … 57,000 U.S. jobs

Apr 6, 2010 19:05 UTC

That, according to Ray Fair of Yale University. Other private estimates put the number in the hundreds of thousands, if not millions.  AEI’s Phil Levy explains the methodology involved:

Our more aggressive bidders use a crude approach. They look at the trade gap, assume that every billion dollars of trade deficit equates with a certain number of jobs, and multiply. Fair, in contrast, uses years of data to estimate a detailed model of how the global economy works. Then he reruns the model under the assumption of a 25 percent appreciation in China’s exchange rate. His model contains the same effects that the others rely on—increased demand for U.S. goods as Chinese imports become more expensive. But he sees offsetting effects as well: decreased Chinese output and imports; increased U.S. prices; decreased U.S. wealth and wages; increased U.S. interest rates. He finds the latter effects more than outweigh the former.

How ObamaCare is killing free trade

Mar 10, 2010 17:37 UTC

Brazil’s threat of tariff retaliation over U.S. cotton subsidies is only the latest eruption of rising protectionism around the world. President Barack Obama isn’t doing much to quell protectionist sentiment in the U.S., either. His passivity could prove costly.

Not that Obama has a problem with trade. In his State of the Union speech to Congress last January, he stated an ambitious goal of doubling U.S exports by 2015. It is trade policy that he seems uncomfortable with. That bold declaration in the speech was a direct result of lobbying from Obama’s economic advisers. But the wonks aren’t driving U.S trade policy in the Obama administration. The political team is. Its priority is passing healthcare reform. To pass healthcare reform, Obama needs his core union support. And a push for new trade agreements would alienate Big Labor.

So Obama has not nudged Congress to pass long-stalled treaties with Colombia, Korea and Panama. Instead, the emphasis has been on get-tough actions such as slapping preliminary duties on tires from China and bricks from Mexico. Nor has he tried to energize the Doha trade talks, pushing Brazil to first litigate via the World Trade Organization and now retaliate. And in the U.S., high unemployment has encouraged protectionist forces in Congress. A bipartisan House group just introduced a new bill to abandon the North American Free Trade Agreement, while one in the Senate is pushing for action against China because of its weak currency policy.

And the situation could worsen. To appease Congress and continue its recent populist tilt, the Obama administration will likely toughen language about China in the Treasury Department’s April report on currency policy. The next step would be to declare China a currency manipulator in the October report, right before the November mid-term elections.

If Obama really wants to rebuild America’s international stature and boost the global economy, trade is a perfect place to start. At the moment, world trade is projected to expand by just 4.3 percent in 2010 and by 6.2 percent in 2011, according to the World Bank. Not good enough, given a big drop in 2009. Once healthcare is either passed or defeated, Obama needs to get that trio of trade agreements passed. And he needs to defuse tensions with China. In short, Obama needs to lead.



I believe the name of your plan is “Reign in Hell”, right?


We’ve had our bit o’Hell!

Let’s let all those kleptocrats in the turd world and the U.N. General Assembly have theirs.

Let’s let most of the EUropansies defend themselves for a change.

Most of the rest of the world hates the U.S. even when we are risking U.S. lives and spending billions in U.S. money to help them after tidal waves, earth quakes, typhoons, invasions, local economic crisis, famines, etc.

Screw them all. No more blood or treasure to help anyone aside from allies we can really count on. Let’s put our own house in order first and just elliminate any likely threats in the quickest, cheapest, most effective manner possible

Viva Fortress America!

Posted by Armageddon Rex | Report as abusive

An offer China couldn’t refuse … or could it?

Nov 30, 2009 20:00 UTC

Dan Drezner on the trade deal he would offer the Chinese:

Hey, Wen, you’re right about the unfair tire tariffs and the like.  Let’s make a trade deal:  you allow the yuan to appreciate, say, 20% against the dollar over the next twelve months.  In return, we will announce a voluntary two-year moratorium on any new anti-dumping and escape clause measures targeted against Chinese imports.  What do you say?

More evidence of rising trade protectionism

Sep 24, 2009 13:44 UTC

As Reuters reports it:

The United Steelworkers union, fresh from persuading President Barack Obama to restrict tire imports from China, filed a new case Wednesday asking for duties on coated paper from both China and Indonesia. The action came just one day after Chinese President Hu Jintao complained to Obama about the tires decision in a meeting on the sidelines of a United Nations summit in New York. … The steelworkers union, which represents workers in a number of industries, sees itself in a battle against what it believes are unfair foreign trade practices that have led to the loss of millions of U.S. manufacturing jobs. They are joined in their latest trade case by paper manufacturers NewPage Corp of Miamisburg, Ohio; Appleton Coated LLC of Kimberly, Wisconsin; and Sappi Fine Paper North America of Boston, Massachusetts, which together employ about 6,000 union workers at paper mills in nine states. … Unlike the steelworkers’ petition in the tires case, this complaint will not land on Obama’s desk. Instead, the U.S. International Trade Commission, a U.S. federal agency, will have the final word on whether anti-dumping and anti-subsidy duties will be imposed after an investigation by the U.S. Commerce Department.

Worried about how this sort of thing will affect the economy recovery both in the US and globally? Ed Yardeni is:

But what about Art Laffer’s warning about how rising taxes and protectionism could still cause another Great Depression?” …  He observed: “While Fed policy was undoubtedly important, it was not the primary cause of the Great Depression or the economy’s relapse in 1937. The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy’s relapse in 1937.”

I completely agree with Art that the Smoot-Hawley tariff was the major cause of the Great Depression. So it is certainly disturbing to see the Obama Administration pander to the United Steelworkers by slapping a tariff on tires imported from China. This morning’s WSJ reports that three paper companies and the United Steelworkers filed an antidumping case Wednesday against China and Indonesia, making good on the union’s threat to protect other US industries after winning a recent trade decision against China. We’ve seen plenty of similar trade flare-ups in the past even during the Reagan and Bush Administrations. Nevertheless, they can spin out of control. More importantly, now is not a good time to resort to protectionism given that the global economic freefall earlier this year was mostly attributable to a collapse in exports as trade credits froze up.

A bigger and more likely threat to a sustainable recovery is the sun-setting of the Bush tax cuts after 2010. This will amount to a major tax increase that could send the economy back into a recession in 2011. I don’t think this will trip up the bull market any time soon. But it is likely to become a big issue by the second half of next year.


High taxes and restrictions in free trade are good for economic growth. Everybody knows that.

Posted by Tom Nail | Report as abusive

Obama risks trade war to help union allies

Sep 16, 2009 14:44 UTC

Has President Barack Obama thrown Big Labor under the bus? It sure might seem that way after watching his performance yesterday before two union audiences, G.M. workers in Lordstown, Ohio, and an AFL-CIO convention in Pittsburgh.

Both speeches were fiery, pro-union stem winders. Yet the president barely mentioned the top item on Big Labor’s 2009 political agenda, the Employee Free Choice Act. The legislation would require a company to recognize a union without a secret-ballot election once organizers submitted union cards signed by a majority of its workers. Unions believe it would increase unionization, which is probably a pretty good bet given how hard Corporate America is fighting the bill.

But the card check bill has struggled mightily on Capitol Hill and could clearly use a boost from the White House. Still, the president didn’t speak its name in Lordstown and devoted just a single sentence in Pittsburgh. Is that any way to treat the folks who poured tens of millions of dollars into Democratic campaigns last year?

Maybe not, but you didn’t hear any booing. Heck, there probably wasn’t even a slight grumble given the myriad ways Obama has already helped his union allies. His stimulus package helped prevent layoffs of many government union workers, while key provisions serve to prop up union wages on infrastructure projects. His restructuring of the American auto industry left the United Auto Workers with a majority stake of Chrysler and a fifth of General Motors for the price of relatively minor pay and benefit concessions. And his healthcare reform looks to bolster underfunded union retiree benefit plans, while avoiding taxes that would hit pricey union insurance packages.

Then, of course, there is Obama’s decision to impose a 35 percent tariff on imported tires from China, much applauded by Big Labor. As the AFL-CIO put it, “The trade decision was the president’s first down payment on his promise to more effectively enforce trade laws.”

Not only does the move directly hurt U.S. consumers, but it will certainly encourage more domestic industries, such as steel and apparel, to look to Washington for help. Even more dangerous than copycat protectionism: by blaming China for economic woes here at home, Obama risks rekindling anti-China efforts in Congress, such as pushing China to allow a renewed and rapid escalation in its currency. That is how you could get a full-blown trade war.

Hard truth: When it came time for Obama to choose between his political allies on one hand and America’s economic allies (and consumers) on the other, he chose the former this time.

And who knows, a slightly watered down card-check bill might still get passed by year end and signed by the president. In retrospect, Obama should have dumped his own Pittsburgh speech for that of Labor Secretary Hilda Solis who told the gathering that she “was proud and humbled to be your humble servant.”

Now that’s more like it.


I present products at trade shows all the time. I found that many small businesses are resentful when having to do a trade show where unions are involved.
Once I had to hook up the power to the lights on the booth. I called the electrical guy. He came down and called a rigger to come and tie the cable to the overhead beam. When the rigger arrived all these guys where standing around. I asked them, what is going on? The one guy told me that a supervisor had to be present before they could go ahead and do the job. So then a supervisor turns up after 55 minutes and within less than one minute the electrician pushes in the plug, the rigor ties the cable with a cable tie to the beam and I get charged three hundred Dollars for the job. It took three unions guys and one hour to plug in a electrical extension cable.
When complaining about the price to the show organizers response was that it is union labor and they have no control on the costs.
I suddenly realized why GM and many other American companies are in so much trouble.

Posted by Charles Hibberd | Report as abusive

Why the White House may be forced to get tough on China

Jul 29, 2009 14:00 UTC

Might America and China be headed toward a falling out over currency issues as U.S. unemployment worsens? The always superinsightful Andy Busch of BMO Capital Markets makes a helluva point here (bold is mine):

Under the Bush administration, the US Treasury had a clear policy of pressuring the Chinese to change their currency regime that kept the currency stable and generated massive US dollar reserve accumulation. This structure created the massive imbalances between the countries and created worries that situation was inherently unstable and dangerous.

Under the Obama administration, the US Treasury is not pressuring the Chinese and this was apparent during the meetings this week. President Barack Obama opened Monday’s discussions by declaring that the United States sought a new era of “cooperation, not confrontation” with China and that management of the U.S.-China relationship would be a major factor in defining the history of the 21st century according to AP.

This set the tone of the meetings to not upset the delicate fiscal and monetary paradigms that are in place. Treasury Secretary Tim Geithner made no mention of the Chinese currency regime nor of the detrimental effect it continues to have on global imbalances.

The irony is that the Chinese are the ones publicly stating that there are major concerns with the United States and the way the Obama administration and Congress are running their finances. After the Monday talks had ended, Assistant Finance Minister Zhu Guangyao said, “We sincerely hope the U.S. fiscal deficit will be reduced, year after year….The Chinese government is a responsible government and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets.”

So while the Chinese are sticking up for their workers, the US appears to be abandoning theirs. I wonder how long US manufacturers and US labor will continue to cooperate and not confront the Obama administration on this issue when unemployment breaches 10%?


…visualize this scene…

(grocery store, spoiled toddler Geithner wailing, writheing noodle legs, exasperated Chinese guardian)

“But I want you to float the Yuan! I won’t monetize the debt….I promise! You have to float the Yuan, you just have to!”

Posted by Hank Reardon | Report as abusive