From the March 13, 2010 Weekly Standard
March 13, 2010
by Irwin Stelzer
Now we know. Two million of the "good jobs" America needs to create in the next five years are to come from doubling American exports. So President Obama promised Thursday. We are to have a "National Export Initiative," an "export promotion cabinet" consisting of representatives of several federal agencies, a private sector advisory committee on international trade, and promotion of exports by a president who will get tough with our trading partners who "have not played by the same set of rules" as we have. Push exports, and make it more difficult for our trading partners to send stuff to us, unless they conform to our notions of proper labor and environmental standards.
This approach is consistent with the administration's philosophy that the best way to solve a problem is to erect still another government apparatus. In this case the President might be on to something -- government action is needed if America's exporters are to expand and create new jobs. Unfortunately, we need something more from government than the sort of action the President has in mind.
Obama is right to promise to get tough with some of our trading partners. First on his list might be China (February exports up 46%), which continues to disregard intellectual property rights of U.S. firms, and to peg an undervalued yuan to the dollar. Earlier this week Zhou Xiaochuan, governor of the People's Bank of China, floated a trial balloon, suggesting that the currency peg is a temporary measure to see China through the worldwide financial crisis, and "sooner or later will be withdrawn." Chen Deming, a key trade official, and Premier Wen Jiabao punctured that balloon before it gained much altitude. The dollar peg stays, with perhaps a minor adjustment some day.
Unfortunately, President Obama has until now shown no taste for combat with China's leaders, witness his supine performance on his visit to China. We will know next month whether his recent pledge to "get much tougher with China" is more than rhetoric when, as required by the Omnibus Trade and Competitiveness Act of 1988, the President has to decide whether to label China a "currency manipulator."
The president also claims that by subsidizing green energy sources he will create technologies that will dominate world markets, creating millions of export-based jobs. Unfortunately, the wind machines on which he is lavishing subsidies are made in China, not here, and the jobs that might be created by developing America's indigenous energy sources are not to be -- the environmental wing of his party remains opposed to drilling for natural gas and oil, and to the construction of new coal plants. One ray of hope: the president has decided to encourage the construction of new nuclear plants. As my colleague at the Hudson Institute, Diana Furchtgott-Roth points out, the unions that will benefit from the new construction jobs have woefully under-funded pension plans and desperately need new dues-paying members. In effect, the president has decided to favor his union supporters over the green lobby, at least on this issue, although he has not gone so far as to press Senate majority leader Reid to end his opposition to the activation of the Yucca Mountain waste storage facility in Nevada.
If the president is serious about using exports to spur growth he will have to do a lot more than set up inter-agency task forces and advisory committees. First, he will have to get Congress to approve several trade deals that are before it, and which promise new jobs, although not necessarily for trade union members. So the unions are saying "no," and Democratic congressmen, with an election now only eight months away, need the unions to provide campaign funds and doorstep campaigners. Obama won't find many free-trade advocates among his congressional allies.
Second, he will have to settle several trade disputes, especially one with Mexico, a market that absorbed $129 billion in U.S. exports last year. In response to trade union pressure, Congress cancelled a pilot program, developed under the North American Free Trade Agreement (NAFTA), that allowed Mexican trucks to travel more freely into the U.S. In retaliation, Mexico imposed $2.4 billion in tariffs on a variety of U.S. goods, resulting in the loss of $2.6 billion in exports and 25,000 jobs, according to business groups that are urging the president to pressure congress to ignore the Teamsters' union and again allow Mexican trucks freer cross-border access.
Then there is Brazil, which last year persuaded the World Trade Organization that U.S. government subsidies and loan guarantees to cotton growers violated WTO rules, a ruling that allows Brazil to impose $560 million in retaliatory tariffs on cotton goods, beauty products, appliances and autos. More important, Brazil is free to impose other penalties, most notably breaking patents in the media, pharmaceutical and other technology industries. Unless American negotiators can get this issue resolved, continued subsidies to a few inefficient American agribusinesses will in effect throw thousands of American workers into the ranks of the unemployed. Negotiations are ongoing, but the Brazilian authorities are in no mood to bow to U.S. wishes. Witness their recent refusal to accede to Secretary of State Hillary Clinton's plea to join the U.S. in imposing sanctions on Iran. It is one thing to be unable to persuade China to go along with us on an important foreign policy issue, quite another to be turned down by a middling power such as Brazil.
America's trading partners are watching these developments with more than a little interest. They fear that if the export drive fails, or even if it succeeds, the U.S. will become increasingly protectionist, especially if the jobs market remains in the doldrums. A consortium led by EADS, the European aerospace company, dropped out of the bidding for a $40 billion contract to build refueling tankers for the U.S. Air Force because it believes the bidding process was rigged to favor the smaller tankers proposed by Boeing, whose CEO will head the new presidential export advisory committee. EADS suspects protectionism, especially since it won the initial bidding round, subsequently canceled because auditors found improprieties in the bidding rules.
Several countries note that Congress refuses to ratify trade agreements that have been sitting in its in-box for over a year, and that U.S. Trade Representative Ron Kirk doubts that progress will be made on the Doha trade-opening round anytime soon, given congressional fears of unleashing a flood of job-destroying imports. Not exactly harbingers of a new era of free trade.
If the president is to achieve his objective of creating two million export-based jobs, he will have to do more than win these skirmishes. He will have to adopt policies that are anathema to congressional Democrats. The competitiveness of many American businesses is reduced by regulations that needlessly drive up costs; incentives to innovate and develop new products attractive to overseas buyers are reduced by the increased taxes he aims to impose on corporations and on the entrepreneurial class; his proposed health care plan will drive up the costs of taking on new workers and producing products that can compete in world markets. These policies, every bit as much as import barriers erected by America's trading partners, will make it very difficult for the President to realize his ambitious goals for the U.S. export industries. It takes private-sector players to develop products that overseas buyers will buy, and these entrepreneurs are more or less paralyzed at the moment by fears of rising costs and taxes.
Unfortunately, the President's domestic agenda runs counter to his trade agenda. Not good news on the job-creation front.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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