bubbles, consumption, consumption-led growth, debt, exports, Financial Crisis, Following Up, free trade agreements, growth, imports, Jobs, Nike, Obama, Oregon, prices, recovery, supply chains, TPP, Trade, Trade Deficits, Trans-Pacific Partnership
Although he didn’t make the point in his speech yesterday on trade at Nike’s Oregon headquarters, President Obama’s choice of that venue to tout his proposed Pacific Rim trade deal symbolized a recent change in his approach to globalization generally that’s as stunning as it is economically perverse. A chief executive who entered office correctly identifying the main mistakes leading to the last, devastating financial crisis has become a president apparently determined to duplicate them.
At a March, 2009 press conference, just after his inauguration, Mr. Obama gave one of the plainest indications possible that he correctly understood both the fundamental problems besetting the economy and the essentials of the solution. He emphasized that his highest priority was ensuring “that we do not return to an economic cycle of bubble and bust in this country. We know that an economy built on reckless speculation, inflated home prices and maxed-out credit cards does not create lasting wealth. It creates the illusion of prosperity, and it’s endangered us all.” Thus the nation needed to move “from an era of borrow-and-spend to one where we save and invest.”
The following year, Mr. Obama’s leading economic advisors made the trade policy connection explicitly. An export increase they identified that narrowed the nation’s broadest international deficits (but not its trade deficit) would help replace “growth…fueled by unsustainable borrowing [with] growth that is based on productive investments [which is] more stable.” So although the president’s stimulus program and other recovery measures can be faulted for ignoring these imperatives or poorly executing them, he and his staff unmistakably recognized them.
As many remarked this week, Nike is anything but a significant exporter – in fact, quite the opposite. Because it manufactures almost nothing in this country, it’s a major corporate engine of net imports – and therefore debt. But as The Wall Street Journal noted leading up to Mr. Obama’s trip, the company’s offshoring- and importing-friendly business model squares quite nicely with a new White House argument for initiatives like the Trans-Pacific Partnership (TPP). In the president’s words, “Over the course of 20, 25 years, what you saw was trade benefit the U.S. economy in the aggregate with cheaper prices, inflation low, the creation of a global supply chain that was good for U.S. companies.”
It’s true that Mr. Obama has continued to portray the TPP as an boon for American exports. But his claim that the last decades of U.S. trade flows have strengthened the economy on net by fostering production and job offshoring (what else could he have meant with his supply chain reference?), while enabling imports to prop up consumption, in effect endorses the borrow-and-spend economic strategy he had once correctly condemned. Worse, this statement signals that the president doesn’t even recognize the dangers created by his pursuit of trade agreements modeled on predecessors that have greatly worsened America’s trade deficits – and thus are dragging on currently subpar growth and job creation. It’s obviously supercharging the odds of a financial crisis rerun.
All of which makes pretty ironic Mr. Obama’s claim that critics of his trade policy are “wrong” on the facts. Once he was indeed right. Now he’s clearly forgotten.