(What’s Left of) Our Economy: A Record U.S. Trade Gap – & Cause for Trade Optimism??

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American Jobs Plan, Biden, Buy American, CCP Virus, Census Bureau, China, coronavirus, corporate taxes, COVID 19, Donald Trump, exports, goods trade deficit, green energy, imports, lockdowns, Made in Washington trade flows, Pacific Rim, reopening, semiconductor shortage, services trade, subsidies, supply chains, tariffs, tax policy, taxes, Trade, trade deficit, vaccines, West Coast ports, Wuhan virus, {What's Left of) Our Economy

Despite the overall U.S. trade deficit hitting an all-time monthly high in February, the new trade figures released by the Census Bureau this morning contained lots of encouraging news – including for fans of the Trump tariffs on China and on aluminum and steel (like me). I’m wary of running or continuing a victory lap, because there’s still too much short- and perhaps longer term economic noise surely masking the underlying trends. But the case for trade optimism and its possible policy causes deserves attention.

As for that economic noise, it comes of course not only from the ongoing stop/start CCP Virus- and lockdowns-/reopenings/vaccinations-related distortions of all economic data, but from the harsh winter weather that depressed February economic activity in key areas of the country like Texas; the global shortage of semiconductors that’s impacting output throughout the manufacturing sector (and that’s due in part to the pandemic); and the big backups at the West Coast ports that are greatly slowing the unloading of container ships containing lots of imports from China and the rest of Asia.

As for the data, the combined goods and services trade shortfall of $71.08 billion in February surpassed the previous record, November’s $69.04 billion, by 2.95 percent, and represented a 4.80 percent increase over January’s downwardly revised level of $67.82 billion.

The increase resulted both from a rise in the goods trade gap (of 3.27 percent, to its own record of $88.01 billion) and a shrinkage of the services surplus (of 2.93 percent, to $16.93 billion – the smallest since August, 2012’s $17.08 billion).

Trade flows not setting records, though, notably included any of the imports categories – despite numerous reports of the rapidly rebounding U.S. economy sucking in massive amounts of products (though not services, which have suffered an outsized CCP Virus blow) from abroad.

For example, total merchandise imports actually fell on month in February – by 0.89 percent, to $221.14 billion, from January’s record total of $221.12 billion. Still, the February figure remains in second place historically speaking.

Non-oil goods imports inched up by 0.38 percent sequentially in February – from $85.36 billion to $85.68 billion. But they still fell short of the November record of $86.40 billion. As known by RealityChek regulars, this trade category sheds the most light on the impact on trade flows of trade policy decisions, like tariff changes and trade agreements. (Hence I call the resulting shortfall the Made in Washington trade deficit.) But despite the lofty level, they’re actually down on net since November. Could it be those West Coast ports snags or the harsh winter storms of February or semiconductor-specific problems? Maybe.

The evidence for those propositions? U.S. goods imports from Pacific Rim countries – which are serviced by the West Coast ports – did sink by 11.81 percent on month in February. That’s a much faster rate than the 1.54 percent decrease in overall non-oil goods imports (a close proxy).

But goods imports from China dropped by a greater 13 percent even, which points to some Trump tariff effect as well. In fact, the $34.03 billion worth of February goods imports from China was the lowest monthly number since pandemicky last April. And February’s $24.62 billion bilateral merchandise trade deficit with China was 6.22 percent narrower than the January figure, and the smallest such total since April, too.

America’s goods deficit from Pacific Rim countries in total fell slightly faster than the gap with China (6.84 percent). China’s economy and its exports, however, are supposed to be recovering at world-and region-beating rates, so if that’s the case, it appears that the Trump trade curbs are preventing that rebound from taking place at America’s expense.

U.S. manufacturing trade numbers were encouraging, too, though again, the impact of tariffs as opposed to that of the virus distortions or the February weather or the ports issues or the semiconductor shortage or some combination thereof  is difficult to determine. But industry’s trade shortfall did tumble by 10.53 percent in February, from January’s $99.79 billion to $89.29 billion. That figure also was manufacturing’s lowest since June, 2020’s $89.16 billion and the 10.52 percent decrease was the by far the biggest in percentage terms since November, 2019’s 12.70 percent.

February manufacturing exports declined by 2.64 percent sequentially, from $81.66 billion to $79.51 billion. But the much greater volume of manufacturing imports sank by 6.98 percent, from $182.46 billion to $168.79 billion.

The China and manufacturing numbers could certainly change – and boost these U.S. trade gaps and the overall trade deficit – as Americans begin to spend their latest round of stimulus checks, as the U.S. recovery continues, and as the West Coast ports and semiconductor issues clear up. 

But especially due to those Chinese exports, this worsening of the U.S. trade picture was reported late last year. And the official U.S. trade figures show that such a surge simply never took place. Moreover, if executed properly, President Biden’s Buy American plans for federal government procurement and support for strengthening critical domestic supply chains could boost American manufacturing and other goods output without increasing imports. His budget requests for major subsidies for key U.S.-based manufacturing operations could help brighten the trade picture, too. Mr. Biden has also decided for now to retain the Trump trade curbs. And P.S. – those clogged West Coast ports hamper American exports as well.    

In addition, trade problems could reappear at some point due to the President’s proposed green energy mandates and corporate tax increases that would inevitably hike the relative cost of producing in the United States. But right now, it looks like due to ongoing and possibly upcoming economic nationalist American policies, the burden of proof is on the U.S. trade pessimists. And that’s quite a switch.

(What’s Left of) Our Economy: U.S. Manufacturing Revival Plans Still Need Trump-like Tariffs

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Buy American, carbon tariff, carbon tax, Dan Breznitz, David Adler, health security, infrastructure, Joe Biden, manufacturing, manufacturing trade deficit, research and development, supply chains, tariffs, taxes, technology, The New York Times, Trade, {What's Left of) Our Economy

I was thrilled to see today’s op-ed piece on U.S. manufacturing in The New York Times, and not just because co-author David Adler is a good friend. I was also thrilled to see it because a careful reading reenforces the essential notion that all the worthy proposals made by policy analysts and politicians lately (including apparent President-elect Joe Biden) on reviving industry will either come to naught or greatly underperform without steep, and indeed Trump-like, tariffs to shut a critical mass of imports out of the economy.

Those domestically-focused manufacturing revival measures have included more federal funding for research and developments, greater federal efforts to help smaller manufacturers in particular learn about and access research breakthroughs in academia and existing government labs, measures to help these smaller industrial firms access capital more easily, tax breaks to foster production and innovation in the United States, and more ambitious and better enforced Buy American requirement for federal purchases of manufactured products. In general, I’m strongly supportive, and have even criticized the Trump administration for giving them short shrift (even on the tax front, where the big 2017 cuts should have come with more investing and hiring strings).

From knowing David, I feel sure that he backs these intiatives, too; indeed, the article concentrates tightly on the Buy American slice of this agenda. And the piece gratifingly (but probably unknowingly) endorses an idea that I’ve made for many years, but that has gotten zero traction: requiring “all manufacturing industries to disclose how much of their sourcing and critical production takes place in the United States.” After all, how can Washington make the right manufacturing policy decisions when it relies so heavily for such crucial information from crumbs self-servingly cherry-picked by offshoring-happy companies themselves?

Yet as also suggested by David and co-author Dan Breznitz – who studies innovation policies at the University of Toronto – except for the Buy American proposals, the standard raft of manufacturing revival plans could work to  stimulate more production and supply, but pays inadequate attention to ensuring that all that supply is actually bought – which would eventually make companies think twice about producing more.

The authors place much stock in government’s ability to soak up this output, and so does Biden – who on top of making sure that more of what government currently purchases is American-made, has pledged to spend “$400 billion in his first term in additional federal purchases of products made by American workers, with transparent, targeted investments that unleash new demand for domestic goods and services and create American jobs.”

The former Vice President correctly contends that these measures will “provide a strong, stable source of demand for products made by American workers and supply chains composed of American small businesses.” The history of U.S. industrial policy also shows that early guaranteed government purchases helped new industries demonstrate the usefulness of innovative products that eventually interested the private sector and produced enormous new markets for their products on top of federal contracts. (Think “computers” and all the hardware and software used pervasively now not only in technology sectors but in virtually the entire economy.)

But U.S.-based manufacturers turned out just over $2.35 trillion worth of goods in 2019 (the last full pre-CCP Virus year). And the manufacturing trade deficit that year was $1.03 trillion. So unless it’s supposed that that 2019 level of domestic manufacturing production is remotely adequate (and clearly, the manufacturing policy reform supporters don’t), or unless they believe that government should buy much more of the output than the $400 billion Biden proposes over not one but four years (to sit in warehouses?), generating more private demand for industry’s output will be essential as well.

As indicated above, David and Dan Breznitz argue that more detailed, accurate labeling will help by enabling more consumers and private businesses to act effectively on their naturally strong preferences for Made in the USA goods – not only out of patriotism, but because of reasonable convictions that their quality and safety are superior. I remain all in favor, but the immense popularity of imports among both classes of customers (made clear by the huge and chronic manufacturing trade deficits) despite numerous news accounts over the years of shoddy, outright dangerous foreign-made products (especially from China), demonstrates that much more will need to be done to spur demand for U.S.-produced manufactures.

RealityChek regulars will not be the slightest bit surprised that I’m ruling out overseas demand as a promising net new source of customers for American domestic manufacturers. Unfortunately, the persistence of the huge manufacturing trade deficits is also evidence that most of America’s international trade partners are far too devoted to the health of their own industrial bases to permit major U.S. inroads. In fact, if anything, they’re likely to step up their own efforts to strengthen their own domestic industries by further curbing U.S. and other foreign competition. And that’s where the tariffs come in.

Not that David and Dan Bernitz, or Biden, overlook the need for U.S. market protection entirely. The former, for example, call for “Stopping predatory pricing by foreign manufacturers” – which entails slapping tariffs on these usually government-subsidized artificially cheap goods. The latter makes similar points, and has also mentioned a carbon tariff on products from countries that base their competitiveness on ignoring “their climate and environmental obligations.” (At the same time, Biden could use a similar levy to punish domestic companies that don’t measure up in his administration’s eyes climate-wise, leaving the net benefit to U.S.-based manufacturing minimal.)

Moreover, to ensure adequate domestic supplies of the healthcare goods needed to fight the next pandemic, simple stockpiling of products by government will be necessary. And since practically everything wears out over time, or becomes outmoded, lots of re-stockpiling will be necessary. Meanwhile, it should go without saying that many of the government purchases of manufactures will be used for critical national purposes – like repairing and building all kinds of traditional and technology infrastructure systems, and producing whatever new military equipment or refurbishing of old equipment the new Congress and the likely new administration wind up supporting.

But these are of course public purposes, and since the United States is still a strongly private sector-driven economy, that’s what’s inevitably going to determine the success of most manufacturing revival efforts. So unless manufacturing revivalists want government to play a veritably dominant role in production and consumption decisions, their strategy will employ tariffs – but not in a targeted, sector-specific, and reactive way, much less as an afterthought to domestic initiatives. Instead, they’ll be proactive, come in a flat-rate form, and stand high enough to encourage plenty of new market entrants that it makes sense to join established enterprises in vigorous, overwhelmingly domestic competition for America’s immense pool of customers.

(What’s Left of) Our Economy: Trump’s NAFTA Rewrite Blueprint is an Encouraging Start

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bubbles, Buy American, Canada, dispute resolution, environmental standards, GATT, General Agreement on Tariffs and Trade, government procurement, labor standards, manufacturing, Mexico, NAFTA, national treatment, non-discrimination, North American Free Trade Agreement, reciprocity, rules of origin, tariffs, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, value-added taxes, VATs, World Trade Organization, WTO, {What's Left of) Our Economy

The Trump administration is out with its detailed statement of renegotiation objectives for the North American Free Trade Agreement (NAFTA), and if you’ve favored turning U.S. trade policy from an engine of debt-creation and offshoring into one of production-fueled growth and domestic job creation, you should be pretty pleased.

As critics have noted, yesterday’s statement does lack numerous important details about how the administration intends to achieve its goals, and some of these omissions (as will be explained) raise legitimate questions about the depth of the president’s commitment to these changes. But the statute requiring the release of such statements doesn’t mandate disclosure of every – or any – specific strategy for reaching these goals. Moreover, the talks haven’t even started, and these tactics naturally tend to change with circumstances. So those accusing the administration of excessive vagueness should start holding their fire.

As indicated in yesterday’s post, the most important change needed in NAFTA is the addition of teeth to the agreement’s existing rules of origin – the requirements that goods sold within the NAFTA free trade zone comprised of the United States, Mexico, and Canada be made overwhelmingly of parts, components, and materials made inside the zone.

After all, manufacturing dominates trade not only inside NAFTA, but between the NAFTA countries and the rest of the world. Without imposing teeth, non-NAFTA countries will have no meaningful incentive to invest in new NAFTA-area facilities to produce the intermediate goods that comprise the content of final products, like automobiles. And the economies, businesses, and workers in the three countries will be denied immense opportunities to boost production and employment. Indeed, this is precisely this opportunity that’s been missed under the current NAFTA.

It’s difficult to imagine these teeth taking a form other than steep tariffs on goods imports from outside NAFTA, and the Trump blueprint never mentions that “t” word. But it does contain a call to “Update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.” And it specifies that these improved origin rules must “incentivize the sourcing of goods and materials from the United States and North America.” How could anyone supporting more U.S. manufacturing production and employment not be heartened?

Also impressive – as widely reported, the administration has prioritized preserving America’s ability to “enforce rigorously its trade laws, including the antidumping, countervailing duty, and safeguard laws” chiefly by eliminating the NAFTA provisions that established international tribunals as the last word in resolving trade complaints among the signatories, rather than the U.S. trade law system. The Trump administration is also seeking to reestablish America’s unfettered authority to impose “safeguard” tariffs on imports from Mexico and Canada when they begin to surge into the United States. So if you’re worried that NAFTA and other recent U.S. trade agreements have needlessly undermined American sovereignty, this blueprint is for you.

Similarly, critics have long complained about NAFTA’s overriding of the Buy America provisions of U.S. public procurement regulations aimed at maximizing the American taxpayer dollars used to purchase goods and services for government agencies. The Trump strategy laid out in the blueprint seeks to preserve these and other key domestic preference programs.

It’s true, as is being contended, that in areas ranging from promoting high labor rights and environmental standards, to dealing more effectively with the trade distortions created by state-owned enterprises (SOEs), the Trump NAFTA blueprint looks a lot like the Trans-Pacific Partnership (TPP) trade deal that the president condemned as a candidate and withdrew from on his first day in office.

It’s just as true, however, that formidable obstacles were bound to prevent effective enforcement of those proposed TPP rules. These loom as large as ever – notably, the huge numbers of U.S. government officials that would be needed to monitor the even huge-er Mexican manufacturing sector on anything close to an ongoing basis. But the final TPP text demonstrated beyond reasonable doubt that the Obama administration failed to address these concerns adequately. Maybe the Trump administration will come up with viable answers.

Finally, the Trump NAFTA blueprint contains two conceptual objectives that have never been prioritized since the current world trading system was created shortly after World War II, and that trade policy critics should be applauding vigorously. The first is the endorsement of reciprocity as a lodestar of American trade strategy. The second is an emphasis on reducing America’s mammoth trade deficits.

Although reciprocity (i.e., America opens its markets to certain trade partners only to the extent that their markets are open to U.S.-origin goods and services) seems like an uncontroversial trade goal for Washington to seek, and is often presumed to be the goal, nothing until now could be further from the truth. In particular, the foundational principles of the world trade system under the General Agreement on Tariffs and Trade (GATT), and the World Trade Organization (WTO) are national treatment and non-discrimination.

National treatment simply insists that countries deal with foreign enterprises the same way they deal with their own domestic enterprises. Non-discrimination simply mandates that countries treat imports from all trade partners’ identically. The big problems? They enable closed economies to maintain way too many trade barriers. For instance, countries that favor certain companies over others for either political reasons (as with China’s state-owned sector) or reasons of national economic strategy (as with Japan’s efforts to limit entrants into certain industries to prevent excessive domestic competition) can continue discriminating in similar ways against foreign competitors. And countries can maintain high trade barriers as long as they apply equally to all imports.

As for trade deficit reduction, it’s a great way to promote healthy, production-led American growth, rather than the kind of debt-led, bubble-ized growth that’s been engineered arguably going back to the 1990s. But here’s where the Trump blueprint can be faulted. Especially if the new NAFTA contains better rules of origin, it’s likeliest to reduce the U.S. trade deficit with non-NAFTA countries, not with the treaty signatories that the blueprint targets. And nothing would be wrong with that result at all.

Two other aspects of the NAFTA objectives deserve comment – and merit genuine concern. First, although it’s good that the administration has included on the list currency manipulation, critics are right to note that specifics are urgently needed. Their development, moreover, is important not mainly because Canada and Mexico have been important culprits (they haven’t been) but because this is a challenge that President Trump needs to meet in connection with countries that clearly have manipulated in the past and could well do so again.

Second, the Trump blueprint makes no mention of value-added taxes (VATS). Mexico’s is 16 percent, Canada’s is five percent at the federal level and eight percent at the provincial level. As with all other VATs, these levies act as barriers to imports and subsidies for exports. Candidate Trump rightly called for American countermeasures in order to level the trade playing field inside NAFTA. President Trump should take heed.   

Making News: Coming up on The Laura Ingraham Show – & More!

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Buy American, Chronicles, G20, Lifezette.com, Making News, North Korea, The Laura Ingraham Show, Tom Piatak, Trump

I’m pleased to announce that my appearance on Laura Ingraham’s nationally syndicated radio show has been rescheduled for 10:15 AM EST today.  Click here to listen live to what’s sure to be a (desperately needed) outside-the-box discussion of the North Korea crisis.  And of course, I’ll be posting a link to the podcast as soon as one’s available.

Further, my views on the prospects for President Trump’s first summit of the world’s top economic powers were featured yesterday in a post on Laura’s Lifezette.com website.

Also yesterday, blogger Tom Piatak quoted me in an essay for the magazine Chronicles on the importance of Buying American.  Here’s the link.

And keep checking in with RealityChek for ongoing reports on media appearances and other developments.

 

Making News: Interviewed on Buy American and Trade-Related Infrastructure Issues

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Asset Leadership Network, Buy American, GAO, Government Accountability Office, infrastructure, Making News, Trade

I’m pleased to announce that the video is now on-line of an interview I gave last week on the intersection between infrastructure and trade policy issues – and specifically, on the future of the Buy American programs governing the public sector’s multi-billion dollar purchases of goods and services.

The session was sponsored by the Asset Leadership Network, an organization of professionals in engineering, architecture, construction, land-use planning, and related fields. One of their highest priorities: making sure that whatever infrastructure build-out and repair efforts the nation launches results in the best quality systems that create the biggest growth and employment bangs for taxpayers’ bucks.

It was gratifying to learn of the Network’s interest in my research into whether recent trade agreements covering government procurement – which affect the extent to which infrastructure systems are made out of American-produced manufactures and materials – are leveling global playing field as promised, and giving a fair-shake to U.S.-based businesses and their employees.

As RealityChek regulars know, the answer – according to a recent report from the Government Accountability Office (GAO) – is an emphatic “No.” And in this video, I describe the GAO’s main findings, as well as what they tell us about U.S. trade policy’s broader failures.

And keep checking in with RealityChek for news of upcoming media appearances and other events.

Following Up: Why Buy American Reform is More Urgent – & Feasible – Than Ever

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Buy American, Following Up, free trade agreements, GAO, Government Accountability Office, Government Procurement Agreement, GPA, NAFTA, North American Free Trade Agreement, Obama, The Wall Street Journal, Trade, World Trade Organization, WTO

Although it doubtless wasn’t an intention of Wall Street Journal reporters Coulter Jones and Shane Shifflett, their article this morning on President Trump’s recent efforts to strengthen the U.S. government’s Buy America regulations considerably bolstered the case that overhaul is indeed vital – and within reach politically.

As I reported last month, a February Government Accountability Office (GAO) study showed that the United States is getting completely fleeced by its adherence to provisions in various bilateral or regional trade deals (like the North American Free Trade Agreement), along with a worldwide plurilateral agreement, that aim at eliminating domestic preference programs like Buy American regs.

The two main problems, according to the GAO? First, the best available data reveals that the United States has opened up its government purchases to foreign competition much wider than the nearly 50 other signatories of the Government Procurement Agreement (GPA) sponsored by the World Trade Organization (WTO). Second, Washington’s implementation of this arrangement and of similar provisions in other trade deals has been so negligent that the U.S. government never bothered even to find out how well the GPA, or any of the similar agreements, was working until two Democratic Senators commissioned the GAO study – more than twenty years after the global agreement was signed.

Journal correspondents Jones and Shifflett spent most of their article purporting to explain that any administration efforts to boost Washington’s purchases of U.S.-origin goods and services would amount to “swimming against the tide.” After all, as they documented, “For the current fiscal year beginning in October, foreign businesses have received a bigger share of federal contract dollars than in any other year since at least 2009.” In fact, “foreign-owned companies already hauled in more money from federal contracts in the past three months [i.e, during the Trump presidency] than in any corresponding period in a decade.”

Moreover, any changes to procurement policy made by President Trump “would likely face legal challenges….Additionally, any executive order Mr. Trump may issue requiring the government to buy exclusively American-made products has the potential to be challenged in court, or overturned by Congress or a future administration” – because of trade treaties that aimed “to make it easier for U.S. companies to compete overseas by mutually easing trade restrictions with other countries.”

But the recent rise in federal contracts for foreign-made goods, according to the article, has nothing to do with either Trump administration negligence or uncontrollable forces. As the authors point out, “Much of the payout to foreign-owned firms in the first quarter of this calendar year was set in motion by the Obama administration.” Of course, that was the same Obama administration that came into office in 2009 and oversaw that previously noted longer-term surge in contracts awarded to foreign goods and services providers.

Further, those trade treaties described by the Journal piece as such towering obstacles to a Buy American overhaul are the same trade treaties that the GAO has strongly indicated are utter failures.

The administration knows about the unacceptable record of these arrangements, as do the Democratic Senators who requested the GAO study. How difficult, then, would it really be for the president to muster bipartisan Congressional support for declaring these deals null and void – at least pending convincing evidence that they’re working after all? And given the pervasive discrimination U.S.-based goods and service providers clearly face in most foreign government markets, how difficult would it be for Mr. Trump to win similar legislative backing for narrowing the loopholes and waivers contained in the current Buy American regulations – and monitoring and enforcing tighter rules much more effectively?

In other words, how many American lawmakers would insist on continuing to obey broken treaties and on refusing to re-level the procurement playing field unilaterally for domestic businesses and their employers? The answers may not be obvious to Mainstream Media journalists. They’re surely more obvious to politicians accountable to American voters.

(What’s Left of) Our Economy: Where America Has Literally Been Asleep at the Switch on Trade

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Buy American, Canada, Commerce Department, European Union, free trade agreements, FTAs, government procurement, Government Procurement Agreement, GPA, Japan, Jeff Merkley, NAFTA, North American Free Trade Agreement, Norway, Politico, South Korea, Tammy Baldwin, Trade, Trump, Wilbur Ross, World Trade Organization, WTO, {What's Left of) Our Economy

Here’s a big, sincere shout-out to U.S. Senators Jeff Merkley (Oregon) and Tammy Baldwin (Illinois). Thanks to their insightful curiosity, Americans have just gotten evidence that their country’s trade policy is indeed as much of a disaster area as claimed by President Trump and other critics.

Their accomplishment? The two Democrats asked the Government Accountability Office (GAO) to look into how well Washington has been implementing a more than two-decade-old global trade agreement aimed at opening government procurement markets around the world. Also examined: the trade liberalization record of government procurement provisions of bilateral and regional trade agreements signed by the United States (like the North American Free Trade Agreement, or NAFTA).

The findings were released last month (and alertly reported by Politico‘s trade correspondents), and make clear that the United States has been getting royally shafted. Moreover, these results have been inevitable both because the global deal was so poorly conceived from an American standpoint, and because literally no one in the U.S. trade policy-making apparatus has been tracking the results of either the global agreement or the relevant sections of the narrower trade deals agreement affecting literally trillions of dollars worth of actual and potential sales.

Even worse, the blithe assumption that other signatory countries has been scrupulously abiding by all of these procurement agreements has sharply limited America’s willingness to expand and tighten the Buy American rules that cover its own official purchases – in the process, passing up major opportunities for growth and job creation at a time of economic weakness. And P.S. This includes President Trump.

The GPA is a “plurilateral” agreement negotiated under the auspices of the World Trade Organization. In other words, accession by WTO members is voluntary. Still, the deal, which went into effect in 1996, currently encompasses 47 countries that are now committed to placing foreign enterprises and their own domestic entities on an equal footing when they compete for government contracts. Nine other WTO members are in the process of signing on. Most of America’s bilateral and regional trade agreements also prohibit discrimination in awarding these opportunities for supplying governments with goods and services. Consequently, 19 other countries have promised the United States to open their official procurement markets to the United States in return for America opening its own to them. (All of these governments have carved out various agreed on exemptions. And sub-national governments are covered by these deals as well.)

With stakes this high, you’d think that at some point the U.S. government would display reasonably consistent interest during the multi-decade lives of these trade agreements in whether they’ve been paying off. But according to the GAO researchers, you’d be wrong.

Even though the GPA requires detailed, annual reporting of procurement statistics by signatory governments, the GAO’s

“review of data that the United States and next five largest GPA parties [the European Union, Japan, Canada, South Korea, and Norway] submitted to the WTO for 2008 through 2013 found that a number of parties did not submit the reports annually, the submitted reports did not include all required data, and each party’s reports included inconsistencies that limit the data’s comparability. Further, a lack of common understanding on definitions of key terms has led to inconsistent reporting practices among the GPA parties, and a GPA statistical working group has made little progress in addressing such challenges.”

Some specific failings:

>”although Canada submitted annual notifications with central government procurement data for 2008 through 2013, the notifications did not include data on procurement by subcentral governments or by other government entities”;

>”Japan’s annual notifications have not included procurement by entities such as utilities and state-owned enterprises that are covered by the GPA”:

>”South Korea has not submitted notifications for any year except 2010, and Japan has not submitted a notification for 2012 although it did so for other years through 2013.”

>”Of the U.S. FTAs [free trade agreements] we reviewed, only NAFTA requires its parties to report annual statistics on government procurement; however, the last data exchange between the three NAFTA parties took place in 2005. As a result, information about the extent to which U.S. FTA partner governments open procurement to U.S. suppliers is not available.” [Emphasis added.]

The United States has been far from a whiz in reporting, either. But its failings have been much less excusable given all the evidence provided by the GAO showing that it’s opened its procurement markets much wider than any other GPA or FTA signatory. Despite the above data limitations, the GAO nonetheless felt confident in concluding that for 2010, “[T]he United States reported more than twice as much GPA-covered government procurement as the next five largest GPA parties combined, although total U.S. government procurement is less than the combined total for the other five parties.”

In money terms, the value of contracts opened to non-discriminatory bidding by the United States at all levels of government was $837 billion. The value of contracts opened by those five non-U.S. GPA parties that promised to liberalize the most in absolute terms was some $381 billion. Yet total government procurement in the United States that year was some $1.7 trillion, the GAO estimates. For the other five GPA signatories, it was much larger – $4.4 trillion.

Moreover, because of the aforementioned reporting failures, it’s not possible at all for the U.S. government, or the American people, to gauge procurement liberalization under free trade agreements – with the exception of Canada. But when their procurement budgets are added in, and duplication eliminated (e.g., for Canada), the total market that should be available to American business and workers at least in principle is $4.4 trillion. 

The GAO doesn’t conclude that U.S. trade partners are simply capitalizing on Washington’s indifference to flout their treat obligations. In fact, in one instance, it even tries to get them partly off the hook: “Many EU member states, as well as Japan and South Korea, have actual government expenditures smaller than the United States’ and are therefore likely to have more smaller-value individual procurement contracts that fall below the GPA threshold levels.” (Decisions on the smallest government contracts typically are one of the main GPA and FTA procurement carve-outs.)

But if so many foreign government contracts are too small to be opened for non-discriminatory bidding, then obviously these trade deals are too poorly structured to give American producers anything remotely like reciprocity. And more important, Washington so far has had no way of knowing judging by any measures whether non-discrimination in principle is being translated into non-discrimination in fact .

As Mr. Trump’s Commerce Secretary, Wilbur Ross, recently noted, “There’s not a lot of point making trade deals if you don’t enforce them.” He could have added that such enforcement is impossible without seeking and obtaining reliable data on results. Donald Trump’s predecessors have flunked these two crucial tests of American trade policy-making. Until he gets strong evidence to the contrary, it’s time for the president to take the logical next step, assume that the GPA and the FTA government procurement measures have been serious mistakes, and ignore them as thoroughly as America’s competitors evidently have.

(What’s Left of) Our Economy: A Buy American Road to a Stronger Recovery

Tags

Atlanta Federal Reserve Bank, Buy American, Christopher S. Murphy, Department of Transportation, domestic content, Economic Policy Institute, manufacturing, railroads, recovery, Robert Scott, Trade, Trade Deficits, University of Massachusetts, {What's Left of) Our Economy

As 2015 draws to a close, the bad news about an already dreary American economy seems to be getting worse. For example, the Atlanta Federal Reserve Bank’s system for forecasting economic growth – which has been very reliable lately – currently expects the nation’s output to expand after inflation at an annual rate of only 1.30 percent. So it’s great to be able to report that some in the policy community have been touting practical ways to strengthen the recovery – and good job creation – that don’t depend on creating ever more national debt. Their proposal: require the public sector to buy more U.S.-made goods, and especially manufactures.

Some Buy American rules are permitted by World Trade Organization rules (ditto for similar measures by other countries); therefore Washington and state and local governments are able to make sure that some of what they purchase with Americans’ tax dollars is produced in the United States, and therefore generates growth and employment at home. But as shown by new studies from the University of Massachusetts and the Economic Policy Institute, much more can and should be done.

The UMass report, published earlier this month, makes clear the enormous potential of that further growth. It found that the American public sector is the biggest single customer of goods and services in the world, with its appetite reaching $1.10 trillion in 2013. Moreover, manufactured goods represent $400 billion of that total. Since the American manufacturing sector turned out $2.2 trillion worth of products in 2013 according to the UMass researchers, government is already a huge player.

Although its findings apply to all Buy America programs, the UMass study zeroes in on those that have been in place for buses and rail cars since 1982 – precisely to revive two once-thriving industries that seemed in terminal decline. Indeed, to this day, none of the world’s major rail equipment producers are based in the United States. The study is especially valuable for its detailed examination of the Department of Transportation’s domestic content standards, which regulate how much of the makeup of a manufactured product (i.e., the share of its parts, components, and materials) needs to originate in the United States in order to be legally considered American-made.

The authors conclude that big reasons for the continued troubles of the rolling stock industry have been domestic content provisions that:

> remain too low (largely because the content of sub-components isn’t adequately taken into account, and because the rules don’t cover design and administrative activities);

>are continually compromised by too many waivers;

>and are poorly monitored and enforced.

In addition, the study makes a critical point about the inadequacy of the current “lowest price” standards that enable foreign producers to win many rail and bus contracts for the share of content they can compete for under Buy American rules. These criteria, they rightly note, greatly understate the longer-term benefits to the U.S. economy – and therefore to taxpayers – of nurturing more manufacturing production and employment at home.

As a result, even though the rules require that 60 percent of all federally purchased rail car components be made in the United States, and 100 percent of the final assembly performed domestically, the actual overall mandated U.S. content of these systems is only 40 percent. The UMass researchers estimate that even raising the effective domestic content level for rail car procurement from the current 40 percent to 60 percent would increase by nearly 29 percent the numbers of American jobs created by such spending. And of course, each dollar of that re-channeled spending would stay in the United States and add to economic growth, rather than leaking abroad.

A broader look at the effects of better Buy America policies has been taken by Robert Scott of the Economic Policy Institute. In a late November post, Scott examined the impact of legislation proposed by Connecticut Democratic Senator Christopher S. Murphy that would close major loopholes in existing federal policies and raise the required U.S. content level from 50 percent to 60 percent.

His findings: Simply closing the biggest loophole would boost domestic manufacturing output by $8.5 billion annually (based on recent federal procurement rates) and therefore generate $13.5 billion in new overall growth each year (because increases in manufacturing output have a “multiplier effect” on the rest of the economy). On the employment front, the bill could generate up to 100,000 new manufacturing jobs. And the higher level of domestic content could add to the $160 billion worth of manufactures currently purchased annually by Washington under current Buy America rules, as well as to the jobs they create.

Compared to the size of the American manufacturing sector and the larger economy, these numbers are small. But as big as they are, total federal purchases were only 6. 5 percent of U.S. gross domestic product in 2013. As I have repeatedly written, trade policy overhaul that simply keeps the deficit from rising higher would have much bigger payoffs. How much longer before the president, the Congress, and most of the current crop of presidential candidates get the message?

Im-Politic: How Bernie Can “Win”

Tags

2016 elections, amnesty, Bernie Sanders, Buy American, carbon tariff, China, climate change, Democrats, Donald Trump, energy, environment, fossil fuels, fracking, greenhouse gases, gun control, Hillary Clinton, Im-Politic, Immigration, Jobs, liberals, multinational corporations, natural gas, offshoring, Open Borders, Populism, progressives, third world, Trade, unions

Like Donald Trump, Bernie Sanders is doing such a good job of influencing the agenda of other 2016 presidential candidates (namely Hillary Clinton) that there’s no useful advice I can offer on that score. Yet the Vermont Senator still has a ways to go if he wants to generate more lasting change in American politics, and the recipe, not too surprisingly, is the inverse of that for Trump.

First, some background. I’ve had the privilege of working with Sanders firsthand on trade and jobs issues, and greatly admire his dedication to getting America’s international economic policies right. He’s not only been a longtime champion of this cause – he’s been a tireless worker as well. Sanders has also kept his focus squarely on the most important victims of offshoring-friendly and otherwise flawed trade policies – the American worker and the productive segments of the U.S. economy. That’s a refreshing change from most others on the leftward end of the political spectrum, who have consistently muddied both the politics and economics of trade issues by (wrongly) emphasizing the harm allegedly inflicted on developing countries by American and American-supported policies.

Even better, it’s already clear that Sanders recognizes the importance of generating crossover appeal. In addition to noting that many of his positions – like Wall Street reform – resemble those of real conservative populists, he has walked this walk on an important social/cultural issue: gun control. But if he genuinely wants to shake up American politics and not simply worry Clinton through next November, the Democratic contender needs to understand the game-changing potential of more realistic immigration and climate change policies.

Earlier in this year’s campaign, Sanders was chided by numerous progressives for being too quiet on immigration issues. Unfortunately, he responded with a June speech to Latino-American elected officials by appearing to pander to this Open Borders crowd. His trade policy position, however, makes clear how substantively mistaken these views are. In particular, as suggested above, he has recognized that failed U.S. trade policies have betrayed America’s “working people” by sending “their jobs…to China and Mexico….” (Although he’s also made some nods to “third world victimhood-mongering.”) Unlike Trump, moreover, he correctly targets multinational companies – not foreign governments – for most of the blame.

But why, in this case, does Sanders (along with most other liberal and Democratic party trade critics) now favor immigration policies that also will take more jobs from Americans, and drive wages down? If trade deals that, among other failures, make many more very low-paid workers in the third world much more available to U.S.-based businesses have these effects, why would immigration policies that literally encourage such workers to come to America produce different results?

In fairness, Sanders and other liberal immigration supporters have an answer: Foreign workers who come to the United States will be much easier to union-ize, and thus will earn higher wages, than their counterparts who remain abroad. But given the labor movement’s major and chronic failure to stem dramatic shrinkage – especially in the private sector – that clearly belongs in the wishful thinking category. Moreover, labor’s recent organizing successes have come almost entirely in service sectors that don’t face any foreign competition. As for parts of the economy that are heavily traded, like manufacturing, continuing new legal or illegal immigration influxes, along with amnesty, will surely intensify the competition for remaining domestic jobs and drive wages even lower.  

Further, as I’ve written, liberals’ claims that mass immigration can produce a new mass middle class overlook that their conception of mass immigration has no logical stopping point – and therefore is likeliest to furnish American businesses with not only huge, wage-killing labor gluts, but with huge, never-ending labor gluts.   

More important, in an election year, populist-minded voters on the Right are bound to reject this reasoning. For any hope of recruiting them to his ranks, Sanders’ immigration approach will need a thorough overhaul. And of course, by extension, this goes for any Democratic candidate.

Sanders has been one of Washington’s leading champion of high priority efforts to fight climate change, which means that re-positioning on this issue to broaden his base will be even more difficult than on immigration. But it could also pay some political dividends, and could be engineered in a way to satisfy at least some environmentally minded Democrats. In three related ways, moreover, the kinds of trade policies Sanders favors are very helpful.

First, Sanders should start emphasizing that one of the best ways to reduce global greenhouse gas emissions is to reduce China’s emissions – and that this objective in turns requires slowing down the Chinese export machine. I’ve long emphasized that, given the huge market for Chinese goods represented by the United States, American trade curbs would be a big environmental plus – whether put in place unilaterally, through sanctions on currency manipulation, or possibly better, through the kind of multilateral carbon tariff that even prominent economists are starting to favor.

Second, Sanders could win some business support for this approach by pointing out that, the less competition American businesses face from countries where environmental (and other) regulations are non-existent or not enforced, the more environmentally friendly regulation they could bear.

Third, as a strong opponent of trade decisions that have gutted the nation’s ability to administer strong Buy American regulations governing government purchases, Sanders will have no problem insisting that federal support for green manufacturing and technology be restricted to operations and facilities in the United States that employ American workers.

At the same time, Sanders will have to take much more seriously the inevitably dominant role fossil fuels will play in the country’s energy future for the foreseeable future, and his energy approach will need to make much more room for greenhouse-friendly natural gas in particular. As a result, he’ll need to view whatever pollution issues are posed by fracking not as an excuse to reject or neglect gas, but as a problem to be solved technologically.

The good news, in contrast to Trump, is that Sanders does seem to take advice from outside his ideological comfort zone and political base – his dealings with me and colleagues, when I worked at a small manufacturers’ organization, represent just one body of evidence. And representing even a small state like Vermont inevitably has exposed Sanders to the kinds of voters and their direct feedback that a one-percenter like Trump probably rarely encounters. For these reasons alone, he seems to be a more plausible candidate to help create an enduring populist alternative to the two major parties.

Just with my treatment of Trump, this analysis of Sanders’ chances doesn’t mean that I view him as an ideal candidate or, similarly, that I’m with him on most or even many issues other than those mentioned here. What it does signal is my belief that these two figures boast the potential to rework American politics by identifying crucial areas of overlap on the core pocketbook issues that are vital both to voters and to the nation’s future. Will they? Leaving aside their personal traits, recent history doesn’t provide many reasons for hope. But of course it’s precisely because meaningful change sometimes happens that we’ve had history in the first place.

Those Stubborn Facts: Walmart’s Fake Buy-AmericanCampaign

Tags

Buy American, domestic manufacturing, imports, Made in the USA, manufacturing, Stubborn Facts, Walmart

“Building on the success of last year’s ‘Made in the USA’ Open Call, Walmart is again reaching out to suppliers asking them to pitch products manufactured in the U.S.”

–IndustryWeek, May 27, 2015

Walmart’s Rank Among U.S. Importers, 2014: #1

Difference Between Walmart’s Imports & No. 2 (Target), 2014: Nearly 50%

Increase in Walmart Imports, 2013-14: 6%

Last Year Walmart Imports Rose This Much: 2005

(Sources: “Made in the USA Products on Walmart’s Wish List,” by Adrienne Selko, IndustryWeek, May 27, 2015, http://www.industryweek.com/supply-chain/made-usa-products-walmarts-wish-list and “This Just In: Walmart is #1 Importer, AGAIN. Where are those American Manufacturing Jobs?,” The WalMart 1%, June 8, 2015, http://walmart1percent.org/author/krudiger/)