Im-Politic: Bolton’s China Derangement Syndrome

Tags

China, decoupling, election 2020, Huawei, Im-Politic, John R. Bolton, Lighthizer, Made in China 2025, national security, Phase One, Robert M. Lighthizer, sanctions, tariffs, tech, Trade, trade enforcement, trade war, Trump

How are John R. Bolton’s new kiss-and-tell revelations to date about his tenure as President Trump’s national security adviser truly deranged? In at least three big, related ways when it comes to China.

First, (according to this most comprehensive statement of his views) Bolton apparently was too busy marketing this policy potboiler to have bothered reading the text of the trade deal with China Mr. Trump signed in mid-January. Rather than the agreement entailing “less…than met the eye,” it entailed much more. Not only did the Phase One deal require China greatly to boost its purchases of U.S.-made advanced manufactures (in addition to the agricultural products on which Bolton obsesses). It also created dispute resolution procedures – meaning an enforcement mechanism – completely tilted in America’s favor.

As I’ve explained, when all procedures are exhausted, China is only entitled to pull out of the entire agreement if it’s unhappy with the results – an extreme unlikelihood given China’s heavy reliance on selling to the U.S. market to maintain growth and employment that Beijing sees as being both political and economically important. The United States has the same ultimate option, but its threats to do so would be highly credible, given the huge net losses it suffered from pre-Trump China trade policies.

Moreover, the President secured these benefits while maintaining steep U.S. tariffs on literally hundreds of billions of dollars worth of prospective Chinese exports to America – and especially on those high value manufactures that have benefited most from the Made in China 2025 program and other Chinese predatory economic policies, and whose development pose the greatest threats to U.S. national security as well as prosperity. Also crucial – Bolton criticizes his former boss for agreeing to China’s insistence that he refrain from imposing new tariffs in return for restarting the trade talks. But the structure of the trade agreement leaves this option entirely open to the United States – and, in effect, with impunity. 

By the way, the results of the trade talks also demolish Bolton’s uber-claim that President Trump’s China policies stemmed solely from his desire for reelection, and the related suggestion that Mr. Trump believed that a purely cosmetic agreement would serve his political purposes much more effectively than reaching a deal heavily favoring U.S. interests.

They similarly leave as a smoking ruin Bolton’s allegation that the President continued to flatter Chinese leader Xi Jinping after the CCP Virus broke out because he was desperate to preserve the trade agreement. If anyone felt such desperation, it was Xi – whose regime hasn’t even tried to use the virus’ damage to China’s own economy as an excuse for at least temporarily ignoring Phase One’s import requirements.

Bolton’s second deranged claim follows on directly from that last point. On the one hand, he accuses the President of being completely indifferent to his master plan of fitting “China trade policy into a broader strategic framework,” and complains that “we struggled to avoid being sucked into the black hole of U.S.-China trade issues.”

On the other hand, he credits Mr. Trump with appreciating “the key truth that politico-military power rests on a strong economy. Trump frequently says that stopping China’s unfair economic growth at America’s expense is the best way to defeat China militarily, which is fundamentally correct.”

Yet as just detailed, Bolton heaps scorn on major Trump achievements that have gone far toward weakening China’s economy vis-a-vis America’s. Moreover, such Trump moves also include punishing sanctions on Chinese telecoms giant Huawei that Bolton bizarrely views as undeserving of mention.

The final evidence of Bolton’s derangement: his whining about the President’s decision-making style. According to the author, Americans should be up in arms because Mr. Trump’s advisers have been “badly fractured intellectually” and because “Trade matters were handled from day one in a completely chaotic way.” Indeed, the Trump leadership style, Bolton moans, “made my head hurt.”

To which any minimally intelligent and/or adult reader should respond “So what?” Leaving aside that it was never the President’s job to please whatever otherwordly expectations Bolton (a longtime Washington operator who obviously knows better) claims to have had about policymaking processes, the results have been entirely coherent and clear to anyone caring actually to look. Whatever uncertainties Mr. Trump may have had about choosing China trade tactics and whose advice to follow, he has plainly put U.S. Trade Representative Robert E. Lighthizer and other so-called hawks in command, and the results have been a wide variety of measures that have both gut-punched China’s economy (see, e.g., here) and steadily decoupled America’s economic fortunes from this dangerous dictatorship. (See, e.g., this post.)

Unless the rest of Bolton’s forthcoming book is completely different and indeed vastly more coherent than the portions made public to date (and why would he and his publicists want to lead with any material they believed wasn’t bullet-proof), his tell-all will only be important for shedding light on a single question: Will the author be best remembered as a dangerously incompetent armchair warhawk who helped lead the United States into a major disaster in Iraq, or as a wildly flailing freelance wannabe hitman who tried to sabotage an urgently needed turnaround in America’s approach to China?

(What’s Left of) Our Economy: Trade War(s) Update

Tags

Argentina, Bloomberg.com, Brazil, business investment, China, CNBC, consumption, currency manipulation, debt, Democrats, digital services tax, election 2020, EU, European Union, export controls, Financial Crisis, France, Huawei, internet, investors, manufacturing, production, steel, steel tariffs, tariffs, Trade, Trade Deficits, trade enforcement, trade war, Trump, Wall Street, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

The most important takeaway from this post about the current status of U.S. trade policy, especially toward China, is that it may have already been overtaken by events since I began putting these thoughts together yesterday.

What follows is a lightly edited version of talking points I put together for staffers at CNBC in preparation for their interview with me yesterday. I thought this exercise would be useful because these appearances are always so brief (even though this one, unusually, featured me solo), and because sometimes they take unexpected detours from the main subject. .

Before presenting them, however, let’s keep in mind this new Bloomberg piece, which came on the heels of remarks yesterday by President Trump signaling that a trade deal with China may need to await next year’s U.S. Presidential election, and plunged the world’s investors into deep gloom. This morning, however, the news agency reported that considerable progress has been made despite “harsh” rhetoric lately from both countries. It seems pretty thinly sourced to me, and the supposed course of the trade talks seems to change almost daily, but stock indices are up considerably all the same.

Moreover, even leaving that proviso aside, what I wrote to the CNBC folks yesterday seems likely to hold up pretty well. And here it is:

1. The President’s latest comments on the China trade deal – which he says might take till after the presidential election to complete – seriously undermines the claim that he considers a deal crucial to his reelection chances because it’s likely to appease Wall Street and thereby prop up the economy. Of course, given Mr. Trump’s mercurial nature, and negotiating style, this latest statement could also simply amount to him playing “bad cop” for the moment.

2. His relative pessimism about a quick “Phase One” deal also seems to reinforce a suggestion implicitly made yesterday by Commerce Secretary Wilbur Ross when he listed verification and enforcement concerns as among the obstacles to signing the so-called Phase One deal. I have always argued that such concerns are likely to prevent the conclusion of any kind of trade deal acceptable to US interests. That’s both because of China’s poor record of keeping its commitments, and because the Chinese government is too secretive and too big to monitor effectively even the most promising Chinese pledges to change policies on intellectual property theft, illegal subsidies, discriminatory government procurement, and other so-called structural issues.

3. Recent reports of the United States considering tightening (or expanding) restrictions on tech exports to Chinese entities like Huawei also support my longstanding point that the US and Chinese economies will continue to decouple whatever the fate of the current or other trade talks.

4. In my opinion, the President is absolutely right to play hard-to-get on China trade, because Chinese dictator Xi Jinping is under so much pressure due to his own weakening economy, and because of the still-explosive Hong Kong situation.

5. I’ll be especially interested to learn of the Democratic presidential candidates’ reactions to Mr. Trump’s latest China statement, as well as the announcement of the reimposed steel tariffs on Argentina and Brazil, and the threatened tariffs on French “digital services” [internet] taxes. With the exception of Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders, the candidates’ China policies seem to boil down to “Yes, we need to get tough with China, but tariffs are the worst possible response.” None of them has adequately described an alternative approach. The reactions of Democratic Congress leaders Nancy Pelosi in the House and Charles Schumer will be worth noting, too. The latter has been strongly supportive of the Trump approach in general.

6. The new steel tariffs, as widely noted, are especially interesting because they were justified for currency devaluation reasons, with no mention made of the alleged national security threats originally cited as the rationale. Nonetheless, I don’t believe that they represent a significant change in the Trump approach to metals trade, because the administration has always emphasized the need for the duties to be global in scope – to prevent China from transshipping its overcapacity to the US through third countries, and to prevent third countries to relieve the pressures felt by their steel sectors from Chinese product by ramping up their own exports to the US. Obviously, all else equal, countries with weakening currencies (for whatever reason) will realize big advantages in steel trade, as the prices of their output will fall way below those of competitors’ steel industries.

7. Regarding the tariffs threatened in retaliation for France’s digital services tax, they’re consistent with Trump’s longstanding contention that the US-European Union (EU) trade relationship has been lopsidedly in favor of the Europeans for too long, and that tariff pressure is needed to restore some sustainable balance. In this vein, I don’t take seriously the French claim that the tax isn’t targeting U.S. companies specifically. After all, those firms are the dominant players in the field. Second, senior EU officials have started talking openly about strengthening Europe’s “technological sovereignty” – making sure that the continent eliminates its dependence on non-European entities in the sector (including China’s as well as America’s). The digital tax would certainly further the aim of building up European champions – and if need be, at the expense of US-owned companies.

By the way, this position of mine in no way reflects a view that more taxation and more regulation of these companies isn’t warranted. But it’s my belief that these issues should be handled by the American political system.

Also of note: Trump’s suggestion this morning that the French tax isn’t a big deal, and that negotiations look like a promising way to resolve the disagreement.

Finally, here are two more points I wound up making. First, I expressed agreement that the President’s tariff-centric trade policies have created significant uncertainties in the economy’s trade-heavy manufacturing sector in particular – stalling some of the planned business investment that’s essential for healthy growth. But I also noted that much of this uncertainty surely stems from the on-again-off-again nature of the tariffs’ actual and threatened imposition.

As a result, I argued, uncertainty could be significantly reduced if Mr. Trump made much clearer that, whatever the trade talks’ fate, the days of Washington trying to maximize unfettered bilateral trade and investment are over, and a new era marked by much more caution and many more restrictions (including tighter export controls and investment restrictions, as well as tariffs), is at hand.

Second, at the very end, I contended that President Trump deserves great credit for focusing public attention on the country’s massive trade deficits in general. For notwithstanding the standard economists’ view that they don’t matter, reducing them is essential if Americans want their economy’s growth to become healthy, and more sustainable. For as the last financial crisis should have taught the nation, when consumption exceeds production by too great a margin, debts and consequent economic bubbles get inflated – and tend to burst disastrously.

(What’s Left of) Our Economy: The Latest Bogus Case for TPP Revival

Tags

Barack Obama, Canada, China, exports, George W. Bush, Mexico, non-tariff barriers, The Wall Street Journal, TPP, Trade, trade deficit, trade enforcement, trade laws, Trans-Pacific Partnership, Trump, {What's Left of) Our Economy

The case for the Trans-Pacific Partnership (TPP) trade deal pushed by former Presidents George W. Bush and Barack Obama, but killed by President Trump, was never serious. For example, America’s economy represented nearly two-thirds of the vaunted new free trade zone the Pacific rim deal would have represented. Many of its largest economies (notably Canada, Mexico, and Australia) were already connected with the United States by trade liberalization agreements. These and most other TPP members have depended heavily on amassing trade surpluses to generate growth, casting major doubt as to how widely they’d open their own domestic markets. And despite being widely touted as a counter to China’s growing economic and military influence in the region, the deal contained an immense back door for Chinese products in the form of sloppy rules of origin.

Now the Wall Street Journal editorial board has taken the bogus pro-TPP case another fact-free step further. It’s claiming to have unearthed evidence that Mr. Trump’s decision is already hurting American exporters. Except the only “evidence” presented is from a single Japanese study. And its findings consist not of developments that have already taken place, but of projections of what it thinks might take place.

Everyone is of course entitled to an opinion – or a projection. And maybe Tokyo’s National Graduate Institute for Policy Studies knows something about such forecasts that has completed eluded the U.S. Government – which has a terrible record predicting the results of trade deals. But everyone is also entitled to ask why the Wall Street Journal didn’t look at what is already known about export flows between the United States and its would be TPP partners since the Trump decision.

According to the U.S. International Trade Commission’s Trade Dataweb, year-to-date 2016-2017, America’s goods sales to these countries have grown by 5.36 percent. That’s somewhat less than the 6.38 percent increase in total, global American merchandise exports during that period. But not a lot less.

Moreover, this small discrepancy is anything but unheard of. Since the current U.S. economic recovery began (a period during which the TPP was being considered in Washington and all the other capitals that sought the agreement), America’s global goods exports have topped their TPP counterparts in two years, and the reverse has been seen in three years. In two other years, merchandise exports to both groups fell – both times by greater percentages for TPP exports. Moreover, the differences in none of the seven full years for which data exist is substantial.

In other words, the numbers so far support the observations that many of the biggest TPP member economies comprising the smallish non-U.S. TPP trade area (along with smaller economies like Singapore, Chile, and Peru) already have reached trade agreements with the United States – and that optimism regarding a needle-moving U.S. export boost has never been justified.

Moreover, neither the Journal editorialists or any other TPP revivalists has grappled seriously with any of the other reasons for exports skepticism. These range from the prevalence in the non-U.S. TPP economies of the kinds of non-tariff trade barriers that American trade diplomacy has never eliminated or even significantly reduced, to the related likelihood that most of the TPP provisions concerning these barriers are unenforceable.

Nor have pro-TPP voices explained why other agreement provisions – such as a yet another dispute-resolution system that would override American trade laws, plus that back door for China and other non-TPP countries – wouldn’t have supercharged U.S. imports and further swelled an already bloated, trade deficit.

The Journal‘s editorial ends with the hope that “If the 11 remaining members hold out for a U.S. return, it’s possible that rational American self-interest will prevail over protectionist bluster.” But its fact-free missive makes clear that it’s the remaining TPP supporters in the United States that urgently need to display a learning curve.

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

Tags

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.   

Our So-Called Foreign Policy: An Empty Obama UN Farewell

Tags

assimilation, education, geopolitics, global integration, globalization, international law, international norms, Islam, labor standards, Middle East, Muslims, Obama, Our So-Called Foreign Policy, radical Islam, reeducation, refugees, skills, sovereignty, TPP, Trade, trade enforcement, training, Trans-Pacific Partnership, UN, United Nations

National leaders’ speeches to each year’ UN General Assembly – even those by American presidents – are rarely more than meaningless boilerplate or cynical bloviating. But President Obama’s address to the organization yesterday – as with some of its predecessors – is worth examining in detail both because it was his last, and because Mr. Obama clearly views such occasions as opportunities to push U.S. and international public opinion in fundamentally new directions where they urgently need to head.

In yesterday’s case, the president saw his mission as justifying his belief that Americans in particular need to reject temptations to turn inward from the world’s troubles, and more completely embrace forces that inexorably are tightening international integration economically and even in term of national security.

To be fair to Mr. Obama, he sought to offer “broad strokes those areas where I believe we must do better together” rather than “a detailed policy blueprint.” But even given this caveat, what’s most striking is how many of the big, tough questions he (eloquently) dodges.

Here’s the president’s main premise and conclusion:

“…I believe that at this moment we all face a choice. We can choose to press forward with a better model of cooperation and integration. Or we can retreat into a world sharply divided, and ultimately in conflict, along age-old lines of nation and tribe and race and religion.

“I want to suggest to you today that we must go forward, and not backward. I believe that as imperfect as they are, the principles of open markets and accountable governance, of democracy and human rights and international law that we have forged remain the firmest foundation for human progress in this century.”

This passage makes clear that Mr. Obama doesn’t buy my thesis that the United States is geopolitically secure and economically self-sufficient enough in reality and potential to thrive however chaotic the rest of the world. Nor does he believe the converse – that the security and prosperity the nation has enjoyed throughout its history has first and foremost stemmed from its own location, and from its ability to capitalize on its inherent advantages and strengths, not from cooperating or integrating with the rest of the world.

The president’s contention that “the world is too small for us to simply be able to build a wall and prevent it from affecting our own societies” rings true for most countries – even assuming that he doesn’t really think that this stark choice is the only alternative to complete openness to global developments and commerce and populations and authority, however promising or threatening. But he seems oblivious to America’s “exceptionalism” geopolitically and economically.

Even if I’m wrong, however, and even accepting Mr. Obama’s “broad strokes” objectives, this lengthy presidential address gives national leaders and their citizens almost no useful insights on how countries can achieve his goals. Here are just two examples:

The president recognizes the need to make the global economy “work better for all people and not just for those at the top.” But given the trade deals he himself has sought, how can worker rights be strengthened “so they can organize into independent unions and earn a living wage”? The president insisted again that his Pacific Rim trade deal points the way. But as I’ve noted, the immense scale of factory complexes even in smallish third world countries like Vietnam makes the necessary outside monitoring and enforcement impossible.

Similarly, no one can argue with Mr. Obama’s recommendation to invest “in our people — their skills, their education, their capacity to take an idea and turn it into a business.” But as I documented more than a decade ago in my The Race to the Bottom, governments the world over, including in the very low-wage developing world, recognize the importance of improving their populations’ skill and education levels. In addition, multinational corporations can make workers productive even in these very low-income countries – and continue paying them peanuts compared with wages in more developed countries. Why should anyone expect his recommendation to give workers in America a leg up?

It’s easy to sympathize with the president’s call “to open our hearts and do more to help refugees who are desperate for a home.” Who in principle is opposed to aiding “men and women and children who, through no fault of their own, have had to flee everything that they know, everything that they love,…”?

But as Mr. Obama indirectly admitted, many of these refugees come from a part of the world where “religion leads us to persecute those of another faith…[to] jail or beat people who are gay…[and to] prevent girls from going to school….” He also described the Middle East as a place where too often the “public space” is narrowed “to the mosque.”

It was encouraging to see him recognize the legitimacy – though perhaps not the necessity – of insisting “that refugees who come to our countries have to do more to adapt to the customs and conventions of the communities that are now providing them a home.” But is he blithely assuming success? And it was less encouraging to see him ignore the excruciatingly difficult challenge of adequately vetting migrants from war-torn and chaotic countries.

Finally, on the political side of integration, the president seems to lack the courage of his convictions. For despite his high regard for international law, and support for America “giving up some freedom of action” and “binding ourselves to international rules,” he also specified that these were long-term objectives – presumably with little relevance in the here and now. Indeed, Mr. Obama also argued that, even way down the road, the United States wouldn’t be “giving up our ability to protect ourselves or pursue our core interests….”

So it sounds like he’d relegate even future international law-obeying to situations that really don’t matter. Which is fine. But how that gets us to a more secure world is anyone’s guess.

It’s true that Mr. Obama will be leaving office soon, and that his thoughts no longer matter critically. But at the same time, American leaders have been speaking in these lofty globalist terms for decades. If the president is indeed right about global integration and the future, what a shame that he didn’t make more progress in bringing these ideas down to earth.

Im-Politic: Why Clinton’s Still Untrustworthy on Trade

Tags

2016 election, Donald Trump, free trade agreements, Hillary Clinton, Im-Politic, TPP, Trade, trade enforcement, trade law, trade policy, Trans-Pacific Partnership, World Trade Organization, WTO

For a politician widely considered such a policy wonk that she’s often stayed in the weeds at the cost of boring voters, Hillary Clinton gave an awfully sketchy picture of her views on trade and globalization in her ballyhooed economics speech in Michigan yesterday. In fact, the Democratic presidential nominee’s views so far contain fewer specifics, and her overall approach for dealing with the trade challenges that have caught fire in this campaign is much less coherent, than those of her Republican rival, Donald Trump (whose own proposals on the subject, I’ve noted, fall short in many analytical and prescriptive respects).

Let’s start with the big picture – i.e., the fundamental reasons why American trade policy has gone off the rails according to the candidates. Even if you don’t agree with it, you’ve got to agree that Trump’s critique is coherent. As he’s emphasized time and again, the United States has long run big trade deficits that have killed lots of jobs both because protectionist foreign governments are determined to grow by racking up big surpluses with America, and because multinational corporations and their Wall Street bankers have successfully pushed Washington to sign trade agreements that fuel these deficits by encouraging companies to supply the U.S. market from abroad, not domestically.

Clinton’s speech actually revealed that she agrees on these scores with Trump:

“It’s true that too often, past trade deals have been sold to the American people with rosy scenarios that did not pan out. Those promises now ring hollow in many communities across Michigan and our country that have seen factories close and jobs disappear.

“Too many companies lobbied for trade deals so they could sell products abroad but then they instead moved abroad and sold back into the United States.

“It is also true that China and other countries have gamed the system for too long.”

But (again, whether you agree with it or not) Trump’s promised policy follow-through dovetails with his analysis. He’ll negotiate better deals that prioritize boosting American growth and jobs on net, and enforce them with tariffs. Moreover, he’ll impose stiff duties on the products of those companies that move overseas and “sell back into the United States.”

Clinton’s remedies? She, too, pledges “to finally make trade work for us, not against us.” She will “stop any trade deal that kills jobs or holds down wages – including the Trans-Pacific Partnership [TPP].” But she says nothing about what concrete provisions need to be placed in new trade deals to achieve those goals. And she seems to think that existing deals can be improved sufficiently by ramping up “enforcement by appointing, for the first time, a chief trade prosecutor, I will triple the number of enforcement officers, and when countries break the rules, we won’t hesitate to impose targeted tariffs.”

As I’ve explained before, this approach faces three insurmountable obstacles to success. First, even a much greater government enforcement effort would be pathetically inadequate to monitor the factory complexes of even smallish countries like Vietnam for violations of current protections in trade deals against repressing workers and egregiously polluting the environment. How much more in the way of resources and personnel would be needed to keep track of the gargantuan Chinese manufacturing sector?

Second, she seems satisfied with the current domestic U.S. system for helping individual American companies and industries fight foreign violations of domestic and international trade rules covering practices like illegal subsidies, dumping, and intellectual property theft. Yet even taken on its own terms, the American trade law apparatus is a proven failure for reasons that have been obvious for decades. It’s reactive. It’s piecemeal. And its legalistic procedures are sadly ineffective against foreign governments that don’t share America’s rule of law tradition, and its associated transparency. Therefore, gathering evidence is all but impossible.

Third, as I’ve just written, the dispute-resolution systems created by individual U.S. trade agreements and by the World Trade Organization that was set up in 1995 serve as powerful checks on America’s ability to use its national trade law system unilaterally. The reason? In all these agreements, Washington has agreed to structures that treat it as simply one among equals even though access to its gigantic market is invariably the global economy’s paramount prize. And as a result, America is continually outvoted by export-dependent countries determined to keep its markets much more open to their products than vice versa.

Clinton also appears to labor under major illusions about the global politics of achieving even the limited trade policy tweaking she seems to favor. Like many long-time trade policy critics in the Democratic party and on the political Left, she has taken to lambasting Trump on social media for threatening to “start a trade war with China” – and presumably the other countries she agrees have “gamed the system for too long.”

But how do they think these countries will react to any serious, genuinely promising efforts to eliminate or offset their predatory trade practices? By embracing them with open arms? Does she expect no push-back at all? And when it comes, how will she deal with it?

Moreover, Clinton’s views of America’s leverage are difficult, at best, to understand. On the one hand, she charged that Trump’s trade “approach is based on fear, not strength. Fear that we can’t compete with the rest of the world even when the rules are fair. Fear that our country has no choice but to hide behind walls.” She insists that “America isn’t afraid to compete.” And yet she seems to be the candidate who’s cowed by the prospect of trade wars – which indicates that Clinton believes America lacks the leverage to prevail when push comes to shove. Why, then, does she think that her strategy will succeed? Because of the power of persuasion?

Clinton’s trade policy criticisms this year have been widely seen as campaign-driven – and therefore untrustworthy, especially among supporters of her former Democratic presidential rival Bernie Sanders and others on the Left. If they read this latest economics speech critically, they’ll find little reason to change their views of her trade policy positions as quintessentially political – and therefore all too ephemeral – constructs.

(What’s Left of) Our Economy: On Trade, Now What?

Tags

currency manipulation, dispute resolution, environmental standards, fast track, Financial Crisis, free trade agreements, gross domestic product, labor standards, Obama, offshoring lobby, reciprocity, recovery, rule of law, Senate, Trade, trade enforcement, Trans-Pacific Partnership, transparency, U.S. Trade Representative, unilateralism, {What's Left of) Our Economy

Although yesterday’s Senate vote doesn’t mean that President Obama’s hopes for winning fast track trade negotiating are dead, this historically trade- (and offshoring-) friendly body’s decision to delay debate with a new presidential election cycle already heating up certainly dims the odds. Just as important, their Senate victory starts putting the onus on critics to propose a new U.S. trade strategy. Here are some of my ideas.

First, about the only true statement Mr. Obama has made during the debate over a measure that would prevent Congress from amending newly signed trade agreements is that the status quo on this policy front is unacceptable. To me, the most damning indictment of the current trade landscape is my finding that the portion of U.S. trade flows most influenced by trade deals and related policies has worsened greatly during this feeble economic recovery – and slowed real growth since the last recession.  Since that article was published, that growth toll has risen to nearly 20 percent.

The answer, however, isn’t doubling down on the kinds of treaties that have produced this policy disaster. Nor is it dressing up the current framework with Congressional directives to enforce higher labor and environmental standards at foreign factories. Too many well-intentioned trade critics in particular ignore the immense difficulties Washington has had adequately regulating in the United States. As I’ve repeatedly written, the notion that huge foreign factory complexes can be monitored more effectively doesn’t stand to reason.

I’m much more sympathetic to adding what are called strong, enforceable curbs on foreign currency manipulation to the list of Congress’ mandatory trade negotiating instructions to presidents, but even this idea faces a huge problem. Many of America’s prospective trade deal partners are determined to retain the right to undervalue their currencies to undersell U.S.-origin goods and services for reasons totally unrelated to free markets or underlying competitiveness. Therefore, unless the United States wins unprecedented voting power in the dispute-resolution systems created by new trade agreements, other parties to the deal will easily be able to reject even the best-founded American complaints.

These very weaknesses in the current trade policy models supported by both supporters of current deals (and to a fascinating extent by the critics) start pointing the way to a fundamentally new approach. So do the unmistakable realities that the U.S. market is by far the biggest prize of any trade negotiations; that it enjoys a matchless potential for economic self-sufficiency; and that even though rebounding trade deficits (especially those shaped by policy) are dragging on America’s weak-enough recovery, the U.S. economy has been a global out-performer lately. (Interestingly, preliminary figures have just revealed that the chronically troubled Eurozone expanded faster than America in the first quarter of this year, but the main reasons are improving European trade balances and worsening American deficits.)

As a result, Washington should scrap its commitment to traditional negotiations and the quest for new international deals as the basis for its trade policy. Since access to the American market is so uniquely valuable to most foreign economies, and since Washington has so much more capacity to enforce laws and regulations within the U.S. economy than without, U.S. leaders should focus instead on establishing the terms of doing business in America unilaterally. Foreign governments could certainly retaliate, although the chronically lopsided pattern of global trade can leave no doubt that they’d come out the worse in any resulting “trade war.” It’s far likelier that America’s competitors would, in essence, pay to play.

And here’s another reason that any overseas protests would be short-lived: Because the United States takes seriously values like the rule of law and transparency, an exclusively American-run system for enforcing domestic trade justice would give them a much fairer shake than their own governments often give their own companies and workers in their own economies.

This new approach need not destroy all employment opportunities at America’s trade negotiating agencies. Officials at the U.S. Trade Representative’s office could still find useful work devising deals based on genuine reciprocity. But because the main foreign trade barriers nowadays consist of practices developed and carried out by highly secretive foreign bureaucracies, making evidence painfully difficult to find, determining whether such reciprocity has been achieved would be up to Washington exclusively.

Ironically, many American trade policy critics can be expected to charge that this unilateralism would trample the sovereignty of countries all around the world. But nothing could be further from the truth. Any foreign governments finding the new policy unacceptable would be perfectly free to seek growth and employment and prosperity without utilizing American demand. Of course, the offshoring lobby and various avowed free market champions will angrily condemn the new approach as neanderthal protectionism. But it’s truer to private sector norms in one crucial respect. Rather than giving away for free an enormously valuable asset like the American market, this strategy would charge a price.

Since the new strategy would represent such a dramatic and disruptive policy revolution, it’s best to phase it in – the way current trade agreements phase in agreed-on reductions or elimination of many trade barriers. Economic actors certainly deserve time to adjust. In fact, here’s a possible compromise for the squeamish: Washington could continue seeking trade deals that establish various new rules and standards for U.S. and foreign economies. But America’s role in any dispute-resolution system should be proportionate to the size of its economy in any new free trade zone. So for President Obama’s proposed Pacific Rim trade deal (the Trans-Pacific Partnership), the United States would hold nearly two-thirds of the votes, because America’s gross domestic product equals that percentage of the prospective free trade zone’s economic output. Surely that’s more equitable than the standard one-country-one-vote approach.

These ideas are strong medicine, to be sure. But critics should keep in mind that the historic imbalances produced by America’s current trade strategy helped set the stage for last decade’s financial crisis and its dispiriting aftermath, and that even despite the slow U.S. and global recoveries, trade flows are becoming similarly lopsided again. I’m perfectly willing to acknowledge that superior approaches might be developed. But what have their creators been waiting for?

(What’s Left of) Our Economy: Obama’s New China Trade Case Barely Qualifies as Tokenism

Tags

China, fast track, free trade agreements, Michael Froman, Obama, subsidies, TPA, TPP, Trade, trade enforcement, Trade Promotion Authority, USTR, {What's Left of) Our Economy

According to U.S. Trade Representative Michael Froman, the Obama administration’s decision to file a World Trade Organization challenge to certain Chinese export subsidies once again demonstrates the president’s commitment to ensuring “a level playing field” for American producers in international trade. That’s an important message to convey as Congress takes up the trade deals Mr. Obama is pursuing, as well as a renewal of fast track negotiating authority. It’s also completely misleading.

Froman acknowledges that “Due to China’s lack of transparency, it is difficult to assess the exact extent of the subsidies” his agency is challenging. The only specifics his office provides: “…evidence that certain Demonstration Base enterprises have received at least $635,000 worth of benefits annually.  In addition, China has given almost $1 billion over a three-year period to Common Service Platform suppliers that agree to provide discounted or free services to Chinese companies.”

Here, however, is a sense of the kinds of Chinese trade-related subsidies Obama’s level playing field campaign has continually missed:

In October, 2010, China’s State Council announced plans to support development of seven “strategic emerging industries” between 2011 and this year. Estimated price tag? $1.5 trillion.

In addition, in 2012, Simon Evenett of Switzerland’s St. Gallen University reported that China’s Value-Added Tax system has served as a subsidy for some $1.1 trillion worth of Chinese exports every year. That’s seven percent of total global exports.  

And no one should forget the cheap-currency subsidy that China has long handed out.  That affects all of its exports – including those turned out by the offshoring multinational companies that so strongly support fast track, the Trans-Pacific Partnership (TPP), and the rest of the administration’s trade agenda.  

Clearly, the real lesson taught by this latest U.S. announcement is that, as with its predecessors, the Obama administration’s trade enforcement approach is so piecemeal and reactive that the most accurate label is not “strategy” but “tokenism.” And even that seems awfully charitable.

(What’s Left of) Our Economy: All the TPP Talking Points Fit to Print

Tags

currency manipulation, Japan, labor standards, multinational companies, Singapore, TPP, Trade, trade agreements, trade enforcement, Vietnam, {What's Left of) Our Economy

Maybe I should always be grateful when a Mainstream Media figure deals with U.S. trade policy. Heck anything’s better than the neglect typically shown for this topic. I’d be even more grateful if the detailed look occasionally taken at this subject reflected some actual thought, rather than the repetition of talking points and slogans. That’s why Lydia DePillis’ long piece yesterday in the Washington Post on the Trans-Pacific Partnership (TPP) left me so dissatisfied.

Actually, DePillis deserves credit on several counts. Unlike, say, Washington Post editorial board members, she treated TPP critics’ calls for including provisions against currency manipulation and for stronger labor standards as something other than nefarious protectionist ploys. She also recognized that fixing America’s schools isn’t a remotely promising idea for offsetting the damage inflicted by trade deals on much of the workforce.

But given that the nation – and the Mainstream Media – now has nearly a quarter-century’s worth of experience with the current, post-Cold War phase of U.S. trade policy, what’s most striking is how many immensely important points DePillis, and so many of her colleagues, still routinely miss. For now, let’s just focus on currency and labor standards.

First, the author writes that currency manipulation by China, and by prospective first-round TPP signatories Japan and Singapore, has played a role in widening U.S. trade deficits, and that the new agreement should do something about this exchange-rate protectionism. She absolves trade liberalization as such for the problem. Yet when the U.S. government repeatedly signs liberalization deals with manipulating countries (not just the still-unfinished TPP, but numerous agreements with China over the years), then this strategy deserves blame for worsening the trade gap.  The same goes for continuing to sign trade deals with countries that engage in any of the other predatory trade practices so common in the global economy. 

Another currency manipulation fundamental overlooked by DePillis: It’s not just manipulating countries that want the practice kept out of the TPP. It’s also offshoring U.S. multinational companies. When foreign governments keep exchange rates artificially low, the products these firms make in those countries for export to the United States are kept artificially less expensive and thus more competitive versus American-made products. In other words, currency manipulation is a foreign subsidy from which the multinationals benefit.  That’s why they’re fighting tooth and nail to preserve the do-nothing currency status quo.  And that’s why no TPP currency manipulation language that’s ultimately acceptable either to manipulating countries or to the offshoring lobby could possibly shield domestic companies from its effects.  

Similarly, it’s good that DePillis recognizes that Washington’s record in enforcing labor provisions in trade deals has been “abysmal.” Step Two is to learn that even American governments that wanted to right by U.S. and foreign workers would face obstacles that look insurmountable. Chiefly, even in relatively small TPP countries, like Vietnam, national manufacturing complexes are enormous.

According to a 2013 World Bank report, the country boasted about 50,000 manufacturing companies in 2011. The number had roughly quintupled since 2000, and has doubtless grown since. How many American or other inspectors will be needed to inspect their factories on an ongoing basis to ensure that whatever labor standards become part of TPP are met? And what happens when the agreement admits Bangladesh? Or Indonesia? Or China?

But maybe I shouldn’t be so hard on DePillis. After all, many of these points in her article clearly reflect what she’s been told by the “progressive” TPP critics she’s interviewed. If most of the deal’s opponents in and out of Congress keep trafficking in the myth that the TPP would be fine if it simply included language that ostensibly addresses certain outstanding issues, and even sets up means of enforcing new rules, why shouldn’t reporters buy in as well?

(What’s Left of) Our Economy: Obama’s Fatally Flawed China Environment and High-Tech Trade Deals

Tags

APEC, Asia, China, climate change, environment, greenhouse gases, Information Technology Agreement, non-tariff barriers, Obama, tariffs, technology, trade enforcement, Xi JInPing, {What's Left of) Our Economy

Boy, it’s been some Asia trip for President Obama so far! On the heels of a major defeat for Democrats in the midterm elections, he jets off to Beijing for meetings with Asian leaders and comes away with sweeping deals on fighting climate change and cutting tariffs on trade in high tech goods!

Trouble is, both of these agreements illustrate both that negotiating successfully with China in particular – the 800-lb gorilla on both of these issues – requires recognizing and overcoming a distinctive set of obstacles, and that, like its predecessors, the Obama administration has displayed absolutely no learning curve. The biggest losers, tragically, are bound to be the productive sectors of the American economy and their employees.

Let’s take the U.S.-China climate change agreement first, since it’s predictably dominated the news coverage. There’s no doubt that Chinese dictator Xi Jinping needs to do something to reduce the pollution choking China’s cities, and especially the massive health problems it’s causing. Or maybe it’s more accurate to say that he needs to appear to be doing something. I know it sounds cynical to dismiss his assent to the deal as an exercise in public relations for Chinese leaders. But optimists face a heavy burden of proof.

After all, this is a Chinese leadership that simply decided simply to shut down most polluting activity – like driving and manufacturing – in order to clear the air around Beijing temporarily for the APEC summit. (For good measure, reportedly, it’s blocking Chinese websites and apps that monitor pollution levels from using U.S. government data on the subject – which are regarded as much more reliable than Chinese government data.)

But it’s also a Chinese leadership presiding over a slowing economy, well aware that its hold on power depends heavily on continuing to deliver the material goods for a critical mass of the Chinese people, and surely recognizing that the price of failure could well be bad for its collective health. If you think Kentucky and West Virginia coal miners are upset about Washington policies they believe are attacking their industry and livelihoods, imagine the reactions to job losses by Chinese workers whose living standards are far more precarious, and who lack orderly, democratic outlets for their anger.

So it’s all too easy to conclude that Xi decided to react like any politician with strong interests of fostering the appearance, not the reality, of action. He inked an agreement that is long on impressively ambitious goals and woefully devoid of any teeth.  None of the targets for reducing greenhouse gas emissions are legally binding, and as a result, there are no concrete consequences China will suffer for failing to achieve them.

Moreover, even these voluntary targets don’t have to be met for at least a decade. Who knows who China’s dictator will be then? Or how seriously he (or she) will take these commitments – largely because no one can know how the Chinese economy will be performing then. It’s difficult enough to bind American politicians to long-term promises. Why would anyone assume that Chinese politicians will be any different in this respect?

As a result, as critics have begun to point out, there’s much more reason to believe that the United States will meet these targets, or at least will come closer, than China. Which means that the regulatory and therefore cost gaps between manufacturing in the United States and manufacturing in China could grow even wider. It’s true that domestic U.S. businesses can maintain or regain competitiveness by becoming more innovative and otherwise more productive (or by cutting wages even further). But manufacturers in China can keep growing more efficient as well, leaving American industry further behind the 8-ball than ever.

If anything, the new Information Technology Agreement looks even more misguided. China’s agreement to expand the number of technology products for which it will reduce tariffs to zero (though the timeframes are still completely up in the air) seems great at first glance – until you realize what everyone who knows anything about doing business in Asia has known for decades: The most important Chinese and other Asian barriers impeding trade in technology products are not tariffs, which are easy to spot and therefore cut or eliminate. They’re non-tariff barriers.

And especially because these measures and practices – which include subsidies, domestic preferences in government purchases, officially sanctioned monopolies and cartels, and discriminatory pseudo health and safety regulations – are often put into effect informally, by secretive bureaucracies in Asia particular, they tend to be excruciatingly difficult even to identify, much less combat.

Consequently, even if the world’s mercantile countries (which are found in Europe, too, complete with opaque bureaucracies) do eliminate tariffs on these technology products, all these non-tariff barriers and other predatory policies will remain in effect. And because they’re so seldom used by Washington, U.S.-based producers of these goods will find themselves more disadvantaged than ever.

President Obama seems to believe that many of these Asian and other non-tariff trade barriers will be taken care of in the Trans-Pacific Partnership (TPP) trade agreement he’s pursuing. But he’s been more interested in repeating vague slogans about mandating high economic and business standards in these talks than in explaining how the agreement will overcome the intrinsic difficulties of monitoring and enforcing these standards.

If the United States could afford to treat trade and other international economic issues as throwaways, mainly useful for scoring propaganda points or winning and keeping allies, Mr. Obama’s approach to these two deals might be defensible. But even during the Cold War, the frequent subordination of economic considerations to diplomatic goals arguably won short term victories at the expense of longer-term interests. Nowadays, there can be no question that approaches like these have become completely unaffordable, if not downright dangerous. Six years into his presidency, Barack Obama acts like he’s further from understanding this reality than ever.