(What’s Left of) Our Economy: The Establishment’s Case for Free Trade Keeps Weakening

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Center for Global Development, currency manipulation, Dani Rodrik, free trade, Joseph E. Gagnon, Lawrence Summers, non-tariff barriers, Paul Krugman, Peterson Institute for International Economics, protectionism, sovereignty, Trade, trade agreements, trade barriers, transparency, {What's Left of) Our Economy

Although they’ve long enjoyed benefits ranging from lavish financial support to nearly uncritical mainstream media adulation, I felt a twinge of pity this morning for establishment backers of current trade and globalization policies.

As made clear from a new report from one of their leading think tanks and a recent speech from one of their leading individual lights, they’re doubling down on the claims that there’s nothing fundamentally wrong with the trade liberalization priorities long held by the U.S. government, and that the trade barriers supported by populists and other critics will only backfire on the American and global economies. And as also made clear by the report and speech, they keep fighting a losing intellectual battle.

The report comes from the Peterson Institute for International Economics, and addresses the question “Do Governments Drive Global Trade Imbalances?” As emphasized by author Joseph E. Gagnon, the stakes of finding the right answer are towering:

“At current levels, these imbalances will push the net debt of deficit countries gradually toward unprecedented and unsustainable levels….Moreover, the domestic political consequences of persistent trade deficits are already evident in both the United States and the United Kingdom, having contributed importantly to the election of Donald Trump and the outcome of the Brexit referendum….”

In other words, if global trade flows continue getting more lopsided, they could set the stage for a repeat of the kind of global financial crisis they helped foster during the previous decade. And failing to calm populist political waters in the west could tempt key trading powers even more strongly to dabble in economically disastrous protectionism.

So Gagnon makes the case for a feel-good story: These major trade powers, especially the United States,

“have the necessary tools to achieve their stated goal of narrowing current account imbalances. President Trump and some members of his administration have proposed using trade barriers to narrow the US current account (trade) deficit. The data show that trade barriers have very little effect on a country’s trade balance. Fiscal policy and net official flows are the policies that matter for trade balances.”

One problem right at the outset: There’s nothing in the study whatever that explicitly measures the impact of (conventional) trade barriers. But even accepting this unusual methodology, it’s surely significant that he does conclude that “foreign exchange intervention” – i.e., currency manipulation – has an “important” affect on trade balances. That sounds like a trade barrier to me, at least in many instances.

And although fiscal (and related spending) policies aren’t normally considered examples of trade policies, they’ve clearly been used by numerous countries, especially Germany and throughout East Asia, to keep savings rates high, and therefore consumption (and imports) low. Why does Gagnon leave these out?

It’s absolutely true that fiscal and budget policies reflect the choices made by national societies, and therefore economies, and that as such, the presumption should be that they’re entirely legitimate. But at the same time, the nature of such choices can reveal whether these priorities can produce reasonably balanced trade with an economy like America’s – whose priorities on these fronts are substantially different but presumably just as legitimate.

As a result, trade policies that emphasize expanding commerce with countries regardless of their domestic priorities ipso facto can’t help but boost the trade deficit of the freer spending and/or more economically open country. And that description fits decades worth of American trade policies to a tee.

Lawrence Summers, President Obama’s former top White House economic adviser (among many other major government jobs), last month advanced an argument that’s somewhat more sophisticated than Gagnon’s, but no more convincing or useful to policymakers. In a speech to the Center for Global Development, Summers made the standard nod to the “compelling and persuasive case for free trade” and to the follow on view that “erecting tariff or quota barriers to trade between countries is usually a bad idea.”

But then, Summers’ line of argument actually became interesting. He sought to draw a distinction between the (unassailable) idea of free trade on the one hand, and the focus of many recent trade agreements – which he claimed “may be good or they may be bad, but they are not self-evidently and clearly good in the way that free trade is clearly good.” These concerns centered around goals like “securing intellectual property protection for global companies in a wider range of countries” and “achieving access for service companies to a wider range of countries” and “harmonizing rules in areas like safety standards or financial reporting standards.”

Supporters of such measures, he contended, have too often been arrogating

“the prestige of free trade…in support of a rather different agenda of better, more harmonized commercial rules” and expressed support for the view that “the participants in the debate about what constitute better, more harmonized commercial rules are mostly the kinds of people who appear in Davos rather than the kinds of people who work in the companies that are run by the people who appear in Davos.”

It’s hardly new for trade advocates to note critically that recent trade deals have dealt largely with non-trade issues, and more disturbingly, issues that the theory’s originators couldn’t imagine. Many left-of-center opponents of the Trans-Pacific Partnership (TPP) agreement nixed (at least for the United States) by President Trump made this very point, and Summers peers such as Dani Rodrik of Harvard University and Nobelist Paul Krugman have echoed these views as well.

But Summers’ indictment of this shift in the trade agenda seems unusually strong, so it’s a great opportunity to pose three major questions that these critiques keep avoiding. First, with standard trade barriers like tariffs whittled down to near-insignificance in most cases, and such non-tariff barriers (NTBs) becoming more popular, how can genuinely free trade be sustained without somehow grappling with the latter?

Second, since the United States maintains relatively few NTBs, since these barriers are easy to identify because they’re typically line items in a completely transparent federal budget, or regulations in other, equally transparent federal documents, and since the world’s NTB champs are known for opaque governing systems that generally hide their barriers effectively, how can the United States adequately safeguard its legitimate interests without threatening to put up or actually erecting its own barriers?

So without the possibility or reality of unilaterally closing off its own market in response, how can the United States avoid being disadvantaged by legalistic systems of harmonization that (understandably but unrealistically) depend on producing evidence for winning redress?

Third, and similarly, there’s no global consensus on what kinds of health and safety regulations are genuine and valid measures to protect the commonweal, and what kinds are designed primarily as trade barriers. Therefore, how – unless again through using the threat or reality of unilateral tariffs – can countries that play it straight (like the United States) adequately safeguard their interests versus the clandestine protectionists?

The only plausible answers to these questions are, “It can’t.” And the sooner globalization’s cheerleaders acknowledge these hard truths and the commonsense measures that logically flow from them, the sooner they’ll start winning back the trust of a public that’s rightly ignoring them.

(What’s Left of) Our Economy: A Major China-Related Conflict of Interest Ignored by the Media

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Canyon Bridge Capital Partners, CFIUS, China, conflicts of interest, EETimes, foreign direct investment, journalism, national security, Ray Bingham, transparency, {What's Left of) Our Economy

EETimes is a great source of information about the technology world that I’ve long found invaluable for following and understanding the development of the microelectronics industry in particular and its implications. So it genuinely pains me to report that this news site did a major disservice to its readers yesterday by posting a column on Chinese investment in the U.S. economy written by an author whose close ties to the Chinese government went completely unmentioned.

The column, by venture capitalist Ray Bingham, failed badly on substantive grounds, too – so badly, in fact, that it represents a significant failure of the site’s editorial process. After all, it’s one thing – and an entirely legitimate thing – to argue, as per the author, that the federal government’s process for screening prospective foreign acquisitions of American companies for national security reasons (known by the acronym CFIUS) might be making some serious mistakes. Its mandate is to balance the national security threats with the economic benefits that such investments might create, and it’s always possible when such judgment calls are involved to overemphasize one consideration and underemphasize the other.

But EETimes should by no means have had Bingham to get away with simply describing China as a “perceived threat” and a country that is thought “to have motivations beyond the standard economic drivers.” The site should have at least required to the author to acknowledge that Beijing is mounting a serious challenge to American security interests throughout East Asia, and especially in the South China Sea, and that China’s state-dominated system as a whole operates in ways having absolutely nothing to do with “the standard economic drivers.” By letting Bingham off the hook, EETimes wound up publishing not an opinion article, but a piece of propaganda.

At the same time, even this serious failing pales against EETimes‘ blunder on the transparency front. Readers of all opinion pieces must always be told by media organizations when the author or authors of these articles have self-interested stakes in propagating certain viewpoints. (Think tanks and individual researchers should be held to the same standards.) Bingham qualifies in spades.

As EETimes told its readers:

“Ray Bingham is co-founder and partner at Palo Alto-based Canyon Bridge Capital Partners, a global private equity investment fund focusing on the technology sector. He has considerable experience in identifying growth and mature technology firms for investment, giving them new life and helping them to reach their full long-term growth potential.”

As it should have added, Canyon Bridge (in the words of the Financial Times newspaper) “sits at the end of a long chain of Chinese funds and investors with ties to the government. “

“The parent company of its largest backer, Yitai Capital, is China Venture Capital Fund Corporation Limited, which Chinese state media reported last year has a mandate to ‘carry out our national strategies and to mainly invest in projects about technological innovation and industrial upgrading’.

“One of CVC’s state-owned investors, China Reform Holdings Corporation, aims to help state ventures invest domestically and internationally. Benjamin Chow, Canyon Bridge’s [other] founder and managing partner, previously worked for a CRHC-controlled fund, China Reform Fund Management. The website for China Reform Fund Management describes CRHC as a ‘state-owned assets management corporation under direct supervision from central government” that among other priorities makes strategic investments in “new emerging industries as well as other sectors related to national security and economic lifelines.'”

In other words, Bingham and his company work for the Chinese government. He contends that Canyon Bridge’s Chinese investors were merely “‘limited partners’, with no active role in how the fund is run. ‘They have no decision-making authority over what we invest in, how we manage it or the disposition of those assets ultimately,’ he said. But so what? Can anyone seriously doubt that when these ‘limited partners’ say ‘Jump!’, Bingham and colleagues respond, ‘How high?’”

Therefore, Bingham’s job, along with Canyon Bridge’s, is representing Chinese government interests. Whatever you think of the morality or wisdom of this choice, the information is absolutely essential to a reader’s ability to judge the accuracy of his claims, merits of his arguments, and the critical issue of what he might be concealing about the subjects he discusses.

And in this vein, something else EETimes should have forced Bingham to disclose:  He and his Chinese backers had just been rebuffed by that same U.S. government investment-screening system in their effort to take over the American-owned microchip semiconductor firm Lattice Semiconductor. So small wonder the author has problems with its operations. It’s crimped his own income stream.

Again, Bingham asd others like him have every right to work for the Chinese government, and EETimes has every right to publish them. But EETimes failure to reveal Bingham’s enormous personal stake in loosening Washington’s foreign direct investment policies is a flat-out breach of journalistic ethics. And the site should correct this mistake and tell its readers the whole story without delay.

Following Up: Time for a “Truth in Testimony Act” for Think Tanks

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business, civil society groups, Congress, corporations, data, exports, Following Up, globalization, idea laundering, imports, Jobs, labor unions, offshoring, statistics, think tanks, Trade, trade balances, transparency

So far, my work on the problems for our democracy caused by corporate- or other special interest-funded think tanks has emphasized that the media has a special responsibility – and ability — to help solve them. How? By making sure that whenever they quote staffers from these organizations as experts on this or that issue, they reveal who’s signing the tankers’ paychecks.

But another major segment of society also needs to play a role in preventing what I call think tank idea-laundering – posing as objective, academicky-type organizations in order to portray their staffs’ findings as the products of disinterested scholarly research rather than exercises in agenda-pushing. That segment is government.

Legislatures at the local, state, and federal levels should pass what might be called “Truth in Testifying Acts.” That is, whenever they invite input from think tanks in hearings they hold, or in public comment exercises they conduct, the law-making bodies should require these organizations to disclose all their funders with a financial stake in the subject being examined, or the decision that’s pending. As a result, the public or any other consumers of these analyses would have the information they need to judge how much credibility they feel the information deserves, and what kind of material has been deliberately exaggerated or spotlighted or downplayed or ignored altogether.

In fact, these requirements should be imposed on so-called civil society groups, foundations, labor unions, academic institutions, and business organizations, too. Sometimes their biases are obvious from their names, but only sometimes. Best to err therefore on the side of caution – and more disclosure.

Further, while we’re on the subject, I’d like to see something else added to these Truth in Testimony Acts, or follow-on legislation, which is especially relevant to the trade issues I follow so closely: requirements that business groups and their think tank fronts lay out comprehensively their own domestic and international operations and structures, and those of their major funders. They’re needed because representatives of these organizations have long gotten away with literal intellectual murder by presenting legislators with shamelessly cherry-picked data.

For example, when trade agreements and other trade policy decisions are being examined, it’s become standard operating procedure for witnesses in favor of greater liberalization to present figures on exports from the country as a whole, from individual states or Congressional districts (always of major concern to Senators and House members), or from whatever company or industry they represent. And typically, they’re allowed to ignore the import and trade balance sides of the equation. Talk about a total crock.

Similarly, these individuals and organizations are happy to report on how many workers they employ nationally, and in various states and localities, and how many of these jobs depend on exports at a given moment. But they have no interest in discussing how these trends have changed over time, or how many jobs and how much production they’ve sent overseas or have lost to imports, or how these situations have evolved, say, over the life of a certain trade deal.

The companies and industries justify this selectivity by contending that information on imports and offshoring is proprietary, and that keeping it confidential is crucial to their commercial success. That’s often true. But the Truth in Testimony Act should specify that if witnesses wish to keep close to their vest information on one side of the trade ledger (e.g., their firm’s imports), then they can’t brag about their performance on the other side (e.g., their firm’s exports). There’s simply no reason to allow these businesses to play, “Heads, We Win; Tails, You Lose.”

Nor need there be anything the slightest bit coercive about such requirements. If businesses and industries and their various representatives feel so strongly about the secrets to their success, they should be free to decline invites to appear before lawmakers.

Actually, I’d like to extend these requirements to the financial statements public companies need to file with the feds. As with their testimony, such businesses often include flattering trade-related information in quarterly and annual financial statements. If they’re not willing to give investors the full picture, they should need to drop the whole subject.

And why restrict such disclosures to public businesses? Companies of all kinds are required to report all sorts of information to Washington. Their submissions form the basis of much of the economic data that is made publicly available by the federal government. The shield of anonymity provided by the Census Bureau and other statistical agencies to prevent rivals from using the data to gain advantage is entirely reasonable from the standpoint of these businesses. But from a national standpoint, it makes no sense at all. Indeed, it puts policymakers and the public in the position of flying largely blind when it comes to evaluating the impact of trade policy decisions.

The same kind of problem is created by the narrow range of trade-related info that businesses are legally obligated to share. Why not force them to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics? And why not demand time series, so that long-term patterns can be identified?  BTW — content information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. 

The business secrets problem is easily solved: If all firms wishing the privilege of operating in the United States need to share the same information, no one company is put behind the eight-ball. And again, no coercion is involved. Companies would be perfectly free not to comply – and exit the world’s most lucrative market by far in the process. And what about the regulatory burden that would be placed on smaller firms? There’s a strong argument for exempting them, as larger firms dominate U.S. trade flows anyway.

Such a sweeping “Truth in Globalization Act” would probably be a heavier legislative lift than the “Truth in Testimony Act,” so I’d focus first on the former. But both are urgently needed to ensure the soundest possible U.S. policymaking process.  And how could anyone genuinely devoted to the national interest object?  

Following Up: Even Star Trek’s Now Partly Made in China

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Alibaba, China, FDI, Following Up, foreign direct investment, Gene Roddenberry, Hollywood, Huahua, movies, Star Trek, Star Trek Beyond, The Martian, transparency

What a drag to report that my enjoyment of a second feature film in less than a year has been marred by news that it’s been partly financed by China. Even worse – if this doesn’t yet qualify as a trend, it looks like that’s not far off, thanks both to abundant Chinese capital and official American indifference.

The news was especially distressing because the film was Star Trek Beyond, because I’m a Trekkie from back in the ’60s with the original TV series, and because this third installment was in my opinion the best in the current genuinely inspired “reboot” franchise.

So imagine how upsetting it was to see in the opening credits a reference to something called Huahua Media in some producer-type role. Since I wasn’t familiar with the company, I decided to suspend judgment and enjoy the film. But upon returning home, I learned not only that Huahua was indeed a Chinese company, but that it wasn’t even Beyond‘s first partner from the People’s Republic. On-line marketplace Alibaba had beaten Huahua to the punch.

Fortunately, this Chinese involvement in Beyond‘s production didn’t affect the content in any way I could see. In particular, there was no gratuitous plot alteration in order to portray China in a favorable light, as with last year’s The Martian. (Maybe because, by the time Star Trek creator Gene Roddenberry’s idyllic 24^th century had rolled around, China and other nation-states had faded into history?)

Nevertheless, China’s role in Beyond, and its growing footprint in Hollywood in general, are troubling for any number of reasons. As with The Martian (and other movies), content can be altered. And because any Chinese company large enough to make such international investments unquestionably is acting as an agent of the Chinese government, it inevitably will reflect the priorities of a regime that is both dictatorial and an increasing threat to U.S. national security interests.

Yet even if the Chinese government was democratic and/or friendly, its presence in the American film industry clashes with free market norms. Won’t efficiency and quality suffer, almost by definition? And why should domestic capital – or private foreign capital – be forced to compete with a rival with practically bottomless pockets?

And of course for Trekkies, Chinese investment creates a tragic irony. The Star Trek universe is a monument to pluralism and freedom. (Even keeping in mind Mr. Spock’s arguably collectivist insistence that “Logic clearly dictates that the needs of the many outweigh the needs of the few.”) And Roddenberry himself was clearly one of the great political and social idealists of modern American popular culture. China’s rulers stand for diametrically opposite values. If I was the series’ late creator and guiding spirit, I’d been rolling over in my grave (or, more accurately, in the space-borne urn carrying my ashes).

Washington isn’t completely oblivious to the prospect of foreign control of American creative and media companies. But it does seem uninterested in the role of foreign governments, and even of unfriendly, dictatorial foreign governments. I’m somewhat sympathetic to the argument that free speech principles require admitting even these actors onto such corporate playing fields, at least to some extent. But if that’s the road the U.S. government continues down, how about a little transparency? In other words, if Americans are going to be consuming more and more entertainment and even news products that are subsidized by the Chinese or other foreign governments, don’t they at least have a right to know?

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

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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: A Flat Earth-ist Argument for TPP

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David Ignatius, flat earthism, Immigration, investment, Japan, TPP, Trade, Trans-Pacific Partnership, transparency, {What's Left of) Our Economy

I don’t know what it is about international economic and trade policy that turns otherwise intelligent people into the professional equivalent of morons, but it urgently needs intensive study. And once again, Washington Post foreign affairs columnist David Ignatius has provided a stunning case in point.

As I’ve shown here and here, when Ignatius wades into economics, it’s as if his brain turns off, and his Post offering of March 26 was no exception. Writing about a recent interview with Japanese Prime Minister Shinzo Abe, Ignatius matter-of-factly informed readers that Japan “shares with this country fundamental values of democracy and openness.”

Now it’s one thing for Ignatius, or anyone else, to favor liberalizing trade with Japan, and therefore, nowadays, completing and approving President Obama’s Trans-Pacific Partnership (TPP) – the reason Ignatius touted these supposed Japan virtues.  I disagree, but there are respectable arguments on both sides. But portraying Japan as a society that prizes any form of openness? That’s the trade policy equivalent of flat earth-ism.

We’re talking, after all, about a country that remains hermetically sealed to imports. (If it were already open, why would a trade agreement be so important economically?) That has long shunned investment from abroad. That despite a population that’s aging rapidly and actually falling significantly, barely tolerates any legal immigration. And whose powerful, secretive bureaucrats, not elected politicians, have long wielded the real political and policy-making power. Moreover, anyone with any meaningful knowledge of Japan  knows that such features have marked Japanese culture and society for centuries.

Please keep in mind that I’m not making these points to criticize or to praise Japan’s choices, but to make clear how utterly off the wall Ignatius’ claim is – and how revealing it must surely be that it made its way into an essay by a prominent foreign policy commentator in a leading American newspaper as easily as an observation you can sail as far as you want on this planet without fear of falling off an edge.

(What’s Left of) Our Economy: China Aid Bank Success Reveals Obama’s TPP Naivete

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AIIB, allies, Asian Infrastructure Investment Bank, Australia, China, IMF, Korea, TPP, Trade, Trans-Pacific Partnership, transparency, United Kingdom, World Bank, {What's Left of) Our Economy

The readiness of American allies worldwide and numerous major Asia-Pacific countries to ignore Washington’s objections and sign on to the Chinese-led Asian Infrastructure Investment Bank (AIIB) isn’t just a major diplomatic embarrassment for the Obama administration. It also exposes the dangerous naivete of U.S. expectations of how the Pacific rim trade agreement being sought by the president will function.

According to President Obama, the American-spearheaded Trans-Pacific Partnership (TPP) trade deal is needed largely to prevent China and its often free market-unfriendly objectives from dominating the process of writing the rules that govern commerce in one of the world’s most economically vibrant regions. But the folly of faith in international rules should be more painfully obvious than ever from the rush of so many countries to join a regional economic development bank created precisely to marginalize the transparency, environmental and other standards imposed on aid spending by existing, Western-dominated institutions.

It’s true that Asian and other developing countries have long objected to their limited role in the World Bank, International Monetary Fund, and similar institutions. But their main objections are that being outvoted has meant a curbing of their access to resources by requirements of financial and policy controls aimed at ensuring adequate efficiency and sustainability. In other words, results have mattered far more to them than rules.

As for the wealthier countries that have signed on to this Chinese initiative, they’ve clearly been motivated by the lure of contracts that could juice their stagnant economies. Britain’s government and many analysts believe that the presence of European countries and Australia can maximize the odds that the AIIB will operate responsibly. But these countries could already look to existing institutions for lending based on good governance and balanced priorities (not that these institutions have been perfect by these measures). With so much opportunity at stake, will the growth- and jobs-starved Europeans and Australians really challenge – and therefore complicate – Chinese-style procedures?

Australia and several new AIIB participants would also be among the first round of TPP signatories. Moreover, other new AIIB members, like Korea and China itself, are knocking on the door. Mr. Obama’s comments on the Pacific trade deal’s rule-making benefits for America appear to be based on one of two equally illogical propositions.

The first is that once in TPP, these other members will suddenly drop their “anything for a buck” mentality and rediscover their devotion to strong procedures. (In the case of TPP’s Asian members, the belief seems to be that they will convert to rules-based priorities despite rejecting this approach to governing for their entire histories.) The second is that whatever priorities the majority of TPP members bring to its bargaining tables and dispute-resolution systems, the United States will be able to sell them on the superiority of stringent rules and all of the openness and market orientation they foster.

The good news for Americans is that their country retains ample capacity to shape commerce around the Pacific rim to its liking – and in a way that can prevent the reemergence of the historic global trade imbalances that helped trigger the financial crisis and its painful aftermath. As the most important final market for much of what’s produced by export-dependent Asia-Pacific countries, the United States can use its economic power to ensure mutually beneficial, sustainable trade and investment. The bad news is that the president seems ignorant of America’s advantages, and clueless that the TPP can only weaken, not strengthen them.

(What’s Left of) Our Economy: Could More Critics Start Making the Smart Arguments Against Obama’s Trade Deals?

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fast track, free trade agreements, Michael Froman, Nancy Pelosi, Obama, offshoring, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, transparency, USTR, {What's Left of) Our Economy

As with other policy issues, there are smart and..uh…not-so-smart arguments that can be made against the trade deals being pursued by President Obama. A new NBC News interview of House Democratic Leader Nancy Pelosi makes painfully clear that, during the run-up to the debate Congress is sure to have about these deals plus fast track negotiating authority, too many trade policy critics have been infatuated with the latter kind.

The evidence? Pelosi’s remarks, presented here, that fast track approval is possible “if there’s transparency; if we know what is in this bill, if there’s consultation.”

Pelosi of course is referring to the widespread complaints that the Trans-Pacific Partnership (TPP) in particular has been negotiated in secret. Allegedly only the lobbyists for offshoring interests have been privy to the Obama administration’s strategy and tactics– and thus have been able to shape them – and representatives of the rest of America’s economy and society have been left in the dark.

As anyone who knows my work realizes, I’m no fan of U.S. Trade Representative (USTR) Michael Froman (not that he seems any worse than any of his predecessors over the last forty years). But he has stated that “any Member of Congress can review the negotiating text and has the opportunity to receive detailed briefings,” and I have yet to hear any lawmaker claim that such a request has been rejected. Although the USTR office’s trade policy advisory system is indeed heavily and inexcusably weighted in favor of the offshoring lobby, enough Members of Congress are trade policy skeptics to ensure that the concerns of trade deal opponents are relayed in full to negotiators.

As for complaints that the actual trade talks are secret and that the public isn’t kept adequately informed: Please. That’s standard and vitally necessary operating procedure for all such negotiations, where governments always need to float ideas both serious and cynical, to test out possibilities and tradeoffs, and to smoke out their interlocutors’ real intentions and bottom lines.

Moreover, once the deals are concluded, the texts will be made public, so the secrecy arguments will be null and void, and critics will have to debate substance. There’s no shortage of major economic objections to the deals. But the fact that at this late date, the House Democratic leader seems so unaware of them, or so uninterested, strongly indicates that most critics have given short shrift to the – overriding – economic case.

It’s true that the TPP is far from being finished, and that the President has just made a new request to Congress for fast track authority. It’s also true that Pelosi made some (brief and – transparently – silly) comments about trade critics’ need to demonstrate good faith to the president in order to safeguard worker interests. But the ground should have been paved much more effectively over the last few years about what’s really wrong with these agreements and the predecessors on which they’re modeled.

Now the critics will need to win the equivalent of a relatively short and very intense firefight. Given the tide of money and armies lobbying manpower that can be quickly mobilized by the trade cheerleaders, they may well rue the opportunity they’ve wasted.

Our So-Called Foreign Policy: A Call for More Idiocy on China

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China, cyber-security, espionage, Huawei, legalism, Michael Hiltzik, national security, Our So-Called Foreign Policy, precautionary principle, rule of law, state capitalism, The Economist, transparency

Anyone still harboring doubts that China’s government and its allies in the American offshoring lobby have snookered otherwise smart reporters about the nature of the PRC’s economic system and how best to cope with it? If so, look no further than Michael Hiltzik’s new Los Angeles Times column about Huawei.

According to Hiltzik, the telecommunications giant has been largely shut out of the U.S. market by “commercial xenophobia.” The U.S. government, he writes, has not officially banned the sale of Huawei products.  But it’s accomplished this aim for all intents and purposes “through bureaucratic winks and hints” that are based on a Congressional committee report that was “long on innuendo and short on hard information.” As a result, Huawei has been unfairly forced to prove a negative – that it is not assisting Chinese government espionage efforts.

Here of course is the problem. Hiltzik – and other apologists for China, like The Economist magazine he seems to consider gospel on such matters – apparently believe that Chinese companies like Huawei are as transparent as private sector companies everywhere. In their view, non-Chinese authorities have ready access to corporate records at Huawei and other Chinese companies, and face no difficulties in determining these firms’ ties to Beijing, and even any spying they may be carrying out. So it’s manifestly unjust to base policy on observation’s like the Congressional report’s conclusion that “China has the means, opportunity, and motive to use telecommunications companies for malicious purposes.”

Even if China didn’t have a scary record of government-sponsored cyber-hacking, these views might be reasonable – if China had anything remotely like a free market economy where reasonably bright lines separate the public and private sectors, or if China’s legal and corporate governance systems were based on anything remotely like the free flow of knowledge and rule of law. But who possessing a working brain really believes any of those propositions?

In fact, because China (and many other countries run by opaque bureaucracies and lacking rule of law traditions) are so fundamentally different from the United States, dealing with it with American legal principles that are justly revered in U.S. domestic affairs too often turns policy into an idiot.

As I wrote shortly after the Congress’ Huawei report came out, “because China is so thoroughly different and troublesome, handling it conventionally could amount to waiting for potential intelligence or security debacles to become actual. So the only responsible approach is precautionary — placing a heavy burden on China’s state capitalist system to prove its innocence.” Two years later, a major problem with America’s China policy is that Washington’s approach to Huawei remains an all-too-exceptional example of rejecting policy idiocy and embracing common sense.