(What’s Left of) Our Economy: Why Pre-Trump Trade Policies Really Were America-Last Policies

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diplomacy, Finbar Bermingham, globalists, negotiations, South China Morning Post, Trade, Trump, U.S. Trade Representative, USTR, {What's Left of) Our Economy

I’ve often struggled to decide whether America’s dreadful trade policies over recent decades have stemmed more from incompetence (as President Trump sometimes charges) or corruption in the form of politicians and diplomats shilling for offshoring business interests or the often economically clueless national security community (as Mr. Trump also sometimes charges).

A report from Hong Kong’s South China Morning Post (which still publishes mostly reliable material even though the city is now part of China) didn’t settle the matter for me. But it once more valuably reminded that their country’s national interests have rarely topped U.S. trade negotiators’ priority lists. Why else would these officials have allowed themselves to be duped by the series of transparently cynical ruses and deceptions from their foreign interlocutors that they themselves describe in the article?

Correspondent Finbar Bermingham makes clear that his aim was to show how major “complications that can arise from issues of language, interpretation and translation during negotiations” and that as a result, “trying to iron out arguments over words, phrases or even grammar can be ‘worse than pulling teeth.’” Instead, what he (and the “experienced negotiators” he interviewed) demonstrated was how easily they could be snookered – and how thoroughly they either forgot or ignored America’s decisive leverage in all these dealings.

Take Elena Bryan. According to this 17-year veteran of trade negotiations with the Office of the U.S. Trade Representative (USTR), “it’s very hard to enforce anything under the Chinese because their system is both complicated and relatively opaque, and there aren’t that many Mandarin speakers around that have the requisite technical trade and legal skills.”

But with its new tariff hike threat (which has the Chinese scurrying back to Washington to try to restart talks), the Trump administration has just suggested how easily this allegedly formidable challenge can be overcome: Tell the Chinese to get serious – and work with standard English – or they get higher tariffs imposed on their goods heading for the U.S. market that their economy desperately needs to produce adequate growth and employment.

Ditto for the claim by Bruce Hirsh, “assistant USTR for Japan and South Korea under former US president Barack Obama,” that “Haggling over individual words was 90 per cent of the game. How much of that was a language and translation issue and how much of that was just the actual negotiation over the substance is hard to say.”

Indeed, if anything, Hirsh’s position – and that of his boss – was even less acceptable, since both Japan and South Korea have even less economic leverage over the United States than China, and they also depend on American nuclear guarantees for their defense. As soon as they started haggling over words, Hirsh should have walked out of the room and urged his President to lower the tariff boom.

Nicole Bevins Collinson, “a textiles negotiator for the USTR in the 1990s,” inadvertently let readers know just how pathetic such excuse-making can become:

“The issue of commas and where they’re placed, and whether you use the words ‘and’ or ‘or’ were always big sticking issues. The other big thing was ‘may’ and ‘shall’. In some languages, those words are the same – or maybe they would just tell us that. What we thought was ‘shall’, they translated into ‘may’ and we were told we can’t use the word ‘may.’”

No wonder the American textile industry has struggled so mightily in the face of often predatory global competition and grew only about a fifth as fast in real terms as U.S. manufacturing overall during the 1990s.

Another type of nonsense-enabling was served up by Jean Heilman Grier, “who between the USTR and US Department of Commerce, spent 25 years negotiating and advising on trade agreements for the US government.”

Grier told Bermingham that “The Japanese…prefer more ‘conceptual’ text. ‘They don’t want the exactitude that we’re often looking for. So that’s where you can kind of get into problems with some of the translations.’” Talk about a great stalling tactic, especially when the folks on the other side of the table seem too happy to play along.

About the kindest interpretation that can be put on this manifest incompetence is that these diplomatic veterans valued reaching any kind of deal, even a bad one, over risking a no-deal outcome. In the words of Mary Ryckman, “who spent 30 years with USTR negotiating a host of trade agreements,” “You have the ‘art of the being vague’ and you agree to be vague because you want to come to an agreement.”

Ryckman’s point underscores a critical truth about American trade diplomacy – the diplomats quoted above and most of their colleagues in the pre-Trump decades weren’t making trade policy. They were simply carrying out orders from the globalists above. So Ryckman, for example, can’t be blamed for the “agreement or bust” imperative she followed. That blunder was on the President at the time.

But the South China Morning Post piece also indicates that none of the officials quoted had the slightest problem with their instructions, even though they all but guaranteed failure from the U.S. standpoint, at least defined commonsense-ically. Despite decades of experience, and of clear failure to achieve the stated goals of their efforts (usually meaningful foreign market opening), they apparently were content to play the dupe. Whether witting or unwitting, though matters much more when it comes to the intentions and records of their superiors than to their own.

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(What’s Left of) Our Economy: The Atlantic’s Hatchet Job on Trump’s Trade Policy and Trade Negotiator

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Chad Bown, China, globalization, James Bacchus, Matt Peterson, Merit Janow, multinational companies, Peterson Institute for International Economics, Robert Lighthizer, The Atlantic, Trade, trade war, Trump, U.S. Trade Representative, World Trade Organization, WTO, {What's Left of) Our Economy

I wish I could say that, in the process of ringing out the old year, America is ringing out incompetent or willfully ignorant journalism about U.S. trade policy. But a looooong article just published by The Atlantic on U.S. Trade Representative Robert Lighthizer makes painfully clear that that point remains as far away as ever.

The article, by Atlantic Senior Editor Matt Peterson, would deserve quick dismissal simply due to one of its major themes: that Lighthizer, President Trump’s chief trade negotiator, takes a hard line on the issue in general, and on China in particular, because he’s long been in the pocket of the domestic steel industry as one of its principal trade lawyers.

This smear is especially rich because a trade policymaker lionized by Peterson as a strong opponent of such conflicts of interest and consequent paragon of policy virtue – another American trade lawyer named Merit Janow – followed her stint as a senior magistrate at the World Trade Organization (WTO) – by accepting a position as “a charter member of the International Advisory Council of China’s sovereign wealth fund, China Investment Corporation or CIC.” That is, she jumped onto the payroll of the Chinese government.

But more fundamentally troubling about Peterson’s piece is its – sadly, standard – description of the WTO as an institution that defends and promotes the interests of the entire American economy. How so? By creating a U.S.-style court of law that would impartially mete out commercial justice but that could be used especially effectively by American diplomats highly skilled in working with such systems. One genuine contribution made by Peterson is reporting evidence that Lighthizer himself once apparently bought into this argument.

These views, however, completely ignore two related, alternative interpretations of the WTO’s creation that at deserve consideration at least because one of them is so regularly repeated by journalists and WTO supporters. That interpretation portrays the WTO as an arrangement that aimed primarily at restraining America’s ability to combat predatory foreign trade practices by enmeshing the United States in a simple majoritarian legal system in which all countries – including the vast majority of members who relied heavily on such mercantilism for their growth.

Chad Bown of the (pro-WTO) Peterson Institute for International Economics, one of the American media’s “go to” trade policy commentators made this point abundantly clear when he told The New York Times that the main foreign impetus for establishing the WTO was a determination to find ways of resisting America’s (successful) 1980s unilateral efforts to frustrate their trade predation and pry open their markets to U.S.-made goods.

Former WTO official (and U.S. Member of Congress) James Bacchus made a similar point earlier this year when he criticized Lighthizer (and other American economic nationalists) for their belief that the United States was better off under the pre-WTO world trade system.  Why?  Because it left the (democratically elected) U.S. government “free to go on the offence aggressively in trade by taking unilateral trade actions without any international legal constraint.”

The second, related alternative interpretation of the WTO’s creation focuses on the U.S. multinational corporations that dominated U.S. trade policymaking under Mr. Trump’s immediate predecessors: They strongly favored subjecting unilateral American power in trade diplomacy because their overseas operations – especially those geared toward supplying the American market – benefited immensely, often at the expense of domestic competitors, from many of the predatory foreign practices targeted by many American leaders who don’t shill for these offshoring interests. China’s longstanding beggar-its-neighbors currency policies have been only one example.

The Atlantic is rightly proud of its long history of publishing “iconic thinkers” and “covering ideas that matter.” Many more articles like Peterson’s, and it will also be known for hatchet jobs.

(What’s Left of) Our Economy: The Case for Keeping it Simple with China Trade Just Got Stronger

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China, currency, currency manipulation, exchange rates, Great Recession, import prices, imports, Labor Department, Robert Lighthizer, Trump, U.S. Trade Representative, yuan, {What's Left of) Our Economy

I haven’t been closely following the Labor Department’s import price data lately, and that’s been an oversight. As is clear from this morning’s figures (for August), they keep telling a fascinating and important tale about China’s ongoing manipulation of its currency and how it does and doesn’t impact U.S. trade with the People’s Republic. More specifically, examining the data over time reinforces a strengthens a point I’ve posted on previously – that as important as this currency protectionism is, it’s far from the only predatory Chinese practice that’s been shafting domestic companies and workers exposed either directly or indirectly to Chinese competition.

Just as a refresher, unlike most other trading countries and regions, China prohibits the free buying and selling of its currency. For most of the previous decade, Beijing’s aim has been to keep the value of the yuan artificially low versus most other currencies and especially the U.S. dollar – in order to give its goods and services price advantages over foreign rivals in markets everywhere. As a result, China’s exports got a government-aided boost worldwide, and its domestic industry was able to undersell imports in its home market – all for reasons having nothing to do with free trade or free markets generally.

Since the latter part of that decade, and especially earlier during the current economic recovery, the story has been more complicated. The main reason: China was getting worried about wealthy Chinese concerned about political stability or the economy’s future spiriting too much of their wealth out of the country, for stashing in countries (like the United States) considered a lot safer. These capital outflows began depressing the yuan’s value much faster than Beijing wanted, and even threatened to cause a worldwide crisis of confidence in the currency – and the broader Chinese economy. So for much of this latter period, China has been trying to prop up the yuan’s value to some extent – even as its wary that an overly strong yuan would jeopardize the exports on which its growth still heavily relies.

Trade policy critics have rightly focused much and even most of their anti-China ire on currency manipulation, and that’s been understandable for two main reasons. First, this policy affects the relative prices of everything sold back and forth between the United States and China; and second, currency manipulation is one of the few protectionist practices that even some of the globalization-happy economics and business establishment (and the latter’s political hired guns), can be convinced to combat. (Much of the rest of this group, though, will simply grandstand against this form of protectionism.)

Nonetheless, the import price numbers, coupled with the oscillation in China’s currency priorities, the consequent roller-coaster ride of the yuan’s value versus the dollar, and the actual trade flows, show that the cost of Chinese goods and services aimed for the American market stems from many other causes.

The Labor Department’s import price data for China goes back to 2004, and it shows that, in the 13 years since, on an August-to-August basis, the prices of purchases from China Americans can make has fallen in eight years and risen in five. As for the yuan’s value, it’s strengthened versus the U.S. dollar in nine of those 13 years, and weakened in four.

What happens when the two indicators are paired? The numbers reveal that in five of the 13 years, the prices of imports from China in the American market have fallen while the yuan has strengthened – which isn’t supposed to happen if you believe in currency uber alles. In another year, the prices of those imports rose while the yuan weakened – another counterintuitive result. In seven of the thirteen years, in other words, currency values and import prices seem to have behaved as they should have, but in six (nearly half the time), they didn’t.

Also important : In three of the four years when both import prices and the yuan went up, the yuan’s rise was much greater, most often by a factor of two to one. And in two of the three years when both indicators fell, the change in the yuan again was much greater. So at the very least, even when the relationship is looking like economists tell us it should, it takes a lot of yuan movement to generate significant import price changes. Clearly, therefore, other factors must be at work.

In this vein, the yuan’s value and the changes it undergoes doesn’t seem to have an especially strong relationship with the amount of goods that American imports from China. Of course, they have some effect. After all, all else equal, if U.S. customers buy a certain quantity of items and services from China one year, and the same quantity the next, and the price of those goods and services falls (for whatever reason), the value of those purchases will go down. And naturally, the converse is true as well.

This point matters because purchasing patterns rarely respond to price changes right away, and the lag can mean that the impact of currency changes on import values can take some time to materialize – and often more than a year. But even taking this reality into account produces a fuzzy picture. For example, between August, 2004 and August, 2005, U.S. goods imports from China (which make up the vast majority of American purchases from China) jumped by more than 24 percent even though import prices fell (by 1.10 percent) and the yuan rose versus the dollar (by 2.13 percent). The next year, Americans bought 19.14 percent more products from China, despite their prices falling yet again (by nearly as much – 1.01 percent), and the yuan rising again (also by nearly as much – 1.80 percent).

Between August, 2007 and August, 2008, import prices rose by a very large 4.95 percent and the yuan strengthened by an even greater 9.55 percent. Yet U.S. goods imports from the People’s Republic increased by double digits again (11.96 percent). The following year, however, import prices plummeted (by 3.08 percent), and the yuan weakened by 0.70 percent. And did American imports surge again? Not even close. They nosedived by 18.93 percent.

Sharp-eyed RealityChek readers will realize why: The Great Recession was intensifying in 2008 and lingered well into 2009. So Americans’ consumption of just about everything fell off a cliff for a while. Between the following Augusts, neither the prices of imports from China nor the yuan’s value moved much, and America’s goods imports from China nonetheless soared by more than 37 percent.

Yet you don’t need these kinds of extreme economic events for import prices, import amounts, and yuan movements to confound expectations, lag or not. From August, 2011 to August, 2012, both the prices of Chinese imports and the value of the yuan were up (both by a bit) and American imports from China dipped by 0.25 percent. Even stranger, the American economy grew by a pretty decent 2.39 percent (in inflation-adjusted terms) during that period.

The following year, U.S. growth was down to 1.69 percent, prices of imports from China dropped (by a meaningful 1.24 percent), the yuan rose (by a much greater 3.61 percent), and American purchases from China jumped from a small dip to more than five percent growth.

The point here is not that China’s currency policies don’t matter, but that the prices of Chinese goods and services, and therefore America’s trade performance with the People’s Republic, are influenced by a wide array of factors. Some are legitimate – for instance, if China keeps selling Americans greater amounts of relatively pricey advanced goods (like industrial machinery and high tech products), and less in the way of cheaper, simpler products (like clothing and toys), as has been the case, the price of the average import from China is going to rise. But many reasons are much less legitimate (e.g., changing levels of subsidies like value-added tax rates), and these can be so numerous, so fungible, and therefore so difficult to document that trying to isolate them and attack them piecemeal is a fool’s quest.

Far better is to decouple American tariff policy completely from specific items of evidence of individual predatory trade practices and impose these levies proactively, until they produce the desired effects on bilateral trade flows. In fact, the case for such a sweeping approach was made just yesterday, and is worth quoting at length:

“[T]here is one challenge on the current [trade] scene. It is substantially more difficult than those faced in the past, and that is China. The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer and to distort markets, in China and throughout the world, is a threat to the world trading system that is unprecedented.”

This speaker also argued that “The years of talking about these problems has not worked, and we must use all instruments we have to make it expensive to engage in non-economic behavior.”

His name is Robert Lighthizer, he’s President Trump’s chief trade negotiator, and the devilishly complex relationships between currency values, import prices, and trade flows just add to the case for the administration to start following this advice pronto.

(What’s Left of) Our Economy: The Alternative Facts Behind America’s China Trade Policy

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alternative facts, Bill Clinton, Charlene Barshefsky, China, exports, imports, Long Yongtu, manufacturing, offshoring, services, The Wall Street Journal, Trade, trade law, U.S. Trade Representative, USTR, World Trade Organization, WTO, {What's Left of) Our Economy

After reading her interview with The Wall Street Journal, it’s hard to tell whether Clinton-era chief U.S. negotiator Charlene Barshefsky is mainly clueless or mainly arrogant. In other words, is Barshefsky oblivious to how badly she (and colleagues) botched the challenge of admitting China into the World Trade Organization (WTO)? Or is she confident that the bipartisan American economic policy establishment remains so strongly wed to this epic failure that her reputation and current cushy job as a leading trade lawyer won’t suffer in the slightest even when it’s scope is made unmistakable?

Most disturbing, nothing could be clearer from the interview – in which she was joined by one of her former top Chinese counterparts – that her views on the WTO deal and those of Beijing are as close, as the Chinese like to say, “as lips and teeth.” The only significant difference: then Chinese vice commerce minister Long Yongtu denies that his country’s economic reform efforts have gone off the rails in recent years. Barshefsky insists that China “has stopped the process of economic reform and opening and that, instead, has put in place a spate of measures that are zero sum. They’re highly mercantilist and discriminate against U.S. and foreign companies.”

That’s nice to hear. But this claim also underscores how completely blindsided Barshefsky, the rest of the Clinton administration, and the rest of the powers-that-be in American government, business, and academe were by an about-face in a country with a recent history of political instability and course changes, and no record of viewing trade as a positive-sum game or economic openness as a crucial objective in and of itself.

Barshefsky also demonstrates her belief that the phony promises that fueled the Clinton administration’s successful drive to secure China’s WTO entry still hold water – at least with the high and mighty. For example, according to Barshefksy, “The U.S. didn’t alter its trade regime, nor did any other country alter its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.” But as she surely knows, WTO membership won for China substantial immunity from the national trade law system the United States historically had used to safeguard its legitimate trade interests unilaterally. Once China entered the WTO, Washington’s internationally recognized responses to China’s predatory trade practices largely depended on the assent of the WTO membership – which has been numerically dominated by economies that were major users of Chinese style protectionism.

Barshefsky continues to claim that the safeguards she negotiated with China were adequate to protect domestic industries – at least temporarily – from surges of Chinese imports. The only problem, she contends, is that these mechanisms were “”almost never used.” What Barshefksy omitted, however, was that the big U.S.-based multinational manufacturers that lobbied so lavishly and successfully on behalf of China’s entry were also offshoring production and jobs like crazy to China largely to supply the America market much more cheaply. Limiting America’s imports from China, especially from factories with which they were linked, was the last thing they wanted.

According to Barshefsky, the post-WTO ballooning of the U.S. goods trade deficit with China can be brushed aside because “we have a substantial services surplus with China.” It’s too bad she didn’t provide any numbers, but not at all surprising – since that surplus last year was only about a tenth as big ($37.4 billion) as the merchandise shortfall ($347 billion). Moreover, the manufacturing-heavy nature of this merchandise deficit – which is increasingly comprised of advanced manufactures – should concern all Americans.

And finally, Barshefsky repeated the widely expressed canard that “the trade deficit is a function of macroeconomic factors. Principally, the difference between what Americans save, which is nada, and investment, which is plentiful.” But the relationship between national trade balances and savings rates is simply a mathematical identity – which by definition says “nada” about causation. Indeed, there are plenty of reasons to suppose that, the more the trade deficit grows, the lower the savings rate is bound to become.

Yet interviewing Barshefsky has at least performed one public service. It reminds Americans that alternative facts began shaping the nation’s politics and policy long before the last presidential election.

(What’s Left of) Our Economy: Which Democrats are Serious and Un-Serious About Trade Overhaul?

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AFL-CIO, Bernie Sanders, Canada, Charles Schumer, currency manipulation, Debbie Dingell, Democrats, dispute resolution, Elizabeth Warren, environmental standards, labor standards, Mexico, NAFTA, North American Free Trade Agreement, Politico, Richard Neal, Robert Lighthizer, Rosa deLauro, rules of origin, Thea Lee, Trade, Trump, U.S. Trade Representative, unions, Wilbur Ross, William Pascrell, {What's Left of) Our Economy

Usually, paying attention to instances of politicians and other public figures getting up on their soapboxes is a waste of time. Yesterday served up an exception: a press conference held by House Democrats in reaction to President Trump’s official decision to open talks to renegotiate the North American Free Trade Agreement (NAFTA). The statements recorded in this Politico account offer some evidence as to which leaders on America’s Left are willing to work with the administration on trade policies that can help the working class voters Democrats still profess to champion, and those who will remain content to sit on the sidelines and take partisan potshots.

Reportedly, all of the House members who spoke at the event “said…they feared Trump would make only modest changes to NAFTA after blasting it as an economic disaster throughout last year’s presidential campaign.” The basis for these worries? The letter sent yesterday by new U.S. Trade Representative Robert Lighthizer to Congressional leaders announcing the administration’s intention to open NAFTA talks with the two other signatories, Canada and Mexico. According to these House Democrats and some other trade critics, the document apparently was “short on details,” which many claimed indicated Trump’s intention simply to “tweak” rather than comprehensively overhaul the agreement.

All else equal, wondering about the president’s real intentions is anything but unreasonable. His personality, after all, is mercurial, and one of his major trade initiatives to date – the negotiations begun with Beijing following February’s summit with Chinese leader XiJinping – has legitimately disappointed advocates of the major course change he pledged during the campaign. (The other major trade initiative, scrapping the Trans-Pacific Partnership trade agreement, kept a leading campaign promise to the letter.) Moreover, the Lighthizer letter is indeed short on specifics.

But none of the participants in the press conference seems to have noticed that in previous statements –including reportedly to leading Democratic lawmakers, top Trump officials have emphasized the need for dramatic NAFTA changes.

For example, Commerce Secretary Wilbur Ross has described as high NAFTA-related priorities greatly tightening the pact’s rules of origin in order to incentivize more non-NAFTA manufacturing investment inside the free trade zone, and restructuring a dispute-resolution system that gives each signatory an equal vote even though the United States represents more than 85 percent of North America’s total economic output. Reinforcing this point was the Lighthizer letter’s contention that “establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of these agreements and should be improved in the context of NAFTA.”

Meanwhile, Lighthizer reportedly has told Senators that the administration is thinking of adding to NAFTA rules that would prohibit currency manipulation – a move that would set a valuable precedent for future trade deals. In addition, his letter mentioned the need to improve NAFTA’s labor and environmental protections. In my view, they’re largely unenforceable. But they’ve been a prime focus of Democratic Party trade policy positions for decades.

So given that background, it seems fair at this point to finger Connecticut’s Rosa deLauro, New Jersey’s Bill Pascrell, and Massachusetts’ Richard Neal as grandstanders. The former stressed the “tweaking” allegation. The latter two charged that “It was clear from the start that the administration was only interested in working with the Congressional Republican leadership in drafting this notice [the Lighthizer letter].”

I’d also include in this group several key Senate Democrats, including Leader Charles Schumer of New York, former presidential candidate Bernie Sanders of New York, and Elizabeth Warren of Massachusetts. They voted against Lighthizer’s confirmation despite his decades-long record of fighting predatory foreign trade practices both as Deputy U.S. Trade Representative during the Reagan administration, and as a trade lawyer representing domestic American producers.

More temperate in their judgments were Michigan’s Debbie Dingell, and the AFL-CIO’s Thea Lee. The former stated that she was “investing the time to understand where the consensus is.” The latter said, “We enter every negotiation in a good faith state of mind and we expect a lot from our government. Certainly candidate Trump made a lot of promises about fixing flawed trade agreements and looking out for American workers and good jobs, so we will hold him and his administration to that promise.”

I can’t think of a more reasonable position for politicians and other supporters of a movement that still styles itself as the “party of the common man [and woman].”

(What’s Left of) Our Economy: How Trump Can Get His Trade Chops Back

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bilateral trade agreements, China, dispute resolution, free trade agreements, Government Accountability Office, Japan, managed trade, Mike Pence, multilateral trade agreements, North Korea, Robert Lighthizer, semiconductors, South Korea, tariffs, Trade, Trump, U.S. Trade Representative, U.S.-Japan semiconductor agreement, {What's Left of) Our Economy

Comments made by Vice President Pence on his Asia trip concerning America’s trade relations with Japan and South Korea show both the promise and peril of the Trump administration’s approach to international commerce and globalization. Major gains for the economy are possible from negotiating a bilateral trade agreement with Japan and revamping what Mr. Pence described as a failed deal with South Korea. But first, the president and his aides must show more awareness than to date of why accords with countries like these keep failing.

According to candidate Trump, and President Trump, the main problems with such measures have been, variously, incompetent U.S. negotiators, dominance of the policy process by offshoring and similar interests, and a mistaken preference for multilateral arrangements over bilateral deals where America’s leverage is less likely to be watered down.

The second reason for failure cited above has certainly shaped U.S. trade agreements with super low-cost countries that have been tempting locations for production and job offshoring, and that have revealingly comprised the vast majority of trade deals initiated and signed by Washington since the early 1990s. But footloose multinationals have played a much smaller role when it comes to higher income countries like Japan and South Korea. There, achieving better results for the American domestic economy has faced two leading obstacles.

The first has been widely noted: the longstanding tendency of the U.S. leaders to elevate geopolitical aims like strengthening security alliances over economic aims like removing distortions to trade flows. Here, strangely, the administration has been giving off mixed signals lately. The president is now clearly treating the security-related objective of gaining more Chinese cooperation in resolving the North Korea nuclear weapons crisis as a higher priority than combating the numerous predatory Chinese trade policies that have hurt domestic employers and their workers. But he blasted such priorities as recently as last month. And the Pence statements indicate that trade and security issues will be handled on separate tracks for Japan and South Korea.

The second obstacle has been less widely noted – although it’s been a major theme of mine: Opening markets in highly protectionist countries like those Asian powers is fiendishly difficult, at best. As I’ve written, these economies are most accurately seen as nation-wide systems of protection and mercantilism. The particular form taken by any of their trade barriers or subsidies at any given moment matters much less than the underlying intent to manage trade flows to their advantage. In addition, these protectionist systems are run by powerful bureaucracies whose secretiveness and agility makes even identifying problematic practices – much less combating them – excruciatingly difficult.

The bottom line is that trade agreements with such countries are virtually impossible to monitor and enforce effectively, and because their governments know this, the provisions are violated routinely.

By contrast, because the U.S. government is so transparent, almost of America’s trade barriers and subsidies are easy to identify and attack, and American compliance with trade agreements is easy to measure. So it’s easy to see how these agreements strongly tend to create more (and more strongly guaranteed) access to the U.S. market than vice versa. This new report from the U.S. Government Accountability Office shows how these damaging results can stem from multilateral agreements, but the Korea deal spotlighted by Spence and a long string of agreements with Japan show the similarly dismal record of bilateral arrangements.

That’s not to say that worthwhile trade deals with Japan and South Korea are impossible. But they’ll require thinking that’s much further outside the box than the administration seems to be engaged in. The best possibility would be going the managed trade route. That is, rather than accept unverifiable promises to dismantle trade barriers or end subsidies, America’s interlocutors would commit to allot specific shares of their domestic markets to specific U.S.-origin goods and services. There’s even a precedent for this practice – the 1986 semiconductor trade agreement reached between Washington and Tokyo.

Managed trade of course isn’t free trade. But little about Japanese and South Korean policies fits the definition, either. And the history of the semiconductor deal is well known by President Trump’s choice to head the U.S. Trade Representative’s office, Robert Lighthizer, because he was personally and deeply involved.

Another possibility would be to expand one of the few modestly worthwhile leafs from former President Obama’s 2012 trade agreement with South Korea. Precisely because Seoul’s predatory practices in the automobile sector specifically were so difficult to combat via the standard, legalistic procedures used in the dispute-resolution systems in most American free trade agreements (and the international counterpart run by the World Trade Organization), Mr. Obama secured South Korean acceptance of provisions that are especially appropriate in dealings with opaque bureaucracies that prevent significant evidence gathering.

Specifically, if a dispute-resolution panel convened under the agreement decides that Seoul is violating the auto provisions, and the United States restores pre-agreement tariffs on Korean products, it’s up to the Koreans to prove that they’re back in compliance with the treaty before the new tariffs are removed. Even better, however, would be to impose the burden of proof on South Korea, Japan, and similar countries as soon as a complaint is filed.

Yet there’s a strong argument that the very structure of dispute-resolution mechanisms is fatally flawed. Whether the trade agreement in question is bilateral or multilateral, these arrangements treat the United States as an equal party. But given the huge size of the U.S. economy relative to any other trade agreement signatories, and therefore given its status as the paramount prize in any such agreement, this “one country-one vote” set-up is as absurd as it is detrimental to American interests.

Rather than agree to such standard dispute-resolution systems – which invariably result in deadlocks that penalize open economies like America’s – Washington should insist that dispute-resolution votes be allotted more realistically. Basing them on the sizes of the various signatory economies is one obvious formula.

And don’t forget the ultimate America-First trade policy: Dispense with negotiations altogether, or for the most part, and start imposing tariffs on the imports of predatory trading powers, or on all imports (in order to prevent offshore exporters from switching production sites). Of course, that universalism is a big virtue of the border adjustment tax proposed by the House’s Republican leaders. In return, Mr. Trump could offer greater U.S. market access to those countries that prove (after years of good behavior according to exclusively American judgments) that they’re giving American exports a fair shake. This form of unilateralism should have special political appeal for an administration that’s increasingly in need of some big early economic wins.

President Trump (at least the pre-China currency version) has been termed a trade policy disrupter. If he wants to re-earn that label, getting the nation’s Japan and South Korea trade right after decades of frightful losses would be a great place to start.

(What’s Left of) Our Economy: Why Trump’s Budget Proposal is a Win for Trade Policy Realism

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border adjustment, budget, Commerce Department, enforcement, exports, imports, Robert Lighthizer, tax reform, Trade, trade law, Trump, U.S. Trade Representative, Wilbur Ross, {What's Left of) Our Economy

Certainly since Donald Trump has been elected president, there’s been a tension even among his most supposedly hawkish trade policy advisers over basic objectives: Should the United States seek to solve its major trade-related problems mainly by promoting exports, or mainly by curbing imports? Of course, the two goals aren’t mutually exclusive. But the first suggests that the nation’s approach to trade will essentially be more of the same (albeit executed more competently), while the latter suggests a significant shift and is vigorously put into effect.

That’s one trade-related reason why Mr. Trump’s new budget proposal is so interesting and potentially important. If you believe that “money talks,” or “deeds count more than words” or any homilies to that effect, then it looks like that the tension has been resolved in favor of import limits – which would be good news indeed if it remains intact.

The reasons, as I’ve long written, are pretty simple, and should be much more obvious than they’ve been. First, for all its problems, the U.S. economy has been growing faster recently than most major world economies. And unlike the faster growers (mainly in the developing world), America’s growth isn’t export-led or -heavy. For that reason alone, its domestic market continues to be the world’s paramount emerging market.

Second, that relatively fast growth, combined with the ongoing export-heavy nature of most foreign economies means, and the huge and chronic American trade deficit, means that the size of the U.S. domestic market into which domestic producers can sell is enormous in absolute terms and indeed much bigger relative to foreign markets than widely realized. After all, this American market includes not only whatever growth the United States can generate going forward, but the large chunks of its market currently controlled by foreign competition.

Third, however much leverage the United States enjoys in global trade, and over foreign countries, its influence over its own market will always be much greater. And that goes double for countries with long records of sweeping protectionism.

Fourth, the domestic market is the market that domestic American producers should know best. Therefore, despite its undeniably impressive dynamism, these domestic producers have less to learn about customer preferences than is the case with foreign market.

For examples of the administration’s apparent ambivalence, simply check out statements made in the confirmation hearings of Commerce Secretary Wilbur Ross and U.S. Trade Representative-designate Robert Lighthizer. Indeed, it’s easy to conclude that their stated bottom line endorses the export-focused approach.

But the new Trump budget document is sending the opposite message – and its declared spending priorities arguably matter more than even sworn testimony. Specifically, according to the Commerce Department section, the final budget

“Strengthens the International Trade Administration’s trade enforcement and compliance functions, including the anti-dumping and countervailing duty investigations, while rescaling the agency’s export promotion and trade analysis activities.”

Not that this text is the end of the story, or even close. As widely recognized, the new budget statement is the first step in a lengthy process in which Congress will be heavily involved. Moreover, because so much of it is so controversial, and because the nation is so far from a consensus on official spending priorities, it’s entirely likely that the current budget priorities will simply wind up being carried over for the time being.

And as for trade policy specifically, Commerce Department funding will be far from the only determinant as to where the administration will put most of its energies. Just one example: the structure of whatever new or revised trade agreements it seeks will matter greatly as well. So will the fate of the border adjustability feature of the House Republican leadership’s tax reform proposals – which would both in effect penalize imports and subsidize exports. Moreover, because the U.S. trade law system is so (inevitably) slow-moving, episodic and reactive, relying exclusively or even mainly on this traditional trade enforcement tool will become a recipe for trade policy failure.    

But the Commerce budget priorities appear to be a straw in the wind that’s unmistakable – and because realistic, unmistakably welcome.

(What’s Left of) Our Economy: What’s Really Wrong with Obama’s Aluminum Trade Case

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aluminum, Fareed Zakaria, Obama, overcapacity, subsidies, Trade, Trump, U.S. Trade Representative, USTR, Washington Post, World Trade Organization, WTO, {What's Left of) Our Economy

What’s most laughable about the Obama administration’s new World Trade Organization (WTO) challenge against China’s subsidies to aluminum producers isn’t the decision to file the complaint with just over a week left in office (although admittedly that’s pretty laughable). What’s most laughable is the continuing belief that the WTO is an effective instrument for fighting such predatory trade practices.

After all, as claimed by a U.S. industry leader in a statement cited by the U.S. Trade Representative’s (USTR) office itself, “China’s subsidies have done enormous damage to the U.S. and global aluminum industries.” USTR’s press release, moreover, goes on to present data making clear that the PRC’s state-supported overcapacity building dates back to at least 2007, and that private sector American rivals that need profits have been forced to respond to the resulting global price crash by dramatically slashing both production and capacity.

It’s bad enough, as USTR admits, that President Obama’s main response until yesterday was completely ineffectual “engagement” with Beijing in various official bilateral talk shops. Mr. Obama allegedly even brought up the subject with Chinese president Xi Jinping last September. The results, according to USTR? “[W]hile China has expressed a willingness to continue talking about the excess aluminum capacity situation….China has not been willing to take concrete steps to address it.”

And now, with the number of aluminum smelter in the United States having fallen from 14 to five since 2011 – “with only one operating at full capacity” – the administration has decided to begin a WTO process that could take 15 months (counting appeals) to complete and, if Washington wins, authorize countervailing tariffs. Further, if Beijing loses and promises to end its aluminum transgressions, the United States will be faced with the probably insuperable challenge of monitoring compliance by China’s highly secretive bureaucracies.

This morning, Washington Post and CNN pundit Fareed Zakaria wrote that “Chinese elites” he’s recently met with are “remarkably sanguine about [President-elect] Trump” and his attacks on Beijing’s trade-related economic practices. If the incoming president relies heavily on the WTO to fight China’s predation, their complacency will be amply justified.

Making News: Thom Hartmann Interview on Trump and Trade Now On-Line

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China, Commerce Department, Making News, NAFTA, National Trade Council, North American Free Trade Agreement, Peter Navarro, Robert Lighthizer, RT America, The Big Picture with Thom Hartmann, Thom Hartmann, Trade, U.S. Trade Representative, Wilbur Ross

I’m pleased to announce that the video of my appearance last night on RT America’s The Big Picture with Thom Hartmann is on-line!  Click on this link to hear in full a great discussion of President-elect Trump’s plans for U.S. trade policy and how they promise to shake up American politics.  The segment starts at about the 15:30 mark.

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

 

(What’s Left of) Our Economy: Looks Like Obama Aide’s Conceding a Major TPP Argument

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AIIB, Asian Infrastructure Investment Bank, China, exports, free trade agreements, Free Trade Area of the Asia Pacific, GDP, imports, Michael Froman, Obama, Regional Comprehensive Economic Partnership, TPP, Trade, Trans-Pacific Partnership, U.S. Trade Representative, USTR, {What's Left of) Our Economy

Compelling evidence just appeared that the Obama administration is conceding that many critics are right to call its Pacific Rim trade deal is a nothing-burger economically – at best. It came in the form of U.S. Trade Representative Michael Froman’s official comment on the new, Congressionally mandated U.S. International Trade Commission (USITC) projection of the deal’s economic effects.

The USITC did a good enough job pouring cold water on the notion that the Trans-Pacific Partnership (TPP) would be a major boon for the American economy. As has been widely reported, the Commission forecasts that the impact on the nation’s growth and real incomes is statistically insignificant.

These findings logically challenge critics’ descriptions of the deal as disastrous. But at the same time, the USITC assumes full compliance with the TPP’s terms by the eleven non-U.S. signatories. As I’ve explained, even if Washington performed a dramatic about-face and treated trade monitoring and enforcement as a priority, logistical and political barriers mock the belief that the United States can hold its TPP partners’ feet to the fire.

Indeed partly because its methodology can’t adequately take such problems into account, the USITC has a long and sorry track record of greatly understating the net harm to the American economy from new trade agreements.

But Ambassador Froman’s strategy for handling the USITC report strongly indicates that President Obama has decided to gloss over the claim that his aides did a great job at the TPP talks. For the U.S. Trade Representative evidently has decided to change the subject.

Froman did make some token stabs at portraying the TPP’s terms as economic winners for Americans. For example, he took the time-honored official Washington tack of touting export projections while ignoring predictions for imports (which globally would be greater according to the USITC) and thus the net economic impact of trade flows.

Yet Froman quickly exited this specifics-oriented economic debate and pointedly contended that “What cannot be quantified in this study or any other is the cost to American leadership if we fail to pass TPP and allow China to carve up the Asia-Pacific through their own trade agreement.”  

Unfortunately for him and the president, this position puts them on no stronger ground. On the one hand, after all, Froman is implicitly conceding that any set of TPP provisions to which the United States agrees is better than none because simply signing the treaty creates an American seat at the Asia-Pacific rule-writing table. On the other hand, as I’ve repeatedly noted, expectations that such American participation will create even longer-term benefits is laughable for at least four main reasons.

First, most of America’s main regional allies – and most major TPP signatories – are already taking part in those Chinese initiatives that Froman describes as so hostile to American interests. These initiatives include not only China’s new Asia infrastructure bank, but its Regional Comprehensive Economic Partnership – its explicit counterpart trade agreement.

Second, the United States itself has given its blessing to another Chinese-backed regional trade scheme – a proposed Free Trade Area of the Asia Pacific.

Third, these Chinese measures have attracted such regional support largely because so many East Asian countries in particular (as opposed to TPP’s Western Hemisphere members) pursue the kinds of Chinese-style trade and broader economic policies that the administration has long noted have undercut U.S. Domestic economic interests. Regardless of the piece of paper they have signed, the last thing these neo-mercantilist powers want to see is an enforceable set of “rules for trade” that reflect America’s more free-market-oriented values and practices.

Fourth, because U.S. and Asian definitions of acceptable and unacceptable economic behavior contrast so strikingly, even sitting at the TPP table can’t possibly guarantee pro-American results – unless the TPP’s dispute-resolution mechanism breaks with all recent precedents and awards outsized authority to the United States, as opposed to operating on consensual, or one-country, one-vote, principles.

Not that Froman or the rest of the administration are running out of arguments yet. They could refocus the debate on the national security claim that TPP is essential for preserving and/or strengthening America’s geopolitical position in the Asia-Pacific region, especially as China’s power and influence surge (even though this administration has done little at most to stem the flow of defense-related technology and valuable economic wherewithal to that same China). They could also warn that President Obama’s international credibility will be undercut if TPP is rejected (even though his presidency is nearly over).

Wouldn’t it be much better if Mr. Obama and his aides just threw in the towel, admitted that despite decades of experience, neither Democratic nor Republican administration’s have figured out how to negotiate trade agreements that work for America on net, and if the next president spent time and resources developing a learning curve instead?