Posts Tagged ‘ Trade ’

Real Trade Deficits in Capital and Consumer Goods Near New (Negative) Record

Thursday, May 26th, 2011
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

Many economists are racing to declare a ‘manufacturing revival.’  The latest to join the bandwagon is Paul Krugman. In his latest column, Krugman writes (my emphasis added)

Manufacturing is one of the bright spots of a generally disappointing recovery…..Crucially, the manufacturing trade deficit seems to be coming down. At this point, it’s only about half as large as a share of G.D.P. as it was at the peak of the housing bubble, and further improvements are in the pipeline…one piece of good news is that Americans are, once again, starting to actually make things.

Oh, how I wish Paul was right.  Unfortunately,  I still don’t see it in the trade numbers. In fact, the real trade deficits in capital and consumer goods are both nearing all-time (negative) records. Meanwhile, the real trade deficit for industrial supplies and materials has improved in large part because of an enormous surge in real exports of energy products, including coal, fuel oil, and other petroleum products (yes you read that right) and a sharp decline in imports of building materials. I don’t find either of these convincing proof of a resurgence of manufacturing.

As you might expect, time for some charts. Here’s a chart (below) of the real trade balance in capital goods in billions of 2005 dollars, calculated on a 12-month basis.

Capital goods include computers, telecom gear, machinery, aircraft, medical equipment–the heart of U.S. advanced manufacturing. Within a couple of months, if current trends continue, the capital goods trade deficit will be at a record level. What’s more, there’s no sign of any great domestic capital spending boom that could suck in imports.

And not to digress, these figures probably substantially underestimate the deterioration of the capital goods trade balance because of the import price bias effect , where the government statisticians do not correctly adjust for rapid changes in sourcing from high-cost countries such as the U.S. and Japan to low-cost countries such as China and Mexico (for a good reference see the new paper “Offshoring Bias in U.S. Manufacturing” by Susan Houseman, Christopher Kurz, Paul Lengermann, and Benjamin Mandel in the latest issue of the Journal of Economic Perspectives) .

Now let’s turn to consumer goods. Here’s the chart (right) of the real trade balance in consumer goods, in 2005 dollars.

No sign of any real improvement here either, I’m afraid. The trade balance retreated a bit during the recession, but since then has surged back.  Once again, there’s no sign of a sustainable improvement in the trade balance.

The situation with motor vehicles is a bit more ambiguous. As the chart to the left shows, clearly there has been some gains in the motor vehicles and parts trade balance.  However, it has started deteriorating again.

Finally, we come to the one area, industrial supplies and materials, where there has been a clear improvement in the real trade balance. Industrial supplies and materials includes fuel imports and exports; steel and other metals; building materials; chemicals; and a grab bag of other things including newsprint, audio tapes, and hair.

Since 2006, there has been roughly a $150 billion improvement in the industrial supplies and materials trade deficit, measured in 2005 dollars (I say roughly because this is one case where the chain-weighted procedures used to construct the figures gives quirky answers that aren’t additive. So when I give the following numbers, please please don’t divide them into $150 billion to get a share of the improvement). Part of that is a decline in real imports of crude oil, which fell by roughly $30 billion (measured from 2006 to the 12 months ending in March 2011). But another $30 billion, more or less, came from an increase in real exports of petroleum products such as fuel oil and lubricants. I’m not sure whether a gain in exports of fuel oil really tells us much about the fortunes of manufacturing overall.

Another contributor to the improved trade balance is a decline in the imports of building materials. Once again, not a sign of strength.

So I see no sign in the trade data of a great manufacturing revival. The topline improvement in the real trade deficit has mostly come from industrial materials and supplies, and within that from a swing in the energy sector imports and exports.

Let me finish with a quote from a piece that Paul Krugman wrote back in 1994. In that piece, he scoffed at worries that foreign competition was hurting U.S. manufacturing. He argued that

A growing body of evidence contradicts the popular view that international competition is central to U.S. economic problems. In fact, international factors have played a surprisingly small role in the country’s economic difficulties…. recent analyses indicate that growing international trade does not bear significant responsibility even for the declining real wages of less educated U.S. workers.

I wonder if he still believes that today.

Crossposted from Innovation and Growth.

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Posted in A New Framework for Growth and Equity, Daily Fix | No Comments »

Why a Stable Korean Peninsula is in China’s Best Interests

Tuesday, December 7th, 2010
Jim Arkedis


Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

Taking its cues straight from Will Marshall’s keyboard, no doubt, the Obama administration  correctly labeled China as an “enabler” of North Korea over the weekend.  If Pyongyang is the crack addict in the alley behind my house, Beijing keeps it high.

Beijing’s unwillingness to curtail the Hermit Kingdom’s frustrating bellicosity falls within its national interest.  Well, in the short term, anyway: As North Korea continues to cause headaches in Washington, Beijing is probably quite content to let a distracted DC spend time and energy containing the North and placating the South. Further, China alone maintains significant diplomatic leverage over the Kim dynasty, and a mischievous Pyongyang reinforces Beijing’s position as regional powerbroker.

Consider the flip side: If North Korea starts to behave itself, China not only loses that pivotal position, but Washington can spend more time focusing the basket of issues it would prefers keeping front and center: currency valuation and debt, trade, improving military ties, freedom of international waterways, and India’s UN Security Council seat, amongst others.

But as the Korean situation continues to deteriorate, it should be dawning on the Chinese that an escalation isn’t in their interests, either.  With each Northern provocation–the Cheonan sinking, the Yeonpyeong Island shelling, and the consistent threat of another nuclear test launch–the South Korean public loses patience with diplomatic responses.  Should the day arrive when a military response is unavoidable, the egg will ultimately end up on Beijing’s face: it will be drawn into full-blown crisis-control mode if for no other reason than to manage the inevitable refugee catastrophe awaiting on its boarder.

In talks with the Chinese, the Obama administration must highlight these facts: allowing a rambunctious Kim to needle Washington’s eye is fine for today, but it serves no one’s interest to allow such behavior continue.  This is the choice China faces: regional broker or global stakeholder — it’s very difficult to be both over the long term.

If you want to learn more, you should check out PPI’s All-Star panel on US-China relationship next Tuesday, December 14th, featuring UnderSecretary of Defense Michele Flournoy, new Senator Chris Coons (D-DE), Harvard professor Joe Nye, writer James Fallows, and Naval War College professor Mike Chase.

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Posted in A Progressive Security Strategy, Daily Fix | 1 Comment »

Obama’s Chance to Lead on Trade

Wednesday, November 10th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

President Obama is in Seoul today for what promises to be a contentious meeting of the world’s leading economic powers. He probably won’t mollify China, Germany and other critics of the Federal Reserve’s plan to pump more money into the U.S. economy. But the President does have a chance to further his goal of doubling U.S. exports by bringing home an improved trade agreement with South Korea.

In addition to attending the G-20 summit, Obama is slated to meet with South Korean officials to finalize a bilateral free trade pact negotiated by President Bush. Congress has not ratified the treaty, which is snagged by concerns about U.S. auto exports to South Korea, as well as lawmakers’ eroding faith in the benefits of free trade.  The president said in June that he had instructed the U.S. Trade Representative to have all the outstanding issues “lined up properly” before he arrived for this week’s visit, so he could close the deal with Korea and present the agreement to Congress again in the coming months.

South Korea isn’t just a major trade partner, it’s also a key strategic ally and a counterweight to China’s growing heft in the Asia-Pacific. Since its tariffs traditionally have been much higher than ours, there’s little doubt that the agreement would spur U.S. exports and help offset weak economic demand at home. It requires South Korea to lower its high taxes on U.S. farm goods and open markets for insurance and other services to American firms.  As the treaty has languished in Congress, however, Seoul has been busy on other fronts, deepening economic ties with China and finalizing an important trade pact with the EU last month.

Although President Obama sounded an ambivalent note at best on trade during the 2008 presidential campaign, he understands that expanding U.S. exports is crucial both to creating jobs and shrinking America’s outsized trade deficits.  Now that he’s made the Korean deal a top priority, we’ll find out if the newly Tea Party-infused GOP will be more amenable to passing the treaty than Congressional Democrats were.

The agreement would lower tariffs on auto imports on both sides. South Korea’s are higher — 8 percent compared to 2.5 percent here. (The United States also would gradually lower a 25 percent tariff on imported pickup trucks.) Nonetheless, U.S. auto makers, especially Ford, have argued that the treaty would not bring down cultural and non-tariff barriers that have confined their sales to a sliver of South Korea’s lucrative auto market.

They have a point.  Seoul exports more than 400,000 vehicles (mostly Hyundais and Kias) to the United States each year, while manufacturing an additional 200,000 cars at U.S. plants. According the U.S. Commerce Department, U.S. auto makers sent a paltry 5,878 vehicles to South Korea in 2009. Ford’s Stephen Biegun notes that more than 70 percent of the cars made in South Korea are exported, while imports account for less than 10 percent of sales, well below the average of 40 percent in other economically advanced countries.

As an auto industry representative explained in testimony before Congress, Korea has an extensive web of non-tariff barriers that make it harder for foreign car makers to penetrate the Korean market.  Some of these are technical regulations like emissions standards and even license plate size. Establishing a clear link between such policies and the small U.S. market share in Korea isn’t always easy. But there’s no doubt that some of Korea’s policies reflect a well-entrenched hostility toward imports. For example, until recently anyone in Korea who bought a foreign car would automatically have their income taxes audited—a policy that chilled demand even after it was officially ended.

Ford, America’s healthiest car maker, sees itself as the chief victim of South Korea’s import-unfriendly policies. That’s because General Motors, through its Daewoo subsidy, makes cars in South Korea, selling more than 100,000 locally and exporting hundreds of thousands more elsewhere (including to the United States).

What can President Obama do to resolve the impasse over autos and get the U.S.-South Korea agreement through the Senate? He can’t reopen negotiations, but he can use the presidential jawbone to win binding side agreements with Seoul to remove non-tariff barriers to U.S. auto exports.  He could, in short, bring pressure on South Korea to fully liberalize its auto markets and embrace the reciprocal obligations that come with free trade.  Much like his powerful message in New Delhi that “India has emerged,” the president needs to make the case that South Korea has also fully emerged as a mature economy, and it can no longer justify the kind of protectionist and mercantilist trade policies that are more typical of poorer developing countries.

A more aggressive stance would show that the President is serious about doubling U.S. exports. But there’s a complicating factor: the global spread of auto production, design and supply chains. That makes it hard to say just how “American” any given car really is, or how many U.S. jobs are engaged in making cars.

Nonetheless, as long as the answer is “greater than zero,” the President has an obligation to ensure that major U.S. trade partners offer as much access to their domestic markets as we do to ours. And the Korean pact presents him with an opportunity both to restore U.S. global leadership on trade liberalization and to integrate America more deeply into the world’s fastest-growing markets in East Asia.

Photo credit: South Korea

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Posted in A Progressive Security Strategy, Daily Fix, Issues | 2 Comments »

Internet Wars: A Who’s Who Guide

Thursday, October 7th, 2010
Steve Norton


Steve Norton is communications director at the Information Technology and Innovation Foundation and a former journalist and speechwriter.

by Steve Norton

Back in the day, there were no protesters outside corporate headquarters in Silicon Valley, no one had a position on net neutrality because no one knew what is was, and technology journalists were breathlessly trying to keep pace with new technologies and companies instead of holding forth on civil rights and liberties or network engineering protocols.

But ten or 15 years in the life of the Internet is a long time.  The Internet is the transformative phenomenon of our time and its role in our lives raises serious questions about who the Internet “belongs” to, whether it is used for good or ill, what are its technological limits, and what role government has as arbiter of its future.  The debates on these and other questions has become passionate and shrill, generating more heat than light at times.  A person trying to follow the debate might need a field guide to sort through the wide array of groups and their philosophical or economic orientation.  Allow me to offer up this breakdown, the details of which are spelled out in “Who’s Who in Internet Politics: A Taxonomy of Information Technology Policy,” a new report from the Information Technology and Innovation Foundation.

In the report, ITIF lays out the following eight categories:

Cyber-Libertarians – Think of them as the original “netizens” and purists who believe the Internet should be governed solely  by its users that and “information wants to be free.”  Privacy and piracy will take care of themselves by the individuals who make up the organic and living Internet and not by government. Groups include the Free Software Foundation and the Electronic Frontier Foundation

Social Engineers – Mostly liberal, they see a lot of good in the Internet as an education and communications tool but they worry about the “digital divide,” privacy, net neutrality, and a concentration of power by both government and major corporations.  These issues could erode the Internet’s capacity to be a tool for good for all.  Among groups are the Benton Foundation, Center for Democracy and Technology, Center for Digital Democracy, Civil Rights Forum on Communication Policy, Consumer Project on Technology, Electronic Privacy Information Center, Free Press, Media Access Project, and Public Knowledge, and scholars such as Columbia’s Tim Wu, MIT Media Laboratory’s David Reed, academics at Harvard’s Berkman Center (among them Larry Lessig and Yochai Benkler).

Free Marketers – Unleash the entrepreneurs! This group views the digital revolution as the great third wave of economic innovation in human history and a dynamic and liberating force that the government should mostly keep out of it. Groups include the Cato Institute, the Mercatus Center, the Pacific Research Institute, the Phoenix Center, the Progress & Freedom Foundation, and the Technology Policy Institute.

Moderates – Unabashedly pro-IT, they see the Internet as this era’s driving force for both economic growth and social progress and they believe a light touch from government is useful in helping the Internet reach its potential.  “Do no harm” to limit to IT innovations but also “actively do good” is their mantra. Examples of moderates include the Center for Advanced Studies in Science and Technology Policy, the Center for Strategic and International Studies, ITIF, and the Stilwell Center.

Moral Conservatives – These groups see the Internet as an often smutty and dangerous place teeming with pornographers, gamblers, child molesters, terrorists that only government can keep at bay. They pushed for passage of the Communications Decency Act and Child Online Protection Act, Internet filtering in libraries, and worked to push legislation to ban online gambling.  Examples are groups like the Christian Coalition and Focus on the Family, and around the world with countries like Indonesia, Thailand, Saudi Arabia and other religiously conservative nations that seek to limit activity on the Internet.

Old Economy Regulators – This group believes the Internet should be regulated in the same way that government regulates everything else. Otherwise, you have chaos and inequities.  Examples of this group include law enforcement officials seeking to limit use of encryption and other innovative technologies, veterans of the telecom regulatory wars that preceded the breakup of Ma Bell, legal analysts working for social engineering think tanks, as well as government officials seeking to impose restrictive regulatory frameworks on broadband.

Tech Companies & Trade Associations – Software and communications giants, Internet start-ups, and the groups that represent them, these tech interests tend to believe that regulation can be both advantageous and detrimental, depending on their particular business model.  They also advocate policies that are good for the technology industry or the economy in general. Examples include IBM, AT&T, and Hewlett Packard, Cisco Systems and Microsoft, and recent phenomena in the market such as Google and Facebook, as well as trade associations like the Information Technology Industry Council and the Association for Competitive Technology. They delve into trade, tax, regulatory, and other public policy issues from a bottom-line perspective rather than a philosophical basis.

Bricks-and-Mortars – This group includes the companies, professional groups, and unions that use the Internet but also see it eroding the old-economy and face-to-face business transactions and they struggle to hold back the tide. These include both producers and distributors and middlemen (such as retailers, car dealers, wine wholesalers, pharmacies, optometrists, real estate agents, or unions representing workers in these industries). The long running battle over taxing Internet sales illustrates their struggle.

Of course, individual groups defy rigid characterization.  For example, Moral Conservatives might find themselves on the same side of an issue as Social Engineers.  Also, consensus is often elusive in trade associations as member companies often have complicated interrelationships or niches in the market.  However, whether you lean more toward advancing the interests of the individual or society as whole, see government regulation as generally useful or harmful, or are wary of the Internet’s influence or enthusiastic about it is useful to understanding where various groups stand.  You might need Venn diagrams to fully understand the Internet policy landscape when surveying issues such as piracy, net neutrality, intellectual property rights, and Internet sales taxes.  (An unusual pursuit, to be sure.)

One common theme in all these groups is that they almost certainly believe they are advocating sound policies and doing the right thing for individuals and for society – as incomprehensible as that might seem to those from an opposing organization.  In some cases, their passion for their beliefs makes for a good sound bite in a news story.  The societal destruction by a government that is scheming to implant chips in our heads is an easier story to sell than an explanation of how packets are sorted on broadband networks. And this is dangerous.

Internet and technology debate is being politicized and degraded.  And misguided and ill-informed debates lead to misguided and ill-informed policies. We have enough of people vehemently opposing bills they haven’t read or crafting policy from bumper stickers and making caricatures of opponents.   The Internet’s transformation is really just beginning so people in government, the media, and the public at large need to refine and update their understanding of the philosophical issues, the players, the economic realities, and societal issues as stake.  Wherever you come down on a range of tech policies – whether you carry placards outside of Facebook’s offices or decide to get an engineering degree to figure out net neutrality – it is essential to understand the political and policy landscape that didn’t exist just 20 years ago.  And now you have a map.

Photo credit: Stefan

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Washington Independent: Outdated Tariff Systems Means the Poor Pay More

Wednesday, June 2nd, 2010
Steven Chlapecka


Steven K. Chlapecka is the director of public affairs for the Progressive Policy Institute.

by Steven Chlapecka

In the Washington Independent, Will Marshall explains how tariffs on low-cost goods are ineffective in the globalized marketplace:

[...] the argument that lowering or abolishing tariffs on low-cost products will cost jobs speaks more to the need to invest in training programs for low-skilled American workers. “It’s a challenge to protectionists. It does redistribute the pattern of job creation,” he acknowledged. But the genie is already out of the bottle when it comes to globalization, he said, and companies have already moved the bulk of their labor-intensive production offshore. Leaving high tariffs on cheap imported goods isn’t going to stop them from appearing on discount and dollar-store shelves, it’s just going to penalize the consumers who buy them.

“It’s easy to overlook, easy to ignore because people without political voice or power are the most affected,” he said.

Read the full article.

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Hey, President Obama: What Are You Doing for Nowruz 1389?

Wednesday, March 17th, 2010
Jim Arkedis


Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

Nowruz is Iran’s new year, celebrated every spring. You may recall that last year, President Obama scored a ton of points from just about all quarters by sending this personalized Nowruz video message directed straight at Iran’s people. It was a great move that bypassed any formal communication with the mullahs in Tehran and successfully engaged Iranians on a personal level. From last year’s video:

You, too, have a choice.  The United States wants the Islamic Republic of Iran to take its rightful place in the community of nations.  You have that right — but it comes with real responsibilities, and that place cannot be reached through terror or arms, but rather through peaceful actions that demonstrate the true greatness of the Iranian people and civilization.  And the measure of that greatness is not the capacity to destroy, it is your demonstrated ability to build and create.

This year’s Nowruz (#1389 if you’re scoring by the Persian calendar) takes place on March 20th. And suffice it to say that some things have changed since then: President Mahmoud Ahmadinejad stole an election last June from Mir Hossein Mousavi, which triggered millions-strong, largely peaceful (on the civilian side, anyway) demonstrations in Tehran over several weeks. The mullahs actually remain fairly divided lot, but since the Revolutionary Guards hold the balance of power in Iran, the status quo will reign for the time being. However, the protests continue to flare up, but with diminishing strength, on every subsequent public holiday or event. Their potency has been contained in large part because the Ayatollah learned the importance of crushing momentum from the country’s experience in 1979.

This raises the question: After a tumultuous year in American-Iranian “relations” that has seen the Obama administration change tack from guarded optimism of dialogue to renewed talk of targeted sanctions, what (if anything) will the administration do this Nowruz? With Tehran’s crackdown on social media and internet freedom, it might be more difficult to get a similarly successful message through. But it’s worth a try, given the negligible price of recording a three-minute message from the Oval Office.

If he does record something, part of the president’s Nowruz goodwill message to Iranians should focus on expanding Internet access in Iran, which began in earnest earlier this month when the White House lifted restrictions for the first time on U.S. companies exporting online software like chat and data-sharing programs. That’s an incredibly important step, and has been generally described as a win-win-win for Iranians, companies and American diplomatic efforts. But lifting restrictions is just one side of the equation — actively promoting this kind of software in Iran should follow next.

Photo credit: http://www.flickr.com/photos/arasmus/ / CC BY 2.0

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Trading Up

Friday, March 12th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

For the past year, U.S. Trade Representative Ron Kirk has been the Obama administration’s equivalent of the Maytag repairman—a capable official with nothing to do. That is about to change.

As part of a broader push for job creation, the president yesterday unveiled an ambitious strategy for doubling U.S. exports over the next five years. Key elements include $2 billion more in export financing, an easing of export technology controls and a new Cabinet office to promote sales of U.S. products abroad. Obama also picked W. James McNerney, CEO of Boeing—one of America’s export champions—to chair the President’s Export Council.

The flurry of activity around trade is belated but welcome, since surging exports have been one of the few sources of job growth lately. It may also put to rest lingering doubts about Obama’s commitment to expanding trade.

During the 2008 campaign, candidate Obama sounded economic nationalist themes and indulged in ritual NAFTA-bashing. He even vowed to reopen that treat to get a better deal for U.S. workers, deeply alarming Canada and other trading partners worried about mounting protectionist sentiment in the United States.

But if Obama’s new push is reassuring to pragmatic progressives, anti-trade activists are donning their battle gear. Lori Wallach, president of Global Trade Watch, recently told Bloomberg News that the Obama administration must deal with the import side of trade to create U.S. jobs and increase innovation.

Obama yesterday invoked America’s economic travails to short-circuit a family squabble among progressives over trade. “We are at a moment where it is absolutely necessary for us to get beyond those old debates…Those who once would oppose any trade agreement now understand that there are new markets and new sectors out there that we need to break into if we want our workers to get ahead.”

In another positive development, House New Democrats this week released a trade agenda of their own. It emphasizes support for small business exports, the need to crack down on intellectual property theft, and, echoing a key PPI theme, the strategic benefits of expanding trade and economic opportunity across the Middle East.

Both the president and the New Dems call for efforts to rekindle progress on the stalled Doha round of global trade talks, and perhaps most controversially, for closing the deal on pending bilateral trade agreements with South Korea, Colombia and Panama. This is bound to provoke a reaction from anti-trade Democrats who see trade as a threat to U.S. jobs and wages. They have a powerful ally in the new House Ways and Means Chairman, Rep. Sandy Levin, a longtime trade skeptic.

Trade is not a panacea for America’s job woes. But as Obama and the New Dems understand, lowering foreign barriers to trade is integral to any credible strategy for U.S. economic growth and innovation. It’s also essential for the United States to resume leadership in forging a rules-based global trading system to keep everyone honest and prevent countries from adopting mercantilist strategies.

Finally, and most important for the long-run, boosting U.S. exports is also critical to re-balancing the global economy. Just as we export more and import less, Asian export powerhouses, especially China, need to import more and spur domestic consumption. Obama’s trade initiative is a small but vital first step toward moving world flows of trade and finance toward a sustainable equilibrium.

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State of the Union: A Litany of Solid, Progressive Proposals

Thursday, January 28th, 2010
Mike Derham


Mike Derham is chair of PPI's Innovative Economy Project.

by Mike Derham

Facing almost as much uncertainty about the economy one year into his mandate as he did at the outset, President Obama gave his State of the Union address the way we’ve come to expect him to – sticking to his guns with cool determination while acknowledging that not everyone agrees with him. His speech highlighted what he has accomplished and promised to the American people, but didn’t propose any sweeping new changes.

With unemployment at 10 percent and Wall Street banks handing out record bonuses (Goldman Sachs’ bonuses are reported to match 2007′s record levels), and pundits reading doom for the administration in the tea leaves of the Massachusetts election, the political temptation to go populist would be strong. But Obama decided instead to reassert his progressive program for addressing the economy. Obama highlighted not grand industrial policy, but accomplishments that have helped the American people face a truly global recession. The stimulus bill helped us avoid falling off the economic precipice, and unemployment protection and COBRA extensions make a meaningful difference to people looking for work in a changing economy.

Obama’s call to Democrats to not “run for the hills” on issues such as health care suggests that the talk of that reform’s demise was premature. The embrace of centrist – and even Republican – proposals on energy, including nuclear power and offshore drilling, might offer some hope on a climate change bill making it’s way through the Senate. But until politicians spell out what sacrifices will come with addressing climate change, it may be a campaign promise that remains unfulfilled.

Disappointingly, the president soft-pedalled trade and immigration priorities. While they were mentioned, it’s notable that the president didn’t call on Congress to pass free trade agreements with South Korea, Panama and Colombia. And the reference to the Doha global trade round and immigration reform were pro forma at best, not promising any results.

Obama was laying the foundation for significant payoff from his education initiatives, however. Student loan subsidies to banks are an easily overlooked handout to Wall Street that the president was smart to put an end to. The investment in K-12 education reform, community colleges, and Pell grants will help prepare the next generation of Americans for the 21st-century economy. Incentives for debt forgiveness for public sector workers will mean that our best and brightest — who go to very expensive colleges and graduate schools — can now afford to look at public service, and can be used to limit some of the demand for a revolving door between the public and private sectors.

The president didn’t break new ground, or lay out a visionary mandate for change. But he reassured us that he was going to govern as he was elected, looking for progressive solutions to the challenges the country faces.

One last point — at last week’s “banking limits” announcement, beltway Kremlinologists were reading volumes into the fact that Treasury Secretary Tim Geithner was off to one side, while presidential economic adviser Paul Volcker was front and center. (Simon Johnson said: “Where you stand at major White House announcements is never an accident.”) Last night was Geithner’s chance to stand front-and-center — shoulder to shoulder with Bob Gates. With Larry Summers way off to the right — and I didn’t see Volcker in the audience — the handshake the president gave Geithner on his way in would seem to be sending the message that the secretary continues to be the president’s man.

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Posted in A New Framework for Growth and Equity, Clean Energy and Modern Infrastructure, Daily Fix, New Schools for the 21st Century | 1 Comment »

Does America Have a China Policy?

Tuesday, November 17th, 2009
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

President Obama’s visit to China has underscored the dramatically unbalanced nature of the Sino-American relationship. No, not the oft-lamented imbalance in trade between the two countries, but a strategic imbalance. Put simply, China has a U.S. strategy, but it’s not clear that the U.S. has a China strategy.

The Chinese know what they want, and for the most part, they are getting it. Foreign policy mavens take note: this is what 21st-century realpolitik looks like.

China wants the United States to keep its markets open. “I stressed to President Obama that under the current circumstances, our two countries need to oppose all kinds of trade protectionism even more strongly,” Chinese President Hu Jintao said yesterday in a joint news conference in Beijing’s Great Hall of the People. Though he was too polite to say so, he had in mind U.S. tariffs on Chinese steel and tires.

While President Obama swore fealty to free trade, he also called for “balanced growth,” which is diplo-speak for U.S. efforts to get China to spur domestic consumption and rely less on exports. The president also declared that the world cannot count on overleveraged U.S. consumers to be a perpetual engine of global growth.

Change in Trade Relationship Unlikely

That’s right in concept. But the U.S. trade deficit with China — even in the midst of recession and financial crisis — is expected to be $200 billion this year, about the same as last year. And U.S. injunctions to pump up domestic demand are no more likely to work with China than they did two decades ago with another export juggernaut, Japan. Beijing not surprisingly seems intent on sticking with the economic strategy that has produced annual growth rates of 10 percent – even as the U.S. wallows in 10 percent unemployment.

Worried about the value of the huge hoard of dollar assets they are sitting on, the Chinese admonished U.S. officials to keep the dollar’s value from sliding further. President Obama, determined to accentuate the positive, praised China’s previous pledges to “move toward a more market-oriented exchange rate over time.” But pegging the renminbi to the dollar is integral to China’s quasi-mercantile strategy. We should expect no more than cosmetic adjustments that will have scant effect on exchange rates and, therefore, will not give a major boost to U.S. exports to China.

So all and all the president’s visit was satisfactory from China’s point of view. Beijing got assurances that the administration would not shut out Chinese imports, or let the dollar get much weaker. It had to endure only mild U.S. nudges on boosting domestic consumption and letting its currency appreciate.

The Limits of Cooperation

For his part, President Obama stressed the need for Beijing to work with the U.S. to get North Korea and Iran to forswear nuclear weapons, and to reduce greenhouse gas emissions. China pays lip service to nuclear non-proliferation, but it has steadfastly declined to use its economic leverage to bring serious pressure to bear on North Korea. It also has blocked stiffer U.N. sanctions against Iran, even while upping its trade with Tehran. And China is adamant that it won’t sign a global warming pact with binding targets next month in Copenhagen.

The president seems not to have said much about democracy, which begs the question of whether the White House believes the absence of accountable governance in China in any way inhibits a close partnership with the U.S. Obama, however, did win Beijing’s acquiescence in a human rights dialogue set to start next year.

In sum, Beijing displayed a hard-boiled realism about hewing to an economic nationalism that has catapulted China from the Third World to the first tier of nations in just 30 years, but at a growing cost to global growth and financial stability. It also gained recognition as a key stakeholder in the world’s steering committee of great powers, without having to sacrifice anything of importance to the common cause of stemming the spread of nuclear weapons or slowing climate change.

What the U.S. got was the atmospherics of a cordial and cooperative Sino-American relationship, and little else.

President Obama is right, of course, that a U.S.-China collision is neither inevitable nor desirable. He may also be right that that none of the world’s toughest challenges can be met without Sino-American cooperation.

It is time, however, for frank acknowledgement of the limits of cooperation. We need to be clear about where U.S. and Chinese interests diverge, and about what, above all else, American really wants from China. Once the administration can answer that question, it will be able to pursue U.S. strategic interests with as much focus and determination as Beijing brings to the bargaining table.

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