Harold Meyerson: Second Thoughts on Trade

[Winehole23]

Second Thoughts on Trade (http://www.washingtonpost.com/wp-dyn/content/article/2009/01/27/AR2009012702781.html)



By Harold Meyerson (http://projects.washingtonpost.com/staff/email/harold+meyerson/)
Wednesday, January 28, 2009; Page A15



A few months ago, Robert Cassidy found himself pondering whether trade actually benefited the American economy. "I couldn't prove it," he says. "Did it benefit U.S. multinational corporations? Yes. But I cannot prove that it benefits the economy."




Such doubts would hardly be news if they came from an established critic of free trade. But Robert Cassidy was the chief U.S. negotiator on China's 1999 market access agreement with the United States -- the document that was the basis for Congress's extension of permanent normalized trade relations to China, which in turn enabled China to join the World Trade Organization. During the 1990s, Cassidy was the assistant U.S. trade representative for the Asia-Pacific region, and before that he worked in the Treasury Department's international affairs office.



Which is why his rejection of U.S. trade policy is worth more than passing notice. Speaking yesterday at the Economic Policy Institute, a liberal think tank, Cassidy noted how the promises made when the Clinton administration was promoting China's accession to the WTO have been turned on their head. "Claims were made that U.S. exports of goods to China would increase substantially," he recalled, "creating jobs in the higher-paying export sector." Instead, American manufacturers shuttered factories here and opened them in China, while China's undervaluation of its currency guaranteed that U.S. products would not be sold there. Indeed, Cassidy added, U.S. exports to China "consist primarily of raw materials" -- hardly the product of superior U.S. technology and production.



















































What Cassidy offered yesterday was a more full-throated version of a critique that has begun, tentatively, to emerge from the Obama administration: that the U.S.-China economic relationship is flawed, in part, as Treasury Secretary Tim Geithner has said, because China manipulates its currency to make its exports cheaper and ours unsustainably pricey. That's a clear shift in policy (http://www.ft.com/cms/s/0/b876fafc-eb18-11dd-bb6e-0000779fd2ac.html), since currency manipulation, which generally has a far greater effect on the price of internationally traded goods than tariffs do, was a wrong that the Bush administration was loath to right. As Thea Lee, the AFL-CIO's chief international economist, has pointed out, the U.S. trade representative's office has for years routinely referred complaints about currency manipulation to the Treasury, which has referred them to the International Monetary Fund, which, according to a report in Monday's Financial Times, has not discussed China's currency policy since 2006.
Such a discussion would be of more than academic interest, since the economic relationship between the United States and China is the linchpin of the global economy -- that is, a central cause of the global economic crisis. China produces and we consume; China takes the proceeds from our consumption and lends it back to us, not so we can produce more -- American multinationals would prefer the Chinese do that -- but so we can take on more debt and continue to consume.


The next time we turn our attention to crafting a new linchpin for the global economy, Cassidy says, we need to do better. He contends that the new administration and Congress can invoke anti-dumping laws to mitigate the unfair competition that results from China's currency policy. More elementally, he argues, U.S. trade policy should be based on America's economic self-interest. It speaks volumes about the last couple of decades of U.S. trade policy that the man who negotiated many key points of that policy now thinks that they were calculated not to enhance our national interest but, rather, those of U.S. financial and corporate interests.



The debate about the stimulus package before Congress has helped expose the huge rift between our national interest and that of our globalized business sector. Last week, the House Appropriations Committee voted almost unanimously to require the use of U.S.-made steel in the infrastructure projects included in the stimulus, unless the U.S. industry -- which is running at 43 percent of capacity -- was unable to supply it. You might think that American business, beyond the steel industry, would welcome such language, but, in fact, using Americans' tax dollars to stimulate American production looks like the last thing globalized American business wants. A letter opposing "Buy American" provisions in the stimulus has been signed by the U.S. Chamber of Commerce, the Business Roundtable and several other such groups.



It was bad enough when our banks and corporations decided to take their funds out of American manufacturing to promote low-wage production in China. Now they want to direct the tax dollars behind the stimulus program to the same end.



The only mystery here is why the Chamber and the Roundtable aren't compelled to register as foreign lobbyists. Of all the terms we could use to describe them, "American" certainly does not spring to mind.

[doobs]

Sounds reasonable.

http://www.therudenews.com/wp-content/uploads/2008/03/hawleysmoot.jpg

[Winehole23]

Sounds reasonable.

http://www.therudenews.com/wp-content/uploads/2008/03/hawleysmoot.jpgWho's in the picture, please?

[doobs]

Who's in the picture, please?

Representative W.C. Hawley, of Oregon, and Senator Reed Smoot, of Utah.

[2centsworth]

winehole23, enough with the copying and pasting. when it comes to economics, most of those cats just recite theoretical BS. someone who actually knew anything about business wouldn't write articles for a living.

[Winehole23]

Representative W.C. Hawley, of Oregon, and Senator Reed Smoot, of Utah.Gotcha. You're counseling supine indifference to the imbalance of trade with China and to a stimulus that may benefit them more than us?

Considering that you've already declared the free market dead, I find your continuing faith in it surprising.

[Winehole23]

winehole23, enough with the copying and pasting. when it comes to economics, most of those cats just recite theoretical BS. someone who actually knew anything about business wouldn't write articles for a living.Sure. But who would be knowledgeable enough to comprehend and discuss "real economics" here? I probably wouldn't be. I post stuff like this not because I necessarily believe it, but to get people to think and discuss, nothing more.

If you dislike the tenor of the conversation or think it too dumbed down, by all means, take control of the conversation and lead it where you think it needs to go.

You're the critic. Lead the conversation, instead of just taking a leak on it.

[doobs]

Gotcha. You're counseling supine indifference the imbalance of trade with China and a stimulus that may benefit them more than us?

The stimulus and free trade are two very different things. And, yes, I understand the "point" of this article.

You can argue all you want about the wisdom of the stimulus. I, for one, am basically opposed to spending our way out of recession. To me, a recession is like a forest fire: sometimes you just need to let the decaying and dead trees burn to make room for new, healthier trees. It's when you obsessively fight forest fires that undergrowth becomes a problem, and any future forest fires become much, much worse. OK, there's only so far you can stretch that analogy. I guess I'm saying I'm not a Keynesian.

Regardless, if we're going to have a stimulus package, it makes no sense to me that we should have second thoughts on free trade, or implement restrictive measures regarding bidding for that stimulus money. The last thing we need to do in a time of economic uncertainty is micromanage our trade relationships or agonize over "Made in America" products, just because some foreign interests may benefit from our stimulus. More protectionism will surely make the stimulus even less effective.

For example: "Last week, the House Appropriations Committee voted almost unanimously to require the use of U.S.-made steel in the infrastructure projects included in the stimulus, unless the U.S. industry -- which is running at 43 percent of capacity -- was unable to supply it." Why in the world would you want your tax dollars available only to a small group of domestic suppliers? Wouldn't it be fairer to taxpayers to open the stimulus package to bidding from foreign steel manufacturers--who may be willing to supply the steel at a substantially lower cost and thus save ALL OF US money?

I guess my main objection to protectionism and all its kin--bailouts, subsidies, etc.--is that it tries to take a photograph of the US economy and enact policies to make the US economy match that photograph. Maybe we need to consider the possibility that Americans shouldn't be manufacturing steel, or building cars, or whatever. Maybe Americans need to do other things.

I posted the photograph of Hawley and Smoot because they represent, to me, the fuzzy economic thinking that turns recessions into depressions.

[doobs]

Considering that you've already declared the free market dead, I find your continuing faith in it surprising.

What? I said government intervention kills the free market, and I said that with sadness. I will ALWAYS have faith in the free market's power to create wealth, promote efficiency, and allocate resources . . . and with minimal government interference. I was just bitching about FDR, LBJ, and every other president not named Reagan. (And he gets a B.)

[Winehole23]

The stimulus and free trade are two very different things. And, yes, I understand the "point" of this article.

You can argue all you want about the wisdom of the stimulus. I, for one, am basically opposed to spending our way out of recession. To me, a recession is like a forest fire: sometimes you just need to let the decaying and dead trees burn to make room for new, healthier trees. It's when you obsessively fight forest fires that undergrowth becomes a problem, and any future forest fires become much, much worse. OK, there's only so far you can stretch that analogy. I guess I'm saying I'm not a Keynesian.I agree with this. How well did Keynesian stimulus work for Japan in the 1990's?


Regardless, if we're going to have a stimulus package, it makes no sense to me that we should have second thoughts on free trade, or implement restrictive measures regarding bidding for that stimulus money. The last thing we need to do in a time of economic uncertainty is micromanage our trade relationships or agonize over "Made in America" products, just because some foreign interests may benefit from our stimulus. More protectionism will surely make the stimulus even less effective.Sure. But as a matter of industrial policy, how do we create an environment in which real productive wealth and high wage jobs can be created for under-educated Americans?

In the nineteenth century, high tarriff barriers had something to do with our emergence as an industrial power.


For example: "Last week, the House Appropriations Committee voted almost unanimously to require the use of U.S.-made steel in the infrastructure projects included in the stimulus, unless the U.S. industry -- which is running at 43 percent of capacity -- was unable to supply it." Why in the world would you want your tax dollars available only to a small group of domestic suppliers? Wouldn't it be fairer to taxpayers to open the stimulus package to bidding from foreign steel manufacturers--who may be willing to supply the steel at a substantially lower cost and thus save ALL OF US money?This is the short term view. If industrial policy has the effect of increasing capacity, mightn't that be better all round in the long term?


I guess my main objection to protectionism and all its kin--bailouts, subsidies, etc.--is that it tries to take a photograph of the US economy and enact policies to make the US economy match that photograph. Maybe we need to consider the possibility that Americans shouldn't be manufacturing steel, or building cars, or whatever. Maybe Americans need to do other things.Like continue to borrow and spend ourselves into the poorhouse?


I posted the photograph of Hawley and Smoot because they represent, to me, the fuzzy economic thinking that turns recessions into depressions.I thought you were arguing that depressions need to happen as part of necessary market corrections. Or don't they?

[SnakeBoy]

Maybe we need to consider the possibility that Americans shouldn't be manufacturing steel, or building cars, or whatever. Maybe Americans need to do other things.


Under the modern concept of globalization the only thing left for Americans to do is consume. The belief that Americans will always define happiness in terms of how much they can consume is about as true as the belief that housing prices can only go up.

I believe it's the end of the road for modern globalization and that a fundamental change in American attitude has taken place. I may be wrong about that but we will find out soon enough with the governments massive attempt to get us spending again. If the new status symbol has become paid off credit cards and paid off mortgages instead of hummers, mercedes, and the coolest entertainment system then all the government efforts will be in vain.

Even if I'm wrong and that fundamental change in American attitude has not already taken place it is inevitable that it will. Once it does, modern globalization will go the way of Humpty Dumpty.

[Winehole23]

Under the modern concept of globalization the only thing left for Americans to do is consume. The belief that Americans will always define happiness in terms of how much they can consume is about as true as the belief that housing prices can only go up.

I believe it's the end of the road for modern globalization and that a fundamental change in American attitude has taken place. I may be wrong about that but we will find out soon enough with the governments massive attempt to get us spending again. If the new status symbol has become paid off credit cards and paid off mortgages instead of hummers, mercedes, and the coolest entertainment system then all the government efforts will be in vain.

Even if I'm wrong and that fundamental change in American attitude has not already taken place it is inevitable that it will. Once it does, modern globalization will go the way of Humpty Dumpty.Nicely turned, SnakeBoy.

[RobinsontoDuncan]

People that believe in free trade (which has come to mean little more than unrestricted trade for multinational corporations) don't seem to take into account the full scope of its function.

Take NAFTA for example. When the Clinton White House completed NAFTA legislation, the administration noted that the US would have to deal with an explosion of illegal immigration. Why? Because US agribuisness was able to dump undervalued produce into Mexico causing local agricultural workers to lose their jobs. This loss of income forced Mexican workers to either work in the newly formed sweat shops (the product of multinational corporations closing their manufacturing centers in the United States in favor of opening them in Mexico where labor laws, environmental protection, and corporate regulation was much more relaxed) or work as migrant agricultural laborers or unskilled laborers in the United States.

Proponents of Free Trade would argue this was the result of American regulation, a costly series of policies that prevent businesses from destroying the environment and exploiting their workers. The argument is, in essence, that business will always chose to make the most profit possible and if nations want their economies to thrive, then allowing for widespread social and environmental harm is necessary.

Too many people have bought into the false choice that we can either have a thriving economy or an equitable and responsible society. The truth is that *fair* trade is a much more sound policy. Fair trade seeks to open markets to export from countries that have similar standards of labor, environmental, and currency standards in an effort to share prosperity.

For every positive result of *Free* trade, there will be multiple negative results that are far more tangible.

Free trade concentrates wealth into the hands of the wealthy and disadvantages those that seek to benefit equally from the global economy.

[doobs]

I thought you were arguing that depressions need to happen as part of necessary market corrections. Or don't they?

I don't have time to address your other points. But I will address this one.

Recessions need to happen from time to time, to address the problem of excess supply (basically). A depression--which is a poorly defined concept--is basically a deep, prolonged economic recession. The problem in a depression becomes more of a problem of insufficient demand, rather than the more simple, straightforward problem of excess supply. This is my understanding of the term depression.

My point is that misguided government policies can transform relatively shallow and short recessions into depressions.

Good topic.

[Winehole23]

I don't have time to address your other points. But I will address this one.

Recessions need to happen from time to time, to address the problem of excess supply (basically). A depression--which is a poorly defined concept--is basically a deep, prolonged economic recession. The problem in a depression becomes more of a problem of insufficient demand, rather than the more simple, straightforward problem of excess supply. This is my understanding of the term depression.

My point is that misguided government policies can transform relatively shallow and short recessions into depressions.Granted. Good post, doobs.

Looking at this thing as a credit phenomenon, there is an extreme excess of debt relative to real wealth. But instead of going the free market route of default, reorganization and liquidation, the public is backstopping the bad debt.

My question is, wouldn't the fastest and most efficient way to restore a balance between credit and capital be to let banks fail? In the process, bad debt is destroyed, true values discovered, productivity is consolidated and malinvestment seeks better avenues.

There's no doubt this would be risky and painful, but the option ought at least to be weighed in light of the more obvious dangers of fiscal medicine: hyperinflation, hyperindebtedness and national default.

[Winehole23]

People that believe in free trade (which has come to mean little more than unrestricted trade for multinational corporations) don't seem to take into account the full scope of its function.

The argument is, in essence, that business will always chose to make the most profit possible and if nations want their economies to thrive, then allowing for widespread social and environmental harm is necessary.

Too many people have bought into the false choice that we can either have a thriving economy or an equitable and responsible society. The truth is that *fair* trade is a much more sound policy. Fair trade seeks to open markets to export from countries that have similar standards of labor, environmental, and currency standards in an effort to share prosperity.

For every positive result of *Free* trade, there will be multiple negative results that are far more tangible.

Free trade concentrates wealth into the hands of the wealthy and disadvantages those that seek to benefit equally from the global economy.I would put the emphasis on fairness and national interest rather than equality, but I substantially agree with this too.

Ideal free trade, like ideal socialism, has never existed. There is always a legal and political context. Pretending that there isn't tends to makes capital the master of us, rather than the other way around.

Which is one of the main points of the OP. What's good for transnational capital may not be good for America.

[RobinsontoDuncan]

I would put the emphasis on fairness and national interest, but I substantially disagree with this too.

Ideal free trade, like ideal socialism, has never existed. There is always a legal and political context. Pretending that there isn't tends to makes capital the master of us, rather than the other way around.

Which is one of the main points of the OP. What's good for transnational capital may not be good for America.

That's exactly what I'm getting at. Free Trade is a ploy, a buzz word that is used to advance the economic interest of the few at the expense of the many.

Conservative economics make perfect sense in the abstract, theoretical world, but once put into practice they inevitably fail.

[SnakeBoy]

My question is, wouldn't the fastest and most efficient way to restore a balance between credit and capital be to let banks fail?

I know you were addressing Doobs but I think that is absolutely correct. I also don't think it is realistic to expect it to happen. "We must do something" is the mantra.

If you have time check out Ron Paul (at his finest) on Morning Joe talking specifically about this and everything he's saying goes completely over their heads.It's not on the video but later on the show they all agreed that "Ron Paul has no answers".

0k92fTDReHg

FWIW, I'm not an RP groupie. I don't think he has what it takes to be an effective president.

[Winehole23]

FWIW, I'm not an RP groupie. I don't think he has what it takes to be an effective president.I agree with that. I more agree with RP as a symbol of the direction we need to go than his actual positions.

I thought his fighting fire with kerosene metaphor was clear enough. What the financial talking heads can't abide is that RP would be willing to let the house of cards they've been pimping the last decade burn to the ground, for the greater good of capitalism.

[doobs]

Washington Post and Wall Street Journal on "Buy American":

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/27/AR2009012702986.html

http://online.wsj.com/article/SB123137418481962821.html

Note that, like me, the Washington Post editorial alludes to these guys:
http://upload.wikimedia.org/wikipedia/en/a/a2/HawleySmoot.jpg

But they look so happy and confident and . . . full of hope.

[Winehole23]

I guess I'm not convinced that procurement limits for steel lead "inevitably" to a depression any more than Keynesian stimulus saves us from it. And I wonder whether the economic impact of this single stipulation is proportional to Smoot-Hawley.

[mogrovejo]

Protectionism is like the creationism of the economics realm.

[Winehole23]

Protectionism is like the creationism of the economics realm.Protectionism was the cradle of our industrial sector, and it is still a shield for American agribusiness. In the form of subsidies and industrial policy, it has never ceased to exist.

The question isn't "are we protectionist or not." We clearly still are. The question is what deserves protection, and how much?

[LnGrrrR]

Great thread. No other comments at this time. :)

[doobs]

The question is what deserves protection, and how much?

Nothing.

Or at least there should be a strong--nearly conclusive--presumption that nothing deserves protection. Fuck agribusiness, fuck the big three automakers, fuck the airlines, fuck steel manufacturers . . . fuck fuck fuck 'em. If they can't cut it in the market, they need to wither away and die.

[SnakeBoy]

Or at least there should be a strong--nearly conclusive--presumption that nothing deserves protection. Fuck agribusiness, fuck the big three automakers, fuck the airlines, fuck steel manufacturers . . . fuck fuck fuck 'em. If they can't cut it in the market, they need to wither away and die.

So do you think american companies should be able to pay their workers $5 for a 14hr work shift, employ 12 year olds, etc.?

[Winehole23]

Nothing.

Or at least there should be a strong--nearly conclusive--presumption that nothing deserves protection. Fuck agribusiness, fuck the big three automakers, fuck the airlines, fuck steel manufacturers . . . fuck fuck fuck 'em. If they can't cut it in the market, they need to wither away and die.Even if the playing field isn't level? Even if it makes us dependent on countries we don't like? Even if it transforms us into a super-Mexico or super-Brazil?

It seems to me there's a prima facie case that globalism has hollowed out America's productive core and self-sufficiency, without conferring any corresponding benefit. The wealth of our country increasingly flows to China, Japan and oil producing states. How is that in the national interest? If Asia and the middle east start to shun the USD as a reserve currency, and stop repatriating our dollars, we're cooked. Globalism has made us more vulnerable as a country, not less. Our standard of living is going sideways, not up.

And if in fact economic trends are harmful to the national estate, you're saying it is the job of our government to stand aside and let us go down the tubes? That makes no sense at all. The national interest has to include domestic enterprise, self-sufficiency and the national standard of living. If it does not, then we're all just fodder for global capitalism.

Why have a government at all if its job is to feed us to the stateless Moloch (http://www.jewishencyclopedia.com/view.jsp?artid=718&letter=M) of profit?

[DarkReign]

Nothing.

Or at least there should be a strong--nearly conclusive--presumption that nothing deserves protection. Fuck agribusiness, fuck the big three automakers, fuck the airlines, fuck steel manufacturers . . . fuck fuck fuck 'em. If they can't cut it in the market, they need to wither away and die.

A country's means to produce is of far more import than you are giving it here.

America will have its collective neck stepped on if we become the service-industry exclusive, college-educated lawyers you seem to think everyone should be.

[Nbadan]

Nothing.

Or at least there should be a strong--nearly conclusive--presumption that nothing deserves protection. Fuck agribusiness, fuck the big three automakers, fuck the airlines, fuck steel manufacturers . . . fuck fuck fuck 'em. If they can't cut it in the market, they need to wither away and die.

...and fuck any jobs that pay a living wage...let's not throw the baby out with the bathwater...domestic auto jobs deserve to be protected, the Post Office does not...

[doobs]

So do you think american companies should be able to pay their workers $5 for a 14hr work shift, employ 12 year olds, etc.?

I'm talking about protectionism. Not labor laws.

I think I know where you're going with this. I'll bite.

I can understand why people want to attach labor and environmental standards to trade agreements. I can also understand why many people, mistaken about their own economic self-interest, want the government to erect trade barriers and provide subsidies. It's just bad economics.

Should American companies be allowed to pay workers $5 for a 14 hour shift? If we can pretend that there's no minimum wage--then yes, any American company stupid enough to offer such paltry wages should be allowed to do so. That company would have no American employees, guaranteed.

Should American companies be allowed to employ 12 year olds? I support child labor laws.

So, yes, I believe in labor laws to protect workers and children. But that wasn't the question. We're discussing protectionism--subsidies, tariffs, bailouts, etc. And, no, I don't stay up at night worrying about whether my Nikes were made my 12 year olds.

[Wild Cobra]

Who's in the picture, please?

wiki: Smoot-Hawley Tariff Act (http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff_Act)

[Winehole23]

wiki: Smoot-Hawley Tariff Act (http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff_Act)Um, thanks. I've been over this already with doobs.

Welcome to the thread, WC. Please please read all the way through before you say word one.

[Wild Cobra]

Um, thanks. I've been over this already with doobs.

Welcome to the thread, WC. Please please read all the way through before you say word one.
I have only scanned a few threads today, that's why I'm already saying very little. I've been very busy these last few days.

I saw the name reference, but I didn't see the Act linked. Maybe I missed it.

[baseline bum]

The thought of us ever exporting to China was lunacy; of course Chinese weren't going to be able to afford any of our exports. The standard of living is shit there. Anyone who said free trade with China was about expanding the American economy was either lying or fucking retarded.

[Wild Cobra]

The thought of us ever exporting to China was lunacy; of course Chinese weren't going to be able to afford any of our exports. The standard of living is shit there. Anyone who said free trade with China was about expanding the American economy was either lying or fucking retarded.
We actually agree on a topic.

[Winehole23]

We actually agree on a topic.I bet you got there a different way.

How did you deduce it?

[Wild Cobra]

I bet you got there a different way.

How did you deduce it?
I don't think you care how I decide things. I think you just want to find something to attack me with.

I am a free trade believer, but only with countries that have similar end product costs. What irks me the most is our end sale cost differences. Generally, shipping costs help compensate for products that can be made cheaper. My major problem is the different tax structures. We tax production. Most other countries tax consumption. This effectively means products we import have little added costs in taxes, but products we export are effectively taxed twice. Taxes paid become part of the product costs. Rather hard to have a fair exchange of products that way. Even though our labor costs are higher than most countries, when you look at the product values vs. the pay and compensations to employees, it's a small percentage for most products. Then with liberals wanting to raise taxes, that means even more decrease in our exports!

[Winehole23]

I don't think you care how I decide things. I think you just want to find something to attack me with.Tempting, but I'll take a pass this time.


I am a free trade believer, but only with countries that have similar end product costs. What irks me the most is our end sale cost differences. Generally, shipping costs help compensate for products that can be made cheaper. My major problem is the different tax structures. We tax production. Most other countries tax consumption. This effectively means products we import have little added costs in taxes, but products we export are effectively taxed twice. Taxes paid become part of the product costs. Rather hard to have a fair exchange of products that way. Even though our labor costs are higher than most countries, when you look at the product values vs. the pay and compensations to employees, it's a small percentage for most products. Then with liberals wanting to raise taxes, that means even more decrease in our exports!Instead of finding a way to blame it all on liberals at the very last second, you might consider leaving it out entirely. Why insult your adversary gratuitously when you've already made your case?

You think we should trade when there's a relative parity of end product cost, whatever that is. You wonder whether it is wiser to tax consumption than production. Both totally reasonable gambits.

Maybe you really were very close to agreement with baseline bum, WC. I certainly wouldn't rule it out at this point.