William R. Hawkins
The most important theme of President Barack Obama in his State of the Union address was the need for economic growth and job creation. The official unemployment rate is 10 percent, but the real rate at 17.3 percent when the underemployed and discouraged workers are counted. The economy is still losing jobs; 85,000 gone in December. The imperative is to get the real economy moving. After spending trillions saving the financial sector whose blunders brought on the Great Recession, the public is dismayed at the lack of progress on Main Street compared to Wall Street
. The President said, “The true engine of job creation in this country will always be America's businesses. But government can create the conditions necessary for businesses to expand and hire more workers.” This is true, and the initiatives Obama offered to provide funds to community banks, cut capital gains taxes
for small business, advance research, promote capital investment, and build infrastructure will all be helpful. But a second stimulus package will not perform any better than the first if the largest hole in the economy is not closed; the trade deficit.
The U.S. trade deficit during the first 11 months of 2009 was $340.3 billion, with the deficit in goods production at $464.8 billion. This means more money was flowing out of America to support jobs overseas than was being pumped into the economy by the Recovery Act Obama touted in his address. President George W. Bush had the same problem coming out of the 2001 recession. As Business Week noted in April 2003, “the fiscal and monetary stimulus of the past two years has helped global producers as much as U.S. companies” because so much of the money was used to buy imports rather than goods made in America by Americans. “Buy American” provisions in the Recovery Act have helped some, but their application has not been wide enough.
The only thing Obama said about trade was to proclaim, “We will double our exports over the next five years, an increase that will support two million jobs in America.” No details were forthcoming about how the administration plans to persuade foreign governments to accept more U.S. exports which would put their citizens out of work and reduce the trade surpluses that support their growth. It was only a sound bite.
Foreigners have the money to buy more American-made goods; we’ve given them huge dollar reserves. But they would rather park the money in low-yield bonds than buy more imports that would displace domestic activity. There are three elements in the trade equation: money, goods and production capacity. From a national perspective, money is the least important. The emphasis governments place on exports is not to gain money, but to support production, the source of jobs and incomes
, career opportunities and national capabilities. These are the material factors that keep a society together.
Obama mentioned the Doha Round of global trade talks as a way to open foreign markets, but the talks have stalled precisely because China, India Brazil, and other developing countries do not want to see American firms penetrate strategic sectors of their economies. The Doha Round started in 2001, but has never truly “launched” as it has never gotten off the ground. It would be misplaced to put any faith in the process opening new markets for the U.S.
On January 26th, American-based business groups sent a letter to the Obama administration complaining of China’s “indigenous innovation policy.” According to the letter from the U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers and other groups, “Of the most immediate concern are new rules issued by the Chinese government in November to establish a national catalogue of products to receive significant preferences for government procurement.” The groups said the policy would make it nearly impossible for U.S. companies to participate in Beijing’s government procurement market, unless firms transferred their research and development to China. The policy targets the most innovative manufacturing and services industries, including consumer electronics, computer software, and green technologies; the very sectors Obama is counting on to expand American exports.
The U.S. groups, in concert with European and Japanese associations, had previously sent a protest letter to the Beijing regime on December 10th. The Chinese authorities did not respond. There was an immediate response, however, from the fiercely nationalist China Tech News the next day. The editorial stated,
In a circular that was issued last month, companies were asked to submit their products for accreditation before being included in a catalogue listing items that have Chinese characteristics, including domestic innovation. The catalogue would be used for preferential procurement by Chinese agencies and could encourage more Chinese companies to innovate and create products made in China.
But fearing that their hopes of hegemonic sales of technology to China could be greatly curtailed, foreign businesses and trade organizations have clamored to lobby the Chinese government to halt these actions that could see more Chinese government agencies and companies buying domestic Chinese products, rather than goods made by foreign firms.
Given the tight control Beijing exercises over the news media, it is safe to conclude that the China Tech News editorial reflects the official view. The government will ensure that Chinese firms control the Chinese market.
Vice Premier Li Keqiang told the World Economic Forum meeting in Davos, Switzerland January 28th that China wants to boost domestic demand to reduce an overreliance on export markets. “China's domestic market has huge potential, with more than a billion consumers” Li said, but added that the market would be opened only gradually to foreign imports. In the meantime, Beijing wants to put a stronger emphasis on domestic consumer demand to create new markets for Chinese goods hitherto reliant on exports.
Not that Beijing plans to give up exporting. Li said nothing about the setting of exchange rates
by government fiat to give Chinese producers a competitive advantage both at home and abroad. American and European criticism of China’s currency manipulation in Davos was ignored, as usual. China is the world’s largest exporter of merchandise, sending $1.4 trillion into overseas markets in 2008. But exports declined in 2009 due to the global recession. Yet, with a domestic economy growing at 8.7 percent, China has plenty of opportunities at home.
In an unstable world, the United States should also concentrate on developing more opportunities for Americans to advance and prosper in their own country. Before the recession, over $2 trillion worth of the American market had been lost to foreign producers. Taking that market back presents a larger prize than anything available overseas, and is inherently easier to reach. The trade deficit is a drag on economic growth and a hole that drains away the nation’s wealth. It needs to be blocked from both sides. America should export wherever it can, but also substitute domestic production for imports to regain the millions of jobs that have been lost over the last decade to foreign rivals.
FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.
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