Ideal Taxes Association

Variable Single-Country Tariffs Are the Key to U.S. and Eurozone Recovery
Raymond Richman, 4/23/2013

As John Maynard Keynes urged at conferences to create a brave,new world during WWII, balanced trade is the KEY to world economic stability. Balanced trade is the key to U.S., European, and world economic recovery. The massive unemployment in the U.S. and Southern Europe , Brazil, and others cannot be corrected by austerity alone. A world gold standard without the right of each country to employ flexible tariffs will not produce economic recovery nor will any other currency standard.

Austerity in Greece, Italy, Spain,, Portugal, France, and the U.S. will not produce economic recovery nor will vast government expenditures do it, nor will monetary policy. The Keynesian multiplier is a fiction. Government spending creates the illusion of recovery and not real recovery. Austerity in Southern Europe kid not work. Huge budget deficits and quantitative easing in the U.S. produced no genuine recovery. Nothing will work except relatively balanced trade and relatively balanced budgets and monetary discipline, i.e. creation of sufficient money to accommodate stable growth. The economic history of the past decade in the U.S. and the Eurozone have proven that.

The failure of the “new deal” in the 1930s and the budget deficit and the policies of the past decade under Presidents George W. Bush and Barack Obama have proven the non-existence of a Keynesian multiplier. Nearly all the increase in GDP was the net increase in government spending. Prof. Valerie Ramey of the University of San Diego has shown that increased spending by government is accompanied by diminished spending in the private sector. The failure of Pres. Obama’s economic stimulus plan of 2009 and the subsequent U.S. budget deficits are evidence of the non-existence of a multiplier. ...

Variable Single-Country Tariffs Are the Key to U.S. and Eurozone Recovery
Raymond Richman, 4/23/2013

Korea-US Trade agreement has cost about 50,000 jobs so far
Howard Richman, 4/16/2013

In 2012, despite the fact that South Korea is a currency manipulating country (see Bernanke's Figure 8), Congress passed and President Obama signed KORUS, a so-called "free trade agreement" with South Korea. Ever since it went into effect in March 2012, U.S. net exports (exports minus imports) of goods to South Korea have fallen as shown by the following graph:

From the year ending February 2012 to the year ending February 2013, US net exports of goods to South Korea fell from a negative $13.2 billion to a negative $18.1 billion. Assuming that each American manufacturing worker produces about $100,000 of product, American manufacturing workers have lost about 50,000 jobs, so far, as a result of KORUS.

The loss of manufacturing jobs could, conceivably, be overcome by gains in jobs in the service sector. However, net American service exports to South Korea have been relatively stagnant. There was only a $0.5 billion increase in U.S. net exports of services to South Korea from 2011 to 2012.

The United States is on track toward achieving the loss of 159,000 jobs to KORUS that was predicted by the Economic Policy Institute. Sam Williford wrote on March 21, 2011 (NAFTA Is Proof that KORUS Will Be Disastrous):...

Why is the media hiding the worsening US-China trade deficit?
Howard Richman, 4/9/2013

Why is the American media misinforming the American people about the worsening US-China trade deficit? The graph below shows the actual trade deficit, with a 12 month moving average:

In February, the U.S. merchandise trade deficit with China hit another 12 month record, falling to $321 billion over the last 12 months. In 2012, the U.S. had a service trade surplus with China of $17 billion, so the U.S. trade deficit with China in goods and services is now about $304 billion as compared to $298 billion at the end of 2012 and $280 billion at the end of 2011.

Yet the mainstream media all reported that the U.S. trade deficit with China improved in February, ignoring the fact that it is always lowest at this time of year. Here's a sample:...

Great Recession Caused by U.S. External Account Deficit
Jesse Richman, 3/26/2013

A recent article by Thomas Oatley and coauthors in the Political Science journal Perspectives on Politics argues that the global financial system is particularly vulnerable to systemic crisis when that crisis originates in the U.S. because the U.S. and U.K. banks are centrally located in the international finance system.

In a follow-on blog post, and an in-progress book manuscript, Oatley extends that analysis to focus on that the decision to finance the War on Terror through borrowing rather than taxes led to a worsening of the U.S. trade deficit, which led to the financial crisis....

Cyprus' Debt a Long Time Building
Jesse Richman, 3/21/2013

The European Union is currently wrestling with the debt problems of Cyprus and the Cypriot banks. In some ways these problems are new. But in many ways they are old. They have been building for decades as Cyprus has lived on borrowed money. Eventually nations that do not save, that live on borrowing, lose credit.

According to Trading Economics (http://www.tradingeconomics.com/cyprus/current-account-to-gdp) from 1995 through 2012 Cyprus averaged a current account deficit of nearly six percent of GDP.

Rep. Kaptur's Balancing Trade Act Needs Teeth
Howard Richman, 3/3/2013

On January 4, 2013, Rep. Marcy Kaptur (Democrat of Ohio) introduced H.R. 192, the Balancing Trade Act of 2013. She correctly explained that every $1 billion of trade deficit costs more than 5,000 jobs:

In an effort to stem job losses as a result of the trade deficit, I have also introduced and will fight passage of H.R. 192, the Balancing Trade Act. This legislation requires the President to take the necessary steps to eliminate or substantially reduce a trade deficit the United States has with any country if the trade deficit totals $10 billion or more for three consecutive years. Some economists estimate that each $1 billion in the trade deficit costs the United States more than 5,000 jobs. H.R. 192 would ensure that those job losses are stopped and the bill would prevent them from occurring in the future.

Ms. Kaptur is correct about the job losses, but the problem goes much deeper than that. The United States has been stuck in a depression (a long period of economic stagnation with high unemployment) since the fourth quarter of 2007 as a result of our chronic trade deficits. The economics is quite simple. Trade deficits subtract from aggregate demand and income while trade surpluses add to aggregate demand and income....

Balancing Trade Act
Jesse Richman, 2/15/2013

Representative Kaptur of Ohio introduced H.R. 192 at the beginning of the 113th Congress. This bill, the "Balancing Trade Act of 2013" requires the President to develop a plan to balance trade with countries that have the largest trade imbalances with the U.S. Representative Kaptur introduced the same bill in the 112th Congress. That version of the legislation had 6 cosponsors, and died in subcommittee. The key language of the bill is as follows:

a) Action by the President- If in 3 consecutive calendar years the United States has a trade deficit with another country of $10,000,000,000 or more, the President shall take the necessary steps to create a trading relationship with the country that would eliminate or substantially reduce that trade deficit, by entering into an agreement with that country or otherwise.

The bill would be stronger if it specifically empowered the president to take significant actions to balance trade...

Energy boom helped 2012 balance of trade
Jesse Richman, 2/15/2013

The boom in oil and gas production in the United States led to a modestly lower trade deficit for 2012 according to recently released figures from the BEA.

Overall, the BEA reports that

"For 2012, exports of $2,195.9 billion and imports of $2,736.3 billion resulted in a goods and services deficit of $540.4 billion, $19.5 billion less than the 2011 deficit of $559.9 billion."

And digging into the 2012 numbers in more detail it becomes clear that a key reason that the deficit in goods did not increase was a 24.6 billion decrease in imports of industrial supplies and materials. Much of the decrease is the diminished demand for energy imports...

Google's Eric Schmidt calls for the U.S. to meet China's challenge in his new book
Howard Richman, 2/4/2013

After the Chinese government hacked Google to steal Google's proprietary code and access dissident e-mail accounts, Google left China. As economist Peter Morici noted at the time in a Seeking Alpha commentary (Google and the Larger Chinese Challenge):

To sell in China, Beijing requires foreign companies to produce in China through joint ventures and then transfer prized technologies to local partners. Now, having extracted the knowhow it needs, China is tightening the noose on foreign companies, causing them to consider withdrawing and leaving behind formidable new competitors.

Google CEO Eric Schmidt is continuing to call for a United States response to the China challenge. He served on the President's Council of Advisors on Science and Technology (PCAST) where he helped put together an exellent Report to the President on Ensuring American Leadership in Advanced Manufacturing, about how to help American hi-tech companies compete. That report made many excellent recommendations, including that the U.S. lower its excessively high corporate income tax and that the U.S. help small hi-tech firms share research facilities, a technique that was successfully pioneered during the Reagan administration.

Now, According to a pre-publication review (Exclusive: Eric Schmidt Unloads on China in New Book), Google CEO Eric Schmidt is calling for the United States to meet China's industrial espionage challenge in his new book, Digital Age, co-written by Jared Cohen, who runs Google Ideas. Here is a selection from the review:...

Protectionism During Recessions?
Jesse Richman, 1/31/2013

The political science blog The Monkey Cage recently reprinted a selection from Political Economist. The selection examines the question of whether and to what degree the typical pattern of protectionism during recessions emerged during the first few years of The Great Recession.

The conclusions end up depending in part on two things: whether one focusses on developed economies or extends the analysis to emerging economies, and whether one focusses on a narrow definition of protectionism or a broader one.

The developed countries were unusually resistant to increasing protectionism, a phenomenon explained in part by the political power of export and import dependent firms in such countries....

Mercantilism's Success may be Moving World Toward Fascism
Howard Richman, 1/18/2013

In a January 10 commentary, Harvard political economy professor Dani Rodrik (In truth, mercantilism never went away) argues that mercantilism's success may be moving the world toward state capitalism (fascism). Indeed, if state-capitalist mercantilism competes with liberal-capitalist free trade, then fascism is the more prosperous system.

Rodrik correctly summarizes the success of modern mercantilism, writing:

[During] the last six decades: a succession of Asian countries managed to grow by leaps and bounds by applying different variants of mercantilism. Governments in rich countries for the most part looked the other way while Japan, South Korea, Taiwan, and China protected their home markets, appropriated "intellectual property", subsidised their producers, and managed their currencies.

He incorrectly argues that the West was right to ignore Asian mercantilism during these decades:...

Proposal for a Trade Reciprocity Act
Howard Richman, 1/16/2013

[Note: This replaces our earlier "scaled tariff" proposal.]

A BILL

To achieve balance in the foreign trade of the United States through the imposition of duties on goods and services from countries that have a bilateral trade surplus with the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,...

Chrysler CEO Marchionne: Jeep Factories In China Are Just The "First Step In The Globalization Of Jeep"
Howard Richman, 1/14/2013

An article in today's Detroit News (Chrysler to build Jeeps in China) has to be translated in order to be understood. It begins:

Chrysler CEO Sergio Marchionne said the automaker plans to build some Jeeps in China for the local market — and later, in Russia.

"As part of our global expansion of the Jeep brand, there are some cars — that because of the price position in the market — can never be made in the U.S. and exported," Marchionne told reporters on the sidelines of the North American International Auto Show....

TRANSLATION: Due to China's 25% base tariff on American produced automobiles, plus the additional 15% added in December 2011, Fiat can't afford to export Jeeps to China. Since Russia is copying China's strategy, Fiat will also build Jeeps there.

"We're going to be announcing the first step in the globalization of Jeep (in China). There's another one that's going to come in Russia. These things are part of a natural process of expansion."

TRANSLATION:...

Currency Manipulation and Trade
Jesse Richman, 1/12/2013

Last week Edward Lazear published a opinion essay in the Wall Street Journal maintaining that "Chinese 'Currency Manipulation' Is Not the Problem." His argument is that changes in the exchange rate between the dollar, the euro, and the yuan have not led to rapid changes in the trade deficit of the United States.

Lazear does admit that trade flows have responded to changes in currency values, but he argues that these changes have been quite small. This is one of the reasons why we think a more muscular approach to balancing trade (e.g. import certificates or the scaled tariff) is called for.

Lazear draws a different conclusion, and his conclusion does not follow from his premises or his evidence. He closes as follows:

Uncle Sucker's Trade Deficit worsened in November
Howard Richman, 1/11/2013

The Commerce Department reported this morning that, overall, the U.S. seasonally-adjusted trade deficit deteriorated from $42.1 billion in October to $48.7 billion in November. These worsening trade balances subtract from U.S. economic growth but add to the growth of our trading partners.

These worsening trade deficits are being produced by the governments' of America's trading partners, especially the governments of South Korea, China and Japan.

South Korea

In 2012, President Obama signed a "free trade" agreement with South Korea. The agreement lets South Korea continue to manipulate the won-dollar exchange rate in order to increase market share of Korean products and reduce market share of U.S. products in U.S. and Korean markets. The Federal Reserve reported that South Korea spent 4.24% of its GDP on currency manipulations between September 2009 and September 2010.

The agreement went into effect in March 2012. Ever since, the U.S. merchandise trade deficit with South Korea has deteriorated. descending to $16 billion for the 12 months ending in November as shown in the graph below:

Euro-Area Unemployment Rate Rises to new record of 11.8%
Howard Richman, 1/8/2013

The decision of the euro-area countries to try to fix their trade-deficit-caused depression without balancing trade still isn't working. Bloomberg reports that the European jobless rate is at its highest level ever:

Unemployment in the 17-nation region rose to 11.8 percent from 11.7 percent in October, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995 and in line with the median estimate of 27 economists in a Bloomberg News survey.

The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year, forcing companies to cut costs by slashing jobs. The European Central Bank estimates contractions of 0.5 percent and 0.3 percent in 2012 and 2013.

“In the southern areas of the euro zone, demand is very weak and therefore there is no way to see fundamental improvement in labor-market conditions,” said Uwe Duerkop, an economist at Landesbank Berlin. “There might be some stabilization in the labor market in the second half of the year where one can expect this trend of growing unemployment numbers to stop, but that’s not the story for the moment.”

These Southern European countries are experiencing the high unemployment rate that comes from persistent trade deficits. Here is a graph that we put together several months ago based upon the statistics then available:

Gore's Other Big Lie -- We're published in today's American Thinker
Howard Richman, 1/2/2013

We begin:

Former Vice President Al Gore is able to explain things in the simple language used by elementary school teachers, so he tends to be believed even when he is conveying misinformation.

For example, his prediction that sea level would rise by up to 20 feet over the twenty-first century was sufficiently believed that many attributed the damage of Hurricane Sandy to rising sea levels, even though, according to a careful analysis by Professor Nils-Axel Mörner of the University of Stockholm, sea level has not risen at all this century.

But Gore's simplistic explanations are not just limited to climate change. In his 1993 NAFTA debate with Ross Perot, Gore claimed that the U.S. Smoot-Hawley Tariff act caused the Great Depression of the 1930s worldwide. Holding up a photo of Senator Reed Smoot and Representative Willis C. Hawley, Gore said, as if talking to elementary-school children:...

To read the rest, go to: http://www.americanthinker.com/2013/01/gores_other_big_lie.html

Obama asking for more balanced trade with China
Howard Richman, 12/20/2012

Early in President Obama's first administration, he dispatched Secretary of State Hillary Clinton to China, not to insist on trade balance, but to beg the Chinese government for loans. The Taipei Times reported on February 23, 2009: "In Beijing, [Clinton] called on Chinese authorities to continue buying U.S. Treasuries, saying it would help jump-start the U.S. economy and stimulate imports of Chinese goods."

President Obama is starting his second term on a different note. The Associated Press reports:

WASHINGTON — The U.S. is seeking a more balanced trade relationship with China at talks Wednesday that could set the tone for cooperation after political transitions in the world’s two largest economies.

The annual joint commission on commerce and trade meeting comes weeks after President Barack Obama’s re-election and the elevation of new leaders of China’s ruling Communist Party.

Few concrete outcomes are expected, but Washington will be looking for signs of the economic policy direction under new Chinese leader Xi Jinping. The U.S. wants China to stimulate domestic demand and become less reliant on export growth and allow more market access for American companies.

Meanwhile, the US merchandise trade deficit with China (negative net exports) continues to worsen, hitting $311.6 billion over the 12 months ending in October as shown by the graph below:...

US Trade Deficit with China Hits Another Record
Howard Richman, 12/11/2012

At the same time that President Obama continues to pose as the champion of the American manufacturing worker, he continues to give away their jobs to China.

According to statistics released by the Census Bureau this morning, the U.S. merchandise trade deficit with China hit another record in October, climbing to $311.6 billion over the 12 months ending in October as shown in the graph below:

Obama Fiddles while China gets Jeep -- we're published in today's American Thinker
Howard Richman, 11/2/2012

We begin:

In December 2011, a few American-made vehicles were getting over China's high 25% tariff barrier, so the Chinese government raised the barrier. According to The Guardian, China raised its tariffs on GM cars by as much as 22% and on Chrysler cars by as much as 15%:

General Motors faces the greatest impact, almost 22% extra on some sports utility vehicles (SUVs) and other cars with engine capacities above 2.5 litres. Chrysler faces a 15% penalty, while a 2% levy will be imposed on BMW, whose US plants make many of the cars it exports to China.

Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American.

GM caved in April when it agreed to build several new Cadillac factories in China. Chrysler caved last week. On October 22, Bloomberg reported that Fiat, Chrysler's owner, is preparing to build new Jeep factories in China and may eventually import Jeeps from China. Here is how the Bloomberg article began:...

To read the rest, go to: www.americanthinker.com/2012/11/obama_fiddles_while_china_gets_jeep.html

Some recent academic papers on mercantilism
Jesse Richman, 11/2/2012

A number of intriguing academic papers have appeared on mercantilism in 2012. I summarize a few below.

Chinese economist Heng-fu Zou and coauthor Gaowang Wang presented a working paper on the relationship between mercantilism and global economic growth. They integrate Zou's 1994 dynamic analysis of the Viner model of mercantilism with Obstfeld model. The results are potentially quite important, and they point to the importance of including mercantilism in analysis of differential global economic outcomes....

Polls shift toward getting tough with China on trade
Jesse Richman, 10/26/2012

In 2011 and then in 2012 Pew asked whether respondents supported getting tough with China on trade. The poll shows a substantial shift toward more respondents in favor of getting tough with China on trade. As reported in http://www.pollingreport.com/china.htm, here are the summary results from the recent (October 2012) poll and the earlier one. Support for getting tougher increased by...

U.S. Trade deficit with China improved slightly in August
Howard Richman, 10/14/2012

According to numbers released on Thursday by the Commerce Department, the U.S. trade deficit with China improved slightly in August, after 23 months of steady deterioration as shown in the graph below:

In August, the U.S. merchandise trade deficit with China was $28.89 billion compared to $28.96 billion in August of 2011. Summed over the last twelve months, the U.S. merchandise trade deficit with China was $309.3 billion in August....

Costs of the Trade Deficit
Jesse Richman, 10/2/2012

Briefing Paper: Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010 ...

Ken McClenton: "The scaled tariff is a wonderful, wonderful idea!" -- listen to his interview with Jesse on The Exceptional Conservative radio show
Howard Richman, 9/20/2012

Listen to a Sept 19, 2012, interview with Jesse Richman by Ken McClenton on a wide variety of issues regarding the U.S. economy, our manufacturing sector, and world trade. The conversation includes an indepth discussion of the our Scaled Tariff proposal. At the end of the interview, Ken McClenton says, "The scaled tariff is a wonderful, wonderful idea!"

Listen to internet radio with TheExceptionalConservativeShow on Blog Talk Radio

Morici: "Governor Romney is right. The United States must get tough with China"
Howard Richman, 9/19/2012

University of Maryland business school economist Peter Morici had another great blog posting on CNBC yesterday (Romney Is Right—US Must Get Tough With China: Morici). He begins:

Governor Romney is right. The United States must get tough with China to restore growth and good paying jobs.

He dismisses Obama's token efforts, such as his latest WTO complaint that China is dumping autoparts and cars on the U.S. market. According to Morici:

President Obama lets China and others cheat on the rules, with only token opposition at the World Trade Organization.

One need look no further than the following graph that we put together in order to see President Obama's total failure:

Morici argues that it will be impossible to bring back American prosperity and jobs without switching presidents. He concludes:...

The Wall Street Journal Criticizes Romney Calls Him a Protectionist
Raymond Richman, 9/17/2012

In an editorial entitled �Romney�s Trade Pessimism�, the Wall Street Journal (9/15/2012) �criticizes Gov. Romney for publishing an ad attacking Pres. Obama for the latter�s failure to deal with our trade deficit with China. In the last twenty years, the U.S. trade deficit in goods and services increased from $39 billion in 1992 to $506 billion in 2011. Our deficit with China accounted for $280 billion, more than half, costing about 2.8 million jobs. Allowing such a huge deficit to continue is a disservice to the American worker.��...

Net Manufacturing Investment was a miniscule 0.18% of US GDP in 2011
Howard Richman, 9/5/2012

High U.S. manufacturing investment means that American workers are getting new tools at a faster rate than old tools are wearing out. But when net manufacturing investment (gross investment minus depreciation) is just above zero, tools are wearing out almost as fast as they are being purchased. As a result, American manufacturing workers lose out in world competition.

According to statistics released on August 15 by the Bureau of Economic Analysis (BEA), net U.S. manufacturing investment (gross investment minus depreciation) continued at minuscule levels in 2011, at just 0.18% of GDP. This continues the extremely low average of 0.20% for the decade beginning in 2002, as shown in the graph below:

If the United States were trading other products for manufactured goods, our low manufacturing investment could be justified by the doctrine of comparative advantage, but the collapse of American manufacturing investment has coincided with the collapse in the U.S. trade balance shown in the graph below:

Recent Economic Research on Effects of Trade
Jesse Richman, 9/4/2012

In a recent posting, Edward Alden notes that economists views of the effect of trade on U.S. employment, income inequality, etc., are shifting. It's worth taking a look at, especially the first part. Some selections:

"Responding to The Times’s recent survey about the causes of income stagnation, many top economists have cited globalization as a leading cause."

"In “The Evolving Structure of the American Economy and the Employment Challenge,” the Nobel-winning economist Michael Spence looked at job growth from 1990 to 2008 in sectors of the United States economy. He found almost no net job growth in sectors, like manufacturing, in which global trade played a large role....

Of Housing Bubbles and Trade Deficits
Jesse Richman, 9/4/2012

To test the proposition that countries with large current account deficits had large housing bubbles (i.e. bigger than the U.S.) but countries without current account deficits did not, I collected data on current account deficits from tradingeconomics.com for each of the countries for which housing price data is available on the Economist website. I then compared the current account deficit for countries with a large housing bubble with the current account deficit for countries without.

The average 2007 current account balance for countries with a large housing bubble was -2.84 percent of GDP, while the average current account balance for countries without a large housing bubble was 7.19 percent of GDP. Thus, on average for these twenty countries those with a housing bubble had a current account balance that was 10 percent of GDP worse.

"Deficit Spending Doesn't Work, Balanced Trade Does" - we're published in today's American Thinker
Howard Richman, 8/19/2012

Here is a selection:

During his later years, Keynes came to believe that trade-deficit countries should engage in trade-balancing measures rather than economic stimulus, while trade-surplus countries should assist in balancing trade while providing economic stimulus.

An empirical implication is that economic stimulus (e.g., fiscal stimulus through running a government budget deficit) should have a more positive effect for trade-surplus countries than for trade-deficit countries. Similarly, balancing trade should have stronger economic benefits for countries running budget deficits.

To test this implication, we analyzed cross-sectional linear regression equations with an interaction between budget and current account variables. For every year except 2009, this interaction achieved at least marginal levels of statistical significance (p < 0.10 two tailed) and in the expected direction. The results were precisely as Keynes projected: countries with budget deficits had lower jobless rates if they had a trade surplus, and countries with a trade deficit had lower jobless rates if they had a budget surplus.

The graph below illustrates the results of our worldwide analysis concerning the effect of trade deficits upon unemployment. The table shows the projected unemployment rate in the United States in each of the last five years as compared with a country with the U.S. budget deficit and debt levels, but no trade deficit. The red line shows the actual U.S. unemployment rate. The blue line shows the projected unemployment rate if trade were balanced. In 2011, the actual unemployment rate in the United States was 8.5%. A country that had the U.S. budget deficit and debt levels, but no trade deficit, would be expected to have an unemployment rate of 6.6%, as shown in the graph below:

To read the entire article, go to http://www.americanthinker.com/2012/08/deficit_spending_doesnt_work_balancing_trade_does.html

Romney: we do not have to accept "a huge and seemingly perpetual trade deficit with China"
Howard Richman, 8/17/2012

Fox News reports:

Romney says Obama has not been aggressive enough in challenging unfair Chinese trade practices and he would bring a "fresh and fearless approach" to that trade relationship, using both the threat of U.S. sanctions and coordinated action with allies to force China to abide by global trade rules.

He says the United States does not have to accept "a huge and seemingly perpetual trade deficit with China" and must demand U.S. companies have the same freedom to sell in China that Chinese firms have to sell in the United States....

Spain cuts its trade deficit the hard way
Howard Richman, 8/17/2012

European shares hit new highs a few days ago on the news that Spain's trade deficit was down 31.2% in June compared to June a year earlier. How did Spain do it? The chart below gives a clue:

Obama, Romney miss the elephant in the room -- Charles Campbell nails it in today's Baltimore Sun
Howard Richman, 8/14/2012

In an op ed in today's Baltimore Sun, retired Gulf Oil executive Charles Campbell nails it (Obama, Romney miss the elephant in the room: The cause of our economic woes is faulty trade policy, but the presidential candidates offer no solutions). He begins:

The unemployment rate has been stuck above 8 percent for months. President Barack Obama continues to blame the moribund economy on President George W. Bush while claiming that he has created 4.5 million jobs. Republican challenger Mitt Romney announces that he will create 12 million jobs in his first term. The president has proven that he has no solutions for our sick economy, and Mr. Romney's promises are ludicrous.

Neither ever discusses the root cause of our current economic distress — our policy of signing free trade agreements with the third world as well as the Asian powers who practice mercantilism. After November we will find ourselves exactly where we are today with the existing failed strategy or a new, useless policy unless there is a drastic change in our foreign trade practices.

It is not as though the problems with our trade policy are a sudden revelation. The economic miracles of Japan, Taiwan, Korea, Singapore and Hong Kong were built on the backs of highly skilled but unemployed U.S. manufacturing employees starting in the 1970s and accelerating through the 1990s.

In 50 years, China moved from Confucianism to communism to mercantilism....

Another new low for US-China trade
Howard Richman, 8/10/2012

On August 9, the Census Department published the trade data for June, the 29th consecutive month in which the US merchandise trade deficit with China has worsened and the 20th consecutive month that it has set a record low. The US merchandise trade deficit with China was $307 billion over the 12 months ending in June 2012, as shown in the graph below:

Mercantilism and Free Trade Aren't the only Alternatives
Howard Richman, 7/18/2012

In his July 17 Foreign Policy blog entry, Daniel W. Drezner (You campaign in mercantilism. You govern as a free trader) excuses President Obama's hypocrisy on trade. Obama accuses Romney of being an outsourcer, even though his own trade deficits are dismal, as we pointed out in the July 12 American Thinker (Who's the Real Outsourcer: Romney or Obama?).

Drezner assumes that there are only two alternatives, the "mercantilist" philosophy of seeking a trade surplus and the realistic "free trade" philosophy. But free trade is not realistic when you let your economy be gutted by mercantilist predators.

In an July 2 OpEdNews commentary (Has Our Defense of Freedom Made America Less Independent), Hugh Cambell endorses balanced trade as a "3rd alternative," one that would work. He recommends Warren Buffett's import certificate plan, as does one of America's premier trade economists Ralph Gomory, as did my father, son and I in our 2008 book, Trading Away Our Future. Cambell writes:

The title of Dr. Stephen R. Covey's most recent book, namely, The 3rd Alternative: Solving Life's Most Difficult Problems implies that there is a globalization alternative that moves beyond the polar-opposites of isolationism and free-trade. Such a 3rd Alternative is a balanced trade model highlighted in a November 2003 Warren E. Buffet and Carol J. Loomis Fortune magazine article, titled: America's Growing Trade Deficit Is Selling The Nation Out From Under Us., which can be found at: http://www.berkshirehathaway.com/letters/growing.pdf

Similarly, in a July 16, Huffington Post commentary, Representative Marcy Kaptur (D-OH) and Pat Choate point out that balanced trade would be a tremendous boost to the American economy (Fair Trade Can Help Close America's Jobs Gap):...

http://www.americanthinker.com/2012/07/whos_the_real_outsourcer_romney_or_obama.html

Who's the Real Outsourcer? - we're published in today's American Thinker
Howard Richman, 7/12/2012

We conclude:

[Obama] has always been two-faced on the trade issue. During the 2008 presidential campaign he promised publicly that he would take on Chinese trade manipulations. But behind closed doors, speaking to his outsourcing Silicon Valley campaign donors, he claimed that those who opposed Clinton's and Bush's trade policy were racists and xenophobes bitterly clinging to guns and religion. Specifically:

You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not.

And it's not surprising then they get bitter, they cling to guns or religion or antipathy toward people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

Even while President Obama criticizes Romney for having outsourced a handful of jobs several decades ago, he continues to outsource 30,000 additional American manufacturing jobs to China each month, month after month. In contrast, Romney promises to get tough with China starting on day one if he is elected. It would be refreshing to have a president who talks the talk and walks the walk. Such a person is long overdue.

You can read it at the following website:

Who's the real outsourcer, Romney or Obama?
Howard Richman, 7/9/2012

The Obama campaign has been running a series of campaign ads which call Romney an "outsourcer." According to Glenn Kessler in the Washington Post (4 Pinocchios for Obama’s newest anti-Romney ad), they create a false portrayal.

First, the Obama campaign ads claim that Romney regularly outsourced jobs when he was head of Bain capital, a generalization based upon a single instance. Kessler writes:

The Obama campaign rests its case on three examples of Bain-controlled companies sending jobs overseas. But only one of the examples — involving Holson Burns Group — took place when Romney was actively managing Bain Capital.

The Obama campaign also claims that Romney outsourced jobs as Governor of Massachusetts. Again, this generalization is based upon a single instance. Kessler writes:

The claim that Romney outsourced jobs as governor is equally overblown.

This concerns Romney’s veto of a bill that would have prohibited Massachusetts from contracting with companies that outsourced the state’s work to other countries. Lawmakers were especially concerned about a $160,000-a-month contract with Citigroup to operate a system of electronic food-stamp cards that included a customer phone service center in India.

On CNN last Sunday, Candy Crowley challenged one of Obama's campaign advisers on the campaign's decision to continue to air these adds even though they were basically untrue. You can watch the interview on The Blaze.

So why is the Obama campaign making a mountain out of this mole hill? Perhaps they are doing so in order to hide the real mountain. President Obama has been outsourcing on a grand scale. Take China, for example.

Under Obama's stewardship, Chinese factories sell to America freely without restraint, but should American factories sell to China, they face barrier after barrier. By permitting this unequal trading arrangement, Obama prevents American manufacturing jobs from coming back.

As we related in the May 9 American Thinker (Here Comes the Made in China Cadillac), when President Obama let the Chinese government raise tariffs upon GM's large-engine made-in-America cars from 25% to about 47%, he helped the Chinese government force GM to build factories in China and give away its Cadillac technologies to Chinese competitors simply to have access to the Chinese market. American workers not only lose present jobs, but they lose the future jobs that innovative technologies could produce.

Similarly, by letting China place a 30% tariff on all excavators, Obama virtually forces Caterpillar to build its new crawler factories in China in order to access the Chinese market, as my father and I pointed out in the October 4, 2010, American Thinker (WTO Helping China Loot Caterpillar).

Then there are American meat products. China lets in American raw grains, but not American meat. It uses a variety of subterfuges to keep out American meat, including a tariff of up to 105.4% on U.S. chicken exports. as my son, father and I pointed out in the Feb. 15, 2010, American Thinker (Playing Chicken with China).

And tariffs are only one of the tools China uses to keep out American products. It simply makes it impossible for American meat to be imported. It manipulates currency exchange rates so that American products are about 25% to 40% more expensive in China than they would otherwise be. It publishes catalogs of goods that exclude American products from those that can be procured by China's huge and growing government sector.

And the Chinese government excludes exports from purchase by its 1.3 billion people simply by moving its economy back toward socialism. In March 30, 2011, testimony before the U.S.-China Economic and Security Review Commission, Dr. Derek Scissors, a senior fellow of the Heritage Foundation, explained the mechanism. He wrote:

In most sectors [of China's economomy], there is no market of 1.3 billion. Instead, there is what is left after the SOEs [State Owned Enterprises] are handed the bulk. This applies, of course, to American companies looking to serve the Chinese market. It is no surprise that official data indicate the foreign investment share has plummeted in the past few years. The truncated market extends to U.S. exports. The various forms of subsidy provided to SOEs are far bigger barriers to American goods than the yuan’s peg to the dollar. Subsidization has been and can be increased to offset currency changes.

The following chart tells the same story through statistics. Under Obama's stewardship, every month for the last 27 months, U.S. net exports (exports minus imports) in goods to China have fallen steadily due to the Chinese government keeping out made-in-America products:...

Now Korea is Cleaning Our Clock
Howard Richman, 6/29/2012

On June 19, Pat Buchanan wrote a commentary (Now Korea is Cleaning Our Clock) about the initial results of the Korea US free trade agreement (KORUS). He begins:

“The entry into force of the U.S.-Korea trade agreement on March 15, 2012, means countless new opportunities for U.S. exporters to sell more made-in-America goods, services and agricultural products to Korean customers — and to support more good jobs here at home.”

Thus did the Office of the U.S. Trade Representative rhapsodize about the potential of our new trade treaty with South Korea.

And how has it worked out for Uncle Sam?

Well, courtesy of Martin Crutsinger of The Associated Press, the trade figures are in for April, the first full month under the trade deal with South Korea.

And, surprise! The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion. Suddenly, the U.S. trade deficit with Seoul surged to an annual rate of $22 billion.

This result was predicted by the Economic Policy Institute, as pointed out by Sam Williford back on March 21 2011 (NAFTA Is Proof that KORUS Will Be Disastrous), when he wrote:...

Mercantilism eats Free Trade
Howard Richman, 6/27/2012

Brian O'Shaghnesssy, chairman of Revere Copper Products, pointed out in a June 16 commentary (Mercantilism eats Free Trade) that the United States is losing jobs because of our failure to oppose mercantilism. He knows what he is talking about, because he knows what is happening in the business world. For example, he writes:

Revere ships its coils of copper and brass to other manufacturing companies largely in North America. Since the year 2000, more than 30% of the facilities that Revere shipped product to have shut down and moved offshore, mostly to China.

In the last ten years, multinationals have removed 2.9 million jobs from the U.S. economy. During that same time they added 2.4 million jobs in other countries like China because of governments that provide low cost loans, low cost electricity, grants, tax breaks, and duty exemptions. These countries also provide the benefit of VAT taxes and currency manipulation.

Today, China buys trees from South America, ships them to a paper plant in Shanghai, produces the paper, and ships the paper to Chicago for less than a paper mill in Wisconsin using trees grown in Wisconsin! This doesn’t make sense until you understand the impact that subsidies, VAT taxes and currency manipulation have.

Until the United States finally opposes mercantilism by requiring balanced trade, countries like China will continue to steal our rmanufacturing jobs and our children's economic future. He points out:...

http://www.americanthinker.com/2012/05/saving_greece_europe_and_the_united_states.html

Saving Greece, Europe and the United States -- we're published in today's American Thinker
Howard Richman, 5/24/2012

Here is a selection:

It is not an accident that the Northern European peoples have trade surpluses and the Southern have deficits. Cultures where winters are longer and colder emphasize saving in order to survive. And so with interest rates the same across the eurozone, the Northern Europeans saved and the Southern Europeans spent, and, inevitably, the Northern Europeans loaned money to the Southern Europeans so that the Southern Europeans could buy the Northern products. The result was trade surpluses in the North and trade deficits in the South.

But loans from the North to the South can go on only so long. Eventually, the South gets too deeply in debt to qualify for more loans and can no longer afford to buy more products than it produces.

Follow the following link to read it:

Commerce Department imposes tariffs on Chinese solar panels
Howard Richman, 5/20/2012

The solar industry is suffering from huge over-production glut worldwide due to the subsidies of the American solar panel industry by the U.S. government and the subsidies of the Chinese solar panel industry by the Chinese government. The Obama administration is desperately trying to protect its investment, before even more U.S. solar panel producers go bankrupt. Congressional Quarterly reported on May 17:

The Commerce Department on Thursday made a preliminary determination to impose tariffs of more than 31 percent on Chinese manufactured solar cells. The ruling came in response to U.S. solar manufacturers who claimed that China was "dumping" solar panels in the U.S....

U.S. net exports fell in March
Howard Richman, 5/10/2012

The Commerce Department released the latest trade statistics this morning and the data were quite negative. U.S. net exports of goods and services fell from a seasonally adjusted negative $45.1 billion in February to a negative $51.8 billion in March. If multiplied by 12, the March data would be the equivalent to a negative $622 billion net exports per year.

http://www.americanthinker.com/2012/05/here_comes_the_made-in-china_cadillac.html

Here Comes the Made-in-China Cadillac - we're published in today's American Thinker
Howard Richman, 5/9/2012

We begin:

It's déjà vu all over again! GM again caves to Chinese pressure. In September it was the electric car. In April it was the Cadillac.

The Chinese government made its latest move in December. That's when The Guardian reported that the Chinese government raised its already high 25% tariff upon American-made vehicles, concerned that increasing numbers of big-engine cars were being purchased by Chinese consumers:

Follow the following link to read it:

Why Lawrence Summers failed
Howard Richman, 5/7/2012

In 2009 and early 2010, Lawrence Summers, then Director of President Obama’s National Economic Council, tried to engineer a Keynesian economic recovery that was to take place during the recovery summer of 2010. The Obama administration tried to boost the three primary components of aggregate demand at the same time: (1) Household Consumption, (2) Business Investment and (3) Government Purchases. They succeeded!

Unfortunately, Summers was a Keynesian who didn’t understand Keynes. In the chapter about mercantilism in his magnum opus (The General Theory of Employment Interest and Money), Keynes explained what happens to trade deficit countries:

(A) favorable balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)

Indeed the very trade deficits that Keynes warned about killed Summers’ recovery. The stimulus that President Obama was pumping into the economic tire leaked out. Summers was the tire repairman who pumps up a tire without fixing the leak.

If not for growing trade deficits, Summers’ Keynesian stimulus would have boosted the economy by 4.8% in the first quarter and 5.6% in the second quarter of 2010, as shown by the red line in the graph below. Such fast growth could have ignited business investment which could have sustained future growth. But due to growing trade deficits subtracting from demand for American products, the economy only grew at a 3.9% growth rate in the first quarter and 3.7% in the third quarter as shown by the blue line in the graph below:

GM caves again -- will build Cadillacs in China
Howard Richman, 5/3/2012

In December, the British newspaper The Guardian reported that the Chinese government raised its already high 25% tariff upon American-made vehicles, concerned that a few American cars were still being purchased by Chinese consumers:

General Motors faces the greatest impact, almost 22% extra on some sports utility vehicles (SUVs) and other cars with engine capacities above 2.5 litres. Chrysler faces a 15% penalty, while a 2% levy will be imposed on BMW, whose US plants make many of the cars it exports to China.

Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American....

This month, that measure had the desired effect. In a May 2 Huffington Post commentary (Commies in Cadillacs: GM Turns Chinese), economists Peter Navarro and Greg Autrey reported that GM will build luxury cars in China in order to sell to the Chinese market. They began:...

Geithner thinks his failed trade policy was a success
Howard Richman, 4/30/2012

In November 2010, when it became clear that his recovery summer had failed, Lawrence Summers resigned as Director of President Obama's National Economic Council. In contrast, Treasury Secretary Timothy Geithner still hasn't figured out that he has failed.

In a speech at the Commonwealth Club of California on April 26, Geithner claimed that the Obama administration's trade policy has succeeded, despite the 25 months of falling net goods exports with China shown in the graph below:

Near the beginning of the speech, he said:...

Obama's trade policy will be an issue in the coming election
Howard Richman, 4/18/2012

The failure of President Obama's trade policy is quite clear. For example, according to the latest statistics from the Commerce Department, net US exports of goods to China fell in February for the 25th consecutive month, as compared to the same month one year earlier, as shown in the graph below:

A recent Republican National Committee (RNC) campaign ad (From 'Hope' to Hypocrisy: Excuses, Excuses) points to Obama's manufacturing job losses, without mentioning that his predecessor, Republican President Bush, had just as dismal a record.

Republican candidate Mitt Romney plans to take a tougher line with China than either of his predecessors. In the February 16 Wall Street Journal (How I'll respond to China's Rising Power), he wrote:...

Morici on China's announcement to widen the daily trading range of the yuan
Howard Richman, 4/17/2012

In a commentary in the Boston Herald (Posturing aside, yuan undervalued), U. of Maryland economist Peter Morici pointed out that China's decision to widen the daily trading range of the yuan means little. He wrote:

Beijing announced Sunday it was widening the daily trading range for the yuan to 1 percentage point. This news has been heralded as another indication that China is liberalizing its currency, and the yuan may now be fairly valued.

This may be dead wrong.

In May 2007, when no one would dispute the yuan was undervalued by a wide range — by my reckoning, 40 percent — China widened the trading range to 0.5 from 0.3 percent to no real effect.

Theoretically, if market pressures require, the new band should permit the currency to appreciate or depreciate 1 percent daily, but in the past official intervention has frustrated this process.

As Morici points out, China's interventions in currency markets are the real culprit here, not China's peg to the dollar. China prints yuan to buy hundreds of billions of dollars each year in order to keep the dollar's exchange rate high and the yuan's exchange rate low so that Chinese products can artificially undersell U.S. products in world markets.

Nevertheless, the Obama administration hailed the move as a step in the right direction. The India edition of the Wall Street Journal reported:...

China posts March trade surplus
Howard Richman, 4/10/2012

The Wall Street Journal headlines the article (China Posts Surprise March Trade Surplus). But it was no surprise to us. In the March 24 American Thinker (Falling Yuan Latest Failure of Obama's Trade Policy), we pointed to scattered news reports that China was stocking up on soybeans, copper and oil in February and argued that China's trade surplus was just due to China building up foreign raw materials inventory a little earlier than usual. We wrote:

The media justifies the Chinese government's decision to bring down the yuan-dollar exchange rate by citing reports that China ran overall trade deficits in January and February. During the first quarter of each recent year, usually in March, the Chinese government encourages its many enterprises to build up their inventories of foreign raw materials. As a result, China occasionally runs monthly trade deficits. The only thing new this year is that the inventory build-up came a bit earlier than usual.

Here is the Wall Street Journal's take on why China ran a "surprise" surplus in March:...

Comments: 16

The strange notion that U.S. trade is balanced
Howard Richman, 4/6/2012

In the April 5 Forbes Magazine (The Gold Standard and the Strange Notion of "Balanced Trade"), commentator Nathan Lewis argues that despite the fact that U.S. trade deficits were running at a $631 billion per year rate in January, despite the fact that the U.S. trade deficit with China alone was $282 billion per year in 2011, that there is no such thing as imbalanced trade.

He is correct that imbalanced trade is balanced by flows of savings in the opposite direction. He writes:

In actuality, all trade is balanced. Let’s say you are a businessman or investor. You want to trade something for something else. For example, you want to trade goods, services or assets for money (sell something), or you want to trade money for goods, services or assets (buy something).

Probably you are doing both of these at the same time, so in effect you are trading the things you sell for the things you buy, with the money acting as an intermediary. You probably end the process with roughly the same amount of money that you started. Money itself is an asset, of course.

OK Mr. Businessman, have these trades ever been “imbalanced”? Did you ever give goods and services and get nothing in return? At least not on purpose, right?

If that did occasionally happen, what you have in effect is an obligation for your counterparty to deliver something in the future, which is a type of asset, so even then you receive something in return. This would show up on the Current Assets portion of your balance sheet as an Accounts Receivable or something of that sort.

When trade is out-of-balance, the country exporting more than it imports does get something in return. The 16th century mercantilists got gold in return. The modern mercantilists get iou's, usually interest-paying bonds, in return. In effect, the modern mercantilists are lending money to their victims.

But Lewis shows his complete and utter lack of understanding of modern mercantilism when he sees nothing wrong with this bargain. If he wants to educate himself, we urge him to read our refereed-journal article on the subject (The Scaled Tariff: A Mechanism for Combating Mercantilism and Producing Balanced Trade).

Some economists think that these mercantilist loans benefit the victims. However, any benefit is just short term. At the same time that they give the victims more consumption, they take away investment opportunities in the victims' trading sectors. The result is that the victims get to live beyond their means for a short time, but they lose their industries....

Mexico getting set to impose high tariffs on U.S. chicken legs - final decision by August
Howard Richman, 4/3/2012

According to The Poultry Site, Mexico is getting set to impose tariffs on U.S. chicken legs with the final decision on the tariffs to be made by August. Here is a selection from the story:

Early in 2011, three Mexican poultry companies petitioned the Mexican government to begin an anti-dumping investigation of imports of chicken leg quarters from the United States, frivolously claiming that US companies were exporting leg quarters to Mexico at below-market prices.

The Mexican ministry recently announced its preliminary results; with proposed duties on US poultry ranging from 64 per cent to 129 per cent. Although these duties have not yet been applied, under Mexican law, a final decision will have to be reached by August.

This action is based on the "average cost of production" and assumes that every part of the chicken should be priced the same, e.g., that the chicken feet have the same value as the chicken breast.

Mexico is copying China's tactics for growing its economy at U.S. expense. Referring to China's ludicrous claim that the U.S. is dumping chicken feet on the Chinese market at a price lower than they are sold in the United States, The Poultry Site continues:...

http://www.americanthinker.com/2012/03/falling_yuan_latest_failure_of_obamas_trade_policy.html

Falling Yuan Latest Failure of Obama's Trade Policy -- we're published in today's American Thinker
Howard Richman, 3/24/2012

Here's how we begin:

Throughout 2011, at President Obama's urging, the People's Bank of China let the Chinese yuan rise slightly versus the dollar. It didn't raise the yuan enough to bring U.S. Chinese trade toward balance, but at least China was appearing to move in the right direction.

But the rise in the yuan stopped on January 1. Since March 1, China has actually been reducing the price at which the Chinese yuan is exchanged for the American dollar, as shown in the graph below:

Follow the following link to read the rest:

Comments: 23

Romney: "I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers"
Howard Richman, 2/19/2012

In the February 16 Wall Street Journal, Mitt Romney had a commentary about China (How I'll respond to China's Rising Power). He criticized President Obama's failures in China negotiations, attributing them to to Obama's other goals:

President Obama came into office as a near supplicant to Beijing, almost begging it to continue buying American debt so as to finance his profligate spending here at home. His administration demurred from raising issues of human rights for fear it would compromise agreement on the global economic crisis or even "the global climate-change crisis." Such weakness has only encouraged Chinese assertiveness and made our allies question our staying power in East Asia.

Romney plans a tough policy on China's trade cheating:

In the economic arena, we must directly counter abusive Chinese practices in the areas of trade, intellectual property, and currency valuation. While I am prepared to work with Chinese leaders to ensure that our countries both benefit from trade, I will not continue an economic relationship that rewards China's cheating and penalizes American companies and workers.

Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender.

Meanwhile China's president-in-waiting Xi Jinping's five-day visit to the United States last week resulted in an agreement that China would cheat a bit less, as it continues to pursue its strategy of keeping out legitimate American movies, music and software while permitting their piracy. Reuter's reports:...

China preventing Apple from selling legitimate iPads while permitting sale of knock-offs
Howard Richman, 2/13/2012

The Los Angeles Times on February 13 reported (iPads seized in China over trademark row) that the Chinese courts are preventing Apple from marketing iPads in China. Here is a selection:

An obscure Chinese company’s battle with Apple Inc. over who has rights to the iPad name took another unlikely turn after authorities in northeastern China seized dozens of the Apple tablets for trademark infringement, an attorney for the company said.

The seizures in Shijiazhuang, capital of Hebei province, were in response to a complaint filed by Proview Technology, a company based in the southern Chinese city of Shenzhen which has stymied Apple’s bid to secure the trademark in China for its hot-selling device.

In December, a court in Shenzhen unexpectedly rejected a lawsuit by Apple claiming it was the rightful holder of the iPad name.

In general, the courts in China do the bidding of the Communist Party of China. This particular decision went against Apple, even though Apple had bought the rights to the iPad name from Proview back in 2006, as the Los Angeles Times article points out:...

China's trade strategy explained
Howard Richman, 2/12/2012

[I recently had a chat with one of my students in which I explained how China's trade strategy works. I thought some of you who are confused about China's strategy might find it interesting also.]

Student 6:01 pm
Can you describe how building up foreign reserves help the economy?

Howard Richman 6:03 pm
It lets those producing in the mercantilist country make huge profits by selling at a low currency rate. That gets businesses to build factories in the mercantilist country. The mercantilist country gets manufacturing investment, and its trading partners don't. Fixed investment causes long-term growth, and there's more to it than just that. The mercantilist country's workers learn by doing. So become better and better workers.

Howard Richman 6:05 pm
And so the mercantilist country takes over its trading partners' comparative advantages. But China's main goal is power. It wants to increase its power and bring down ours, and that's what it's doing, and we're letting them. Power was always one of the main goals of the mercantilists.

Student 6:06 pm
Well it seems like a risky investment that they're putting so much into our dollar when it's on the verge of crashing. If our dollar becomes completely worthless does it benefit them?...

US merchandise trade deficit with China set a new record in 2011
Howard Richman, 2/10/2012

According to data released by the Commerce Department this morning, the U.S. merchandise trade deficit with China set a new record high in 2011 at $295.5, up from the last record high, $273.1 billion in 2010. Previous to that, the record was $268.0 billion in 2008. The U.S. trade deficiit with China has deteriorated for 23 straight months (when compared to the same month one year earlier), as shown in the graph below:

Trade deficits are a drag upon economic growth and produce a continuing loss of good paying U.S. jobs. When trade is in balance, jobs lost to imports are replaced by more productive jobs producing exports. But when the U.S. lets its trading partners manipulate currency values and place barriers upon U.S. products, the U.S. loses jobs while gaining little but debt.

In his State of the Union speech on January 24, President Obama said that he is doing much to improve our trade relationship with China. He suggested that someday he might even be able to reduce Chinese pirating of U.S. movies, music and software. Specifically:...

Emmanuel Goldstein makes the case for our Scaled Tariff in his blog
Howard Richman, 1/17/2012

On December 14, Emmanuel Goldstein endorsed our scaled tariff in a blog commentary entitled "The case for a scaled tariff." His writing is clear and powerful.

He begins by discussing the American jobs crisis, not only the high unemployment, but also the growing income inequality and the stagnating median income. He points out that the solutions provided by the right (lower taxes and regulation) and the left ("a large federal entitlement for everyone") would not solve the problem.

He understands the classical economic argument against tariffs, but also understands that it does not apply in the United States today. He writes:

[A]ccording to classical economic theory, high tariffs only serve to protect inefficient import-competing industries while inviting retaliatory tariffs that hurt more efficient exporting industries.

The thing is, that theory only holds when trade is fairly balanced. The problem is that the US has a massive trade deficit with a number of developing countries (led by China) who limit their imports. So while we lose lots of jobs to outsourcing and imports from countries with lower labor costs, because of the trade deficit we gain a comparatively tiny number of jobs in exporting industries.

In his final paragraph he recommends our Scaled Tariff as a possible solution. He writes:...

Comments: 76

Growing trade deficit quashing recovery -- again!
Howard Richman, 1/13/2012

The November data, just reported this morning by the Commerce Department, shows a rising overall trade deficit ($47.8 in November up from $43.3 in October). This worsening trade picture is spearheaded by declining net exports to China ($293.0 billion for the 12 months ending in November) as shown in the graph below:

In the summer of 2010 (the so-called "summer of recovery"), President Obama's massive stimulus would have produced an economic recovery, but it leaked abroad as growing trade deficits due to the adoption by many U.S. trading partners of China's mercantilist currency-manipulation strategy, as shown in the chart below:...

Romney ad hits Obama for letting China counterfeit US intellectual property
Howard Richman, 1/9/2012

The other Republican candidates give Obama a pass on trade policy, because they plan to adopt the same policy if elected. Romney is making it an issue.

And this should be a huge issue! Since Obama took office, his trade policy has cost American workers 800,000 manufacturing jobs, not to mention the jobs lost that would have provided services to these productive workers. Then, in the summer of 2010, he let the growing U.S. trade deficit abort his economic recovery (see Obama Fiddles While Economy Falters). And the utter incompetence continues. For the past 21 consecutive months he has let the Chinese government grow its trade surplus in goods with the United States, as compared to the same month the previous year....

Jack Davis commentary may have given Romney the win in Iowa
Howard Richman, 1/8/2012

In a December 28 commentary in the Des Moines Register (Romney's business experience will help him take on China), Jack Davis, founder of I Squared R Elements and, like us, a balanced trade advocate, endorsed Governor Mitt Romney for president. Here is how he began:

“We can’t just sit back and let China run all over us. They’re stealing our jobs.”

That’s a direct quote from Mitt Romney, reported by the Wall Street Journal.

I couldn’t have said it better myself. My company, serving the manufacturing supply chain worldwide, has watched the number of manufacturers in this country steadily decrease. Product we used to ship to the Midwest we now send to the Far East.

Romney is the only major presidential candidate to tell it like it is when it comes to China’s grand theft of our jobs, our industries and our children’s future....

Davis especially lauded Romney for taking on more than just China's currency manipulations, he wrote:...

Santorum emphasizes bringing back U.S. manufacturing in his Iowa victory speech
Howard Richman, 1/4/2012

In the Iowa caucus votes on Tuesday, the two major Republican presidential candidates who who have presented plans for bringing back American manufacturing, Santorum and Romney, tied for first place. Here is what Santorum said in his victory speech:

Comments: 335

China raises their 25% tariff on American-made cars
Howard Richman, 12/15/2011

President Hu of China said this week that China is persuing a balanced trade policy. If you believe that one, I've got a bridge in Brooklyn that I want to sell you.

The graph above shows the US trade deficit with China in goods as reported by the Commerce Department on Friday. At $291.8 billion for the twelve months ending in October, it was the highest trade deficit for a 12 month period ever recorded with China.

Meanwhile, the Chinese government is upset that despite its already high 25% tariff upon American-made vehicles, a few American-made cars are still being purchased by Chinese consumers, so they just raised their tariff. The Guardian reports:...

Republican presidential candidate Gov. Buddy Roemer would require balanced trade
Howard Richman,

In an interview with Ian Fletcher, Republican presidential candidate Gov. Buddy Roemer said that he would require balanced trade if he were elected president. Specifically, when asked what he would do to end America's trade deficits he said:

So we've got to consider things like a serious tariff to end our trade deficit. Not something I'd rush into blindly, and maybe there's other ways to skin this cat, but I wouldn't flinch at putting a 30 percent tariff on Chinese goods, or a tariff on imports across the board, with the whole world or the countries running a surplus with us. And the interesting thing, of course, is that once the other side knows that, knows that we'd do a tariff, maybe they learn real fast to be a bit more reasonable? But you've got to have a credible threat that you'd do it if you want that "Speak softly and carry a big stick" stuff to work.

When he said that he would consider imposing a tariff upon those countries which run trade surpluses with the United States, he was coming very close to our scaled tariff proposal. The tariffs in that proposal would only be imposed upon those countries which run trade surpluses with the United States. The rate of the tariff would be proportional to the trade surplus, giving those countries an incentive to take down their barriers to American products. Not only that, the scaled tariff would be WTO-legal (For more on this topic, see our article The Scaled Tariff: A Mechanism for Combating Mercantilism and Producing Balanced Trade, just published by the peer-reviewed Journal of International Law and Trade Policy.)

Requiring balanced trade would create about 5 million manufacturing jobs each producing about $100,000 of product. And those well-paid manufacturing workers would in-turn buy services from other Americans. The result would restart American jobs growth both in the short- and long-term. Gov. Roemer, who has an economics degree and an MBA from Harvard, is aware of these effects. In response to the question "How do you feel about the trade deficit?" he said:...

Newt Gingrich on Trade
Howard Richman,

Ian Fletcher, author of Free Trade Doesn't Work: What Should Replace It and Why, had a piece in Friday's World Net Daily (Newt Gingrich: Free Trade Kool-Aid Drinker), in which he discussed Newt Gingrich's positions over the years on trade.

Gingrich, for example, supported President Clinton's decision to give China "Most Favored Nation" status and let China into the WTO without requiring any balance in America's trade relationship with China. He quotes the following Spring 2001 interview that Gingrich had with PBS:

INTERVIEWER: Was it a good thing to allow China to become an open trading partner?

NEWT GINGRICH: Absolutely … Trade increases the likelihood that you and they will engage in win-win activities. The difference between politics and trade is that in politics I may take something from you to give to somebody else, even though you don't want to lose it, so I raise your taxes. I charge you a fee. I confiscate your farm. In a free market you only do the things that make you happy in order for me to get the things that make me happy, and if we're not both happy the trade doesn't occur. So free markets dramatically lower the friction of human relationships and increase the relative pleasure and the relative success of human relationships. The more the Chinese and Americans [sit] down together to create more wealth, the happier they'll be with each other, the less likely we'll have conflict.

Gingrich did not understand Chinese mercantilism when he gave this interview in 2001. The goal of mercantilism is to delay consumption in the present in order to get increased consumption and power in the future. They give their trading partners increased consumption in the present followed by reduced consumption and power in the future. (For more on this topic, see our article The Scaled Tariff: A Mechanism for Combating Mercantilism and Producing Balanced Trade, just published by the peer-reviewed Journal of International Law and Trade Policy.)

Unfortunately, Gingrich still doesn't understand mercantilism. Fletcher points out:...

China to devote $1700 billion to new import-competition
Howard Richman, 11/21/2011

U.S. Secretary of Commerce John Bryson told reporters at the U.S.-China Joint Commission on Commerce and Trade (JCCT) earlier today (November 21) that China plans to expand its subsidies to what it considers to be the "strategic sectors" of its economy. At the same event, Chinese Vice-Premier Wang Qishan justified the expenditure. According to the Reuters story:

Chinese Vice-Premier Wang Qishan warned on Monday the global economy is in a grim state and the visiting U.S. commerce secretary said China would spend $1.7 trillion on strategic sectors as Beijing seeks to bolster waning growth.

Under WTO rules, developing countries are allowed to declare certain sectors of their economy to be "strategic sectors" and are allowed to charge high tariffs (about 25%) on imports into these sectors. Many developing countries have designated their auto industries as strategic sectors under WTO-rules, but China's definition of "strategic sectors" keeps expanding, as the Reuters article also notes:...

New Scaled Tariff Article Published
Jesse Richman, 11/15/2011

Our article The Scaled Tariff: A Mechanism for Combating Mercantilism and Producing Balanced Trade has just been published by the peer-reviewed Journal of International Law and Trade Policy.

The abstract is:

In this article we first discuss whether or not the modern form of mercantilism that contributes to the trade deficit of the United States and other countries is a self-destructive and thus self-correcting strategy. We argue that it is not self-correcting. Then we discuss mechanisms that a trade-deficit country could utilize in order to produce balanced trade. The mechanisms differ in six respects, with the Scaled Tariff excelling in each.

The entire article can be downloaded at the following website: http://www.esteyjournal.com/j_pdfs/richman12-2.pdf

Wishful thinking expanding, but the trade data are flat
Howard Richman, 11/10/2011

If you rely upon CNBC for your economic analysis, you probably think that the trade deficit improved in September. However, according to the data released this morning by the Commerce Department, the changes in the trade deficit were negligible. According to the enthusiastic CNBC report:

The U.S. trade deficit unexpectedly shrank in September to its narrowest level since December on record-high exports, while the flow of imports from China slowed.

The seasonally adjusted trade deficit was $43.1 billion, down from a revised $44.9 billion in August, the Commerce Department said on Thursday. Analysts had expected the trade deficit to widen to $46 billion. U.S. exports rose 1.4 percent to a record-high $180.4 billion, while imports were $223.5 billion.

Imports from China, which are not seasonally adjusted, fell to $36.4 billion in September from $37.4 billion a month earlier, narrowing the trade deficit with that country to $28.1 billion.

In reality, the U.S. trade deficit with China set yet another 12-month record, worsening slightly from $289.0 billion for the 12 months ending in August to $289.2 billion for the 12 months ending in September, as shown in the chart below:

On the other hand the 12 month trade deficit with the world did improve slightly, moving from $538.3 billion for the 12 months ending in March to $537.4 billion for the 12 months ending in April, as shown in the graph below:...

Germany, the Euro and the Gold Standard
Raymond Richman, 11/2/2011

[This is reprinted from this blog on February 26, 2010. It is just as true today as it was then. Click here to read the original.]

Many commentators believe that dysfunctional Greece is the cause of Greece’s pending bankruptcy and many believe that dysfunctional USA is the cause of the USA’s pending bankruptcy. Time has run out for Greece and is running out for the USA. But the U.S. is more fortunate than Greece; its bonds are payable in U.S. dollars, issued as needed by its central bank, the Federal Reserve System. Poor Greece, its debt is payable in euros which are printed by the European central bank whose policies require Germany’s approval. And Germany does not approve profligacy.

The cause of Greece’s problems is alleged to be financial profligacy but its immediate cause is really its chronic trade deficit with Germany and the European community which causes it to run out of euros. The cause of the USA’s problem is alleged to be financial profligacy but its immediate cause is its chronic trade deficits with China, Japan, Germany, and OPEC which flood the world with dollars which the world hoards as reserves or sends to the U.S. in return for U.S. Treasury bonds and other U.S. financial assets. Unfortunately, this is not sustainable....

Romney's position against China's intellectual property theft resonates at Microsoft
Howard Richman, 10/14/2011

China freely allows piracy of American CDs, DVDs and software. Potential Republican presidential candidate Governor Mitt Romney says he will do something about it. As a result, he got a "warm reception" at Microsoft. A Reuters' story states:

Romney received a warm reception from the audience of about 300 Microsoft employees. The world's largest software maker is especially interested in intellectual property issues, having lost billions of dollars in Chinese sales over the years due to piracy.

Unfortunately, what Romney says he would do about it would be ineffective:...

Romney Won! He would tackle trade, repeal Obamacare, stop throwing money away on green jobs, reduce bank regulation, and continue strong defense spending.
Howard Richman, 10/12/2011

Governor Mitt Romney won the October 11 debate on the economy in Hanover New Hampshire. Here are some selections from what he said:...

Senator Webb Introduces Bill to Combat Chinese Intellectual Property Grabs
Jesse Richman, 10/7/2011

Senator Webb recently introduced legislation aimed at combating China's intellectual property grabs, particularly when the technology being 'transfered' was developed with U.S. government support. I've copied his press release below. Note the examples of the massive technological transfers U.S. multinationals have been forced to make as a condition for doing business in China.

Examples of China profiting from U.S. taxpayer-funded technologies:

• General Electric has transferred valuable aviation avionics technology to state-owned Aviation Industry Corporation of China. The U.S. government has long supported the aviation industry through procurement initiatives and federal research projects. The fruits of U.S. taxpayer support will now be incorporated into Chinese commercial airliners, in line with Beijing’s desire to develop an internationally competitive aircraft industry that could rival U.S.-based Boeing. (Source: The Washington Post)

• Westinghouse Electric has transferred more than 75,000 documents to Chinese counterparts as the initial phase of a technology transfer agreement in exchange for a share in China’s growing nuclear market. These documents relate to the construction of four third-generation AP1000 reactors that Westinghouse is building in China. U.S. taxpayers supported the development of the AP1000 as well its predecessor, the AP600, through decades of nuclear energy research and development at the Department of Energy (DOE). Moreover, the DOE Nuclear Power 2010 program provided years of government support for the design and licensing of this reactor. (Source: The Financial Times)

American Production of the iPod? Setting the Record Straight
Jesse Richman, 10/4/2011

The iPod gets used as an example a lot in the discussion of global trade. Those who defend the current system of one-way 'trade' like to emphasize that although China assembles the iPod, the components (some of them anyhow) come from elsewhere. This is of course absolutely true. I heard this argument made again today, but it was accompanied by the false claim that many of the components come from the US. Perhaps a lot has changed in the last several years, but an article in 2007 by eminent economist Hal Varian in the New York Times sets the record straight on this, noting that at the time the U.S. produced portion of the iPod amounted to "$8 to various domestic component makers." Thus, if the ratios have stayed the same as those Varian cites, the iPod is roughly 1/20 manufactured in the United States, with most of the remaining 19/20 of its manufacture conducted in Asia.

"What Would Keynes Do?" The Diagnosis is Right. The Solution?
Jesse Richman, 10/2/2011

Thomas Geoghegan has a very smart article in the October 17 2011 edition of the Nation. The title is "What Would Keynes Do?" But the best part of the article is really the part about what Keynes would say the problem is. Keynes would say, Geoghegan stresses, that a MASSIVE piece of the problem is that the US is and has been running huge trade deficits, and that this has caused real harm in the U.S. economy. A couple of excerpts follow, but the entire article (especially the first two online pages) is well worth reading.

Of course, others (even in the pages of this magazine) have pointed out that the US external trade debt is a bad thing, though it gets very little mention in our political debate. But it has a whopping big role in the current global crisis. The world filled up with foreigners holding dollars. They put the money back into the US economy in the form of loans—Treasury bonds, to be sure, but also corporate bonds, financial instruments, prime loans, subprime loans, payday loans and all manner of corporate debt. And the bloating of the financial sector—unregulated—led to the collapse.

Will Obama Answer This Question
Jesse Richman, 9/26/2011

Part of Obama's Linked-in forum today involves the president answering questions submitted by Linked-in users. The following question deserves an answer. Wonder if it will get one. The question was posted by Jeff Tuttle, a GM account manager. Jeff wrote:

"I recently had to put together a business case for supply of $100 Million worth of worldwide high tech manufactured product. America's import taxes make it almost impossible to source here. China: Requires a plant in China and also has 7-8% import...

Net U.S. manufacturing investment was 0.08% of GDP in 2010
Howard Richman, 9/23/2011

Net investment in U.S. manufacturing (gross investment minus depreciation) was 0.08% of GDP n 2010 up from 0.02% in 2009, according to statistics released in August by the BEA. By way of comparison, in 2008, net investment in U.S. manufacturing was 0.41% of GDP, in 1996 it was 0.95%, and in 1981 it was 1.54% of GDP.

The fall in net manufacturing investment has been parallelled by a fall in net exports (exports minus imports), as shown in the graph below:

GM caves to demand that it give China its electric car technology
Howard Richman, 9/22/2011

On September 16, the Wall Street Journal reported (Road Gets Bumpy for GM in China) that the Chinese government was pressuring GM to give away its proprietary electric car technology as a condition for exporting its electric cars to China. Here's a selection:

GM would like to bring its Volt electric car into China. But Chief Executive Dan Akerson said he refuses to share electric-car technology in exchange for hefty consumer rebates from the Chinese government that would juice sales of the vehicle.

But vehicles produced in the U.S. and sold in China must pay about 65% in visible and hidden tariffs (the approximately 40% hidden tariff is the result of currency-manipulations) while vehicles produced in China and sold in the U.S. pay no duties whatsoever while receiving a hidden currency-manipulation subsidy from the Chinese government. Economists call it "unilateral free trade," a synonym for "trading away one's future."

Less than one week later, the NY Times reported on September 22 (GM to develop electric cars with Chinese automaker) that GM has acceded to the Chinese government's demands:...

Clyde Prestowitz: "We live in a world that is ... half free trade and half mercantilist"
Howard Richman, 9/20/2011

Writing in Foreign Policy magazine on September 15, Clyde Prestowitz (The Protectionist Humbug) calls for an end to the nonsense that opposing mercantilism is protectionist. He begins eloquently:

Just as the call for patriotism is often the last refuge of scoundrels, so the charge of "rising protectionism" is often the last desperate cry of globalists who don't understand that it is raw mercantilism that is turning their free trade dream into a nightmare.

He characterizes the world as half free trade and half mercantilist:...

Obama correctly identifies one of the reasons for his economic failure!
Howard Richman, 9/12/2011

In his jobs speech, President Obama inadvertently identified one of the reasons his recovery plan failed. Here is the relevant part of his statement:

And we're going to make sure the next generation of manufacturing takes root, not in China or Europe, but right here, in the United States of America. If we provide the right incentives and support — and if we make sure our trading partners play by the rules — we can be the ones to build everything from fuel-efficient cars to advanced biofuels to semiconductors that are sold all over the world. That's how America can be number one again. That's how America will be number one again.

One of the chief rules of trade is written into the IMF charter. Specifically, Article IV of the International Monetary Fund Articles of Agreement requires that countries "avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." President Obama has let many U.S. trading partners violate this rule. The worst offender has been China....

Pat Buchanan's history lesson about the trade deficits
Howard Richman, 9/9/2011

Pat Buchanan's Labor Day commentary (How Capital Crushed Labor) gives a history of the U.S. trade deficits. At first we built our industries behind tariff walls, running continuous trade surpluses that benefited our economy:

[S]ince the Revolution, America has had a standard of living that has been the envy of the world. From the Civil War through the 1920s, as we became the greatest manufacturing power the world had ever seen, our workers enjoyed pay and benefits that were unmatched anywhere.

Yet our exports in those decades were double our imports, and our trade surpluses annually added 4 percent to the gross national product. How did we do it?

We taxed the products of foreign factories and workers and used the revenue to finance the government. We imposed tariffs of up to 40 percent on foreign goods entering our market and used the tariff money to keep taxes low in the United States.

We made foreigners pay a price to get their products into our market and made them pay to help finance our government. We put our own country and people first.

Then we went globalist:...

Why Obama's job speech failed
Howard Richman, 9/8/2011

In his jobs speech today, President Obama ignored the growing U.S. trade deficits, even though statistics released this morning by his own Commerce Department show that U.S. net exports to China (exports minus imports) hit yet another record low in July, falling to a negative $288 billion over the most recent 12 months, compared to a negative $287 billion in the 12 months ending in June, as shown in the graph below:

Meanwhile, U.S. net exports to the world as a whole also continued to worsen. Over the 12 months ending in July, overall U.S. net exports of goods and services fell to a negative $538 billion, compared to a negative $535 billion during the 12 months ending in June, as shown in the graph below:...

Romney on Trade
Jesse Richman, 9/7/2011

Romney's new jobs plan has an entire section devoted to trade policy. Romney begins by arguing for continuing negotiation and ratification of free trade agreements, arguing that once oil is excluded (why this should be excluded isn't explained or justified) the U.S. runs a trade surplus with the nations it has joined in such agreements.

He also addresses China. First, on the shortcomings of the Obama approach to China....

QE2 could have worked had Bernanke bought foreign currencies instead of Treasury bonds
Howard Richman, 8/25/2011

University of Maryland business economist Peter Morici, former Chief Economist at the U.S. International Trade Commission, has an excellent understanding of the way economics works in the real world, but he made a rare mistake in a recent commentary (Fixing Markets Needs to Start in White House). He missed the fact that the Federal Reserve, not just the Treasury Department, can engage in foreign exchange purchases. He wrote:...

June trade data showed a worldwide slowing of business investment
Howard Richman, 8/23/2011

The June trade data, released August 11 by the BEA, showed both a slowing of worldwide business investment and an increased bleeding of U.S. prosperity by China. The slowing of business investment was evidenced by the fact that U.S. exports declined from May to June led by U.S. exports of capital goods and industrial supplies. Here is the key paragraph from the report:...

Gordon Chang: "The Chinese have a right to maintain mercantilist practices. Yet we have every right to counter them."
Howard Richman, 8/16/2011

Writing in the August 7 Forbes Magazine (Obama Can't Say the Word "China"), Gordon Chang points out that President Obama is ignoring one of the primary causes of the US economic malaise. He writes:

“There is no doubt this has been a tumultuous year,” said President Obama on Friday as he began his speech at the Washington Navy Yard by talking about the American economy. “We’ve weathered the Arab Spring’s effect on oil and gas prices, the Japanese earthquake and tsunami’s effect on supply chains, the extraordinary economic uncertainty in Europe. And recently, markets around the globe have taken a bumpy ride.”

Each of the events he mentioned lowered growth in America, yet all of them were marginal and temporary. If we want to start a meaningful conversation on the topic, there is one word he needs to utter: “China.”

He goes on to point out that Washington is doing nothing to counter China's predatory trade practices, even though we have the right to do so:...

Is Dark Horse McCotter the best Republican Candidate on Trade?
Jesse Richman, 8/13/2011

Representative Thaddeus McCotter was unique among the speakers at the Iowa Straw Poll today in identifying the importance of addressing the challenge posed by China. His website also acknowledges China's mercantilist trade policy and advocates ending it.

"We must seek to restore vibrancy and prosperity to the American economy and the American middle class by dismantling destructive concentrations of power – in banking, in government and in education – and by ending Communist China’s mercantilist trade policy. By allowing American workers and entrepreneurs to compete on a level playing field, we will see how well they perform and how much we all prosper."

Comments: 9

Candidate Positions on Trade in the Fox News Debate 8/11/2011
Jesse Richman, 8/12/2011

In the Fox News sponsored debate that took place in Iowa on August 11, 2011 several of the candidates addressed the issue of the decline of American manufacturing and trade, though none used the term "trade deficit" in their discussion. Several offered proposals, though none provided details and their campaign websites often provide even less information than the candidate did in the debate. The challenge, as framed by Huntsman is that "We don't make things anymore in this country. We need to start making things in this country."

Asian central banks step up currency manipulations
Howard Richman, 8/4/2011

On November 15, while predicting the effects of QE2, I wrote:

The effect upon the dollar can’t help much. It will either be temporary or disastrous, depending upon what foreign central banks do:

Temporary Effect. If foreign central banks buy dollars with their currencies to prop up the dollar, as most Asian central banks are already doing so that their own products will be more competitive, they will drive the dollar back up, eliminating the positive effect upon America’s trade balance.

Disastrous Effect. If foreign central banks don’t buy dollars, then the dollar will collapse, producing a severe cut in American living standards. The United States would experience inflation. Interest rates would skyrocket. The prices of foreign goods, including oil, would skyrocket.

The effect was temporary. the central banks of Asia's largest economies appear to be stepping up their currency manipulations. Bloomberg reports:...

Will Asia Pull Back from the Dollar?
Jesse Richman, 8/2/2011

An August 2nd Reuters article argues that Asian governments may be pulling out of dollar investments.

Some locations like Singapore and China are already taking steps to cut their exposure to the U.S. dollar, and Washington’s brush with default may hasten the shift...

U.S. Net Exports to China set record 12-month low in May
Howard Richman, 7/13/2011

President Obama, Congress and the Federal Reserve have had a hard time stimulating the American economy, but they have done a great job of stimulating the Chinese economy.

In May 2012, according to data released on July 12 by the U.S. Commerce Department, U.S. net goods exports to China (exports minus imports) hit a 12 month record low of a negative $286.5 billion for the 12-month period from June 2010 through May 2011, as shown in the graph below:

Meanwhile, U.S. overall net exports with the world also took a hit in May, with net exports of goods and services falling from a negative $43.6 billion for the month of April to a negative $50.2 billion for the month of May, on a seasonally adjusted basis....

Prof. Gomory On Our Need to Balance Our Trade With China
Raymond Richman, 7/9/2011

It is always a pleasure to read something written by Ralph Gomory, Research Professor at the Stern School of Business, New York University. He wasVice President for Science and Technology for IBM for two decades, then became President of the Alfred P. Sloan Foundation from 1989 through his retirement in 2007. What really distinguishes him for us is the seminal book that he and Prof. William J. Baumol, wrote in 2000 and published bythe MIT Press, Global Trade and Conflicting National Interests. It was the most important contribution to the theory of international trade made in recent decades.

In June, in written testimony before the U.S. – China Economic and Security Review Commission on China’s Five-Year Plan, Indigenous Innovation and Technology Transfers, and Outsourcing, he noted China’s rapid economic growth which is attributable to its favorable balance of trade with, mostly, the U.S. and its negative effect on growth and income distribution in the U.S. He writes:

While the inflow of cheaper consumer goods has been a benefit. That benefit, as we will show below, has come at too high a price. It is also clear that U.S. global corporations, in their normal pursuit of profits, are strongly aiding these developments. Therefore it is time to realize that the interests of our global corporations and the interests of our country have diverged....

Government procurement is a one-way street between U.S. & China
Howard Richman, 7/1/2011

On June 25, the New York Times revealed that the California government is purchasing a bridge that was made in China. Here's a selection from the story:

The new Bay Bridge, expected to open to traffic in 2013, will replace a structure that has never been quite the same since the 1989 Bay Area earthquake. At $7.2 billion, it will be one of the most expensive structures ever built. But California officials estimate that they will save at least $400 million by having so much of the work done in China. (California issued bonds to finance the project, and will look to recoup the cost through tolls.)

And California is not alone, the New York government is also contracting with China for its infrastructure projects:...

Congress should reject the Free Trade Agreements unless a Balanced Trade Clause is added
Howard Richman, 6/29/2011

With growing trade deficits preventing the U.S. economic recovery, how could Congress and the President leave balancing trade clauses out from new trade agreements? Have they learned nothing?

Coalition for a Prosperous America has published a press release giving six reasons why Congress should reject the Korean, Colombian and Panamanian trade agreements that are currently being considered. Here are their six reasons:

1. Trade deficits: The trade agreements will cause worsening trade deficits. Trade deficits depress GDP growth and increase unemployment because U.S. facilities are offshored, or because components and subassemblies are procured offshore. Any foreign market share gained is overwhelmed by domestic market share lost....

Economist Peter Navarro Accuses China of Unfair Trade Practices
Howard Richman, 6/22/2011

In an op-ed in the LA Times 6-21-11, UC Irvine business economist Peter Navarro, co-author with Greg Autry of the new book Death by China: Confronting the Dragon — A Global Call to Action, had an op-ed in the LA Times yesterday about China's unfair trade practices (How China unfairly bests the U.S.). Here is a selection:

The most potent of China's "weapons of job destruction" are an elaborate web of export subsidies; the blatant piracy of America's technologies and trade secrets; the counterfeiting of valuable brand names like Nike and Chevy; a cleverly manipulated and grossly undervalued currency; and the forced transfer of the technology of any American company wishing to operate on Chinese soil or sell into the Chinese market.

Navarro points out, as we have been doing, that if America doesn't address the trade deficits, no amount of tax cuts or government spending increases will solve our economic problem. He concludes by calling for a candidate who will adress America's trade deficit with China:...

Comments: 35

There Is a Trade Multiplier. There Is No Keynesian Multiplier
Raymond Richman, 6/18/2011

Economists are Gung-ho on the so-called Keynesian multiplier. They must believe in fairies, too. The Keynesian multiplier theory was proved to be non-existent in 1937 when GDP fell after FDR’s New Deal government expenditures slowed. The economy did not recover until war broke out in Europe and our exports took off. And as we observed recently, the modest recovery produced by Pres. Obama’s Recovery Act of 2009, his economic stimulus plan, roughly $800 billions spent in 2009-2011, GDP fell after expenditures slowed in 2011. These two instances are evidence that the Keynesian expansion ends as soon as the increased government spending ends. What this means is that increasing government spending is not a sensible policy to promote recovery from the recession.

What is the Keynesian multiplier? It is the theory that an increase in government spending will not only increase GDP by the amount of the expenditure tbut that recipients of the increased income will increase their consumption spending, and the recipients of income from that increased consumption expenditure will increase their consumption and so on. If, on the average, income recipients consume 80 percent of their income, the total increase in GDP will be five times the increased government expenditure (1 +.8 +.8²+ …+ .8ⁿ= 5). The trouble is that households increase their annual consumption only when they have confidence that their increased income is expected to be permanent.

While there is no Keynesian multiplier, there is a trade multiplier associated with chronic trade surpluses and deficits. China and the U.S. are good examples. One observes how the Chinese GDP took off beginning in the 1980s as a result of its growing trade surpluses. And there is a negative multiplier associated with trade deficits as we can observe in the slowing down of growth and the loss of manufacturing jobs during the past four decades in the US as we went from being the world’s leading creditor to becoming the world’s leading debtor in a few short decades as a result of our growing trade deficits. ...

Mark Steyn's explanation of our politically correct military policy also explains our trade policy
Howard Richman, 6/17/2011

Mark Steyn explains the common threads of modern U.S. foreign policy in a brilliant and humorous commentary (Too Big to Win) in the June 15 National Review. He sums up our post-cold-war military policy in this perceptive paragraph:

Transnational do-gooding is political correctness on tour. It takes the relativist assumptions of the multiculti varsity and applies them geopolitically: The white man’s burden meets liberal guilt. No wealthy developed nation should have a national interest, because a national interest is a selfish interest. Afghanistan started out selfishly — a daringly original military campaign, brilliantly executed, to remove your enemies from power and kill as many of the bad guys as possible. Then America sobered up and gradually brought a freakish exception into compliance with the rule. In Libya as in Kosovo, war is legitimate only if you have no conceivable national interest in whatever conflict you’re fighting. The fact that you have no stake in it justifies your getting into it. The principal rationale is that there’s no rationale, and who could object to that? Applied globally, political correctness obliges us to forswear sovereignty. And, once you do that, then, as Country Joe and the Fish famously enquired, it’s one-two-three, what are we fighting for?

Without realizing it, he is also summing up U.S. trade policy. Our politically-correct leaders can't advocate a trade policy that would be in our national interest, because, as Steyn points out, that would be "selfish."

So when the Chinese government places tariffs (and other barriers) upon U.S. products and manipulates exchange rates in order to grow its power and destroy ours, we can't object on the basis of our national interest. Instead, Geithner and Bernanke have to argue that China should consider changing its policy because doing so would be in China's best interest. For example, in his January 22 written testimony at his Senate confirmation hearing, Treasury Secretary designate Timothy Geithner said:...

Jed Babbin correctly identifies power as one of the goals of Chinese mercantilism
Howard Richman, 6/15/2011

In the June 13 American Spectator (China Plays Reagan to our Gorbachev) Jed Babbin, former Deputy Undersecretary of Defense under George H.W. Bush, correctly pointed out that China is using mercantilism in order to build up its power. He wrote:

China isn't just our lender. It's not a free-market trading partner hoping that a rising economic tide will raise both economies out of the recession. China is an adversary, a 21st century mercantilist nation whose policy is to gain economic strength by manipulating markets. And its role as our reliable lender is aimed at manipulating U.S. economic strength as a means of diminishing our ability to interfere in Beijing's ambitions.

The European mercantilist nations of the 15th-18th centuries sought to increase government holdings of gold and silver as a means of growing economic power. Their main tool was market manipulation -- by tariffs and trade cartels, which were restrictive enough to cause a few wars. But military power was, to them, a secondary means of protecting or obtaining economic power by conquest and colonization.

Indeed power is one of the goals of mercantilism. I also pointed that out in a commentary that I wrote in December. Here is a selection:...

Morici: Create jobs by ending Bush & Obama's "appeasement" trade policy
Howard Richman, 6/12/2011

President Obama's stimulus has failed, just as we predicted. Federal Reserve Chairman Bernanke's QE2 has failed, just as we predicted. The administration and the Federal Reserve have run out of ideas. There is still a solution that Washington is ignoring. University of Maryland economist Peter Morici sums it up in a June 9 commentary (Cut Trade Gap to Create Jobs). Here is a selection:

The trade deficit, along with the credit and housing bubbles, were the principal causes of the Great Recession. A rising trade deficit again threatens to sink the recovery and push unemployment to more than 10 percent....

At 3.5 percent of gross domestic product, the trade deficit subtracts more from the demand for U.S.-made goods and services than U.S. President Barack Obama's stimulus package added. The Obama stimulus was temporary and is dissipating, whereas the trade deficit is permanent and swollen again....

Palin calls for balanced trade
Howard Richman, 6/7/2011

The Los Angeles Times reports that Governor Palin met with Donald Trump during a May 31 visit to New York. In her remarks, she told reporters that she advocates balanced trade arrangements:

"What do we have in common? Our love for this country, a desire to see our economy put back on the right track," Palin told reporters. "To have a balanced trade arrangement with other countries across this world so Americans can have our jobs, our industries, our manufacturing again. And exploiting responsibly our natural resources. We can do that again if we make good decisions."

Palin is now the only candidate with a program for putting America back to work. The media like to pretend that she is dumb. But the truth is that she has common sense. The American people respond to that sense when she talks to them directly, as she did when she won the the October 2, 2008, Vice Presidential debate. (If you're not convinced of the debate outcome, watch this focus group.)

Some commentators put Palin in the same category as Minnesota Congressman Michele Bachmann, since both advocate balanced budgets and enjoy Tea Party support. But Bachmann lacks common sense. In fact, she is an ideological free trader. In a blog entry, Bachmann wrote:...

Comments: 9

It Wasn't About Medicare: Jack Davis' Message for the Republican Party -- we're published in Enter Stage Right this morning
Howard Richman, 6/6/2011

Here's a selection:

Davis also made clear that he was running on a platform of balanced budgets and balanced trade, saying "This election is about the debt and poverty we are leaving our children." Regarding balanced budgets, he criticized the House Republicans' Ryan budget proposal saying that it "does not reduce spending enough." Regarding balanced trade he said:

American companies will not hire American workers until they have a level playing field. Manufacturing companies need trade balancing tariffs to be competitive with the predatory trade policies of foreign countries, like China…. The White House and Congress are controlled by the money from multinational corporations and by Wall Street. They will not control me. I cannot be bought.

You can read the entire commentary at: http://www.enterstageright.com/archive/articles/0611/0611specialelec.htm

U.S. Trade Deficit grows to $571 billion, driving GDP growth down to 1.8% in 1st Quarter
Howard Richman, 5/27/2011

President Obama is testing out the theory that it is possible to pump up the U.S. economic tire without patching the trade deficit leak. So far, he has only succeeded in pumping up the trade deficit.

As shown in the chart above, the U.S. trade balance fell to an annual rate of a negative $571 billion in the first quarter of 2011, the worst level since President Obama took office. This worsening of the trade deficit subtracted from demand for U.S. products, driving down real U.S. GDP growth from 3.1% in the fourth quarter of 2010 to an anemic 1.8% in the first quarter of 2011, according to the BEA's second estimate of 1st Quarter U.S. GDP released on May 26....

Navarro's new book "Death by China"
Howard Richman, 5/23/2011

Peter Navarro is one of our country's foremost economists, and he happens to agree with us! I'll get my father to review his new book with Greg Autry, Death by China: It's Not China Bashing if it's True, as soon as we get a copy. One chapter is online now and it looks like it is well worth reading. Here is a selection:

On this economic front, China's perverse brand of Communist-style "State Capitalism" has totally shredded the principles of both free markets and free trade. In their stead, China's state-backed "national champions" have deployed a potent mix of mercantilist and protectionist weapons to pick off America's industries job by job and one by one.

China's "weapons of job destruction" include massive illegal export subsidies, the rampant counterfeiting of U.S. intellectual property, pitifully lax environmental protections, and the pervasive use of slave labor. The centerpiece of Chinese mercantilism is, however, a shamelessly manipulated currency that heavily taxes U.S. manufacturers, extravagantly stimulates Chinese exports, and has led to a ticking time bomb U.S.–China trade deficit close to a billion dollars a day.

Meanwhile, the "entry fee" for any American company wishing to scale China's "Great Walls of protectionism" and sell into local markets is not just to surrender its technology to Chinese partners. American companies must also move research and development facilities to China, thereby exporting the "mother's milk" of future U.S. job creation to a hostile competitor....

Obama gives China a free pass to continue currency manipulations
Howard Richman, 5/19/2011

On May 13, the United States and China concluded the third meeting of the U.S.-China Strategic & Economic Dialogue. A joint factsheet about the meeting, which appears on the Chinese Ministry of Foreign Affairs website, lists the terms of the agreement. In return for a some concessions, mainly to those American businesses that already market to China from China, the Obama administration gave the Chinese government a free pass to continue their currency manipulations. Here is the relevant section of the agreement:

In accordance with economic recovery in the United States, the Federal Reserve will continue to adjust its monetary policy as appropriate to promote sustainable economic growth and price stability. The People's Bank of China will continue to adopt a mix of monetary policy tools to implement prudent monetary policy, in order to promote growth sustainability and price stability. The United States will maintain vigilance against excess volatility in exchange rates, and China will continue to promote RMB exchange rate flexibility....

Roubini: China is slowing the recovery in the U.S. & U.K.
Howard Richman, 5/18/2011

Nouriel Roubini, one of the few economists who predicted the new depression and understands it, argues that China's exchange rate policy is keeping the U.S., U.K., and some other advanced economies from recovering their economies through net export growth (i.e., reduction of their trade deficits). During a Bloomberg interview with Tom Keene at the Milikin Conference at the beginning of this month, Roubini said (about 5:20 in the video):

In this fundamental exchange rate game, the currencies that should be appreciating are those that are undervalued with large current account surpluses [i.e., trade surpluses]. While the ones that should be depreciating are U.S., U.K. and other countries that had their bubble, then bust, and now need net export growth, given that domestic demand is anemic with balance sheet retrenchment.

The problem is that China is resisting its currency from appreciation, is doing it very, very gradually. China is shadowing the U.S. dollar and that every other emerging market in the world, not just in Asia but those in Latin America, they say, "If China resists appreciation of its currency, I don't want to lose market shares to China in third markets, and I don't want a flood of cheap Chinese goods destroying my own import-competing sectors."

So all of these countries are shadowing China. So the adjustment of exchange rates that should occur, yuan currency appreciating, advanced economies weakening relative to the yuan, so that we have global rebalancing, that is not occurring....

Huckabee taking a tough stance on trade!
Howard Richman, 4/11/2011

I'm getting excited! Now two Republican candidates are taking a tough stance on trade, Trump and Huckabee!

President Obama's wimpy trade policy which lets China steal U.S. industries could be a big issue in the election. Listen to this interview with Huckabee:

Trump rising rapidly in GOP polls
Howard Richman, 4/6/2011

Donald Trump, the only potential candidate for President who has been calling for a 25% tariff on Chinese goods, is rising rapidly in the polls. As a result of this stance, he was received very well on the Michael Savage radio talk show and the Rush Limbaugh radio talk show.

In February, the Newsweek Daily Beast Poll reported that he was running fourth with just 8% support. Now according to the WSJ/NBC poll he is tied for second with 17% support:...

The Korea Free Trade Agreement would Enable Korean Mercantilism
Howard Richman, 4/5/2011

The so called Korea US "free trade" agreement (KORUS) would not only permit continuing South Korean currency manipulation, thus costing U.S. jobs, but it would also prevent the United States government from responding to the trade imbalances created by currency manipulations.

According to Frederal Reserve Chairman Ben Bernanke (see Figure 8), from September 2009 to September 2010 the South Korean government devoted 4.24% of its country's GDP to the purchase of foreign exchange reserves. In other words, South Korea is one of the many mercantilist countries which has been accumulating currency reserves in order to beggar its trading partners.

Sam Wilford summarizes the worst aspects of the agreement (Korea Free Trade Agreement Plagued with Problems). His first point is bad enough:

Projections from the U.S. International Trade Commission show no net gain in jobs from KORUS, while the Economic Policy Institute projects a loss of 159,000 jobs during the first seven years of the deal. Most economists also expect the deal to further widen America's trade deficit with South Korea. The 70,000 jobs promised by the president don't account for the jobs that will be lost with this shoddy agreement.

But his second point is simply terrible. It would prevent the American government from responding to South Korean mercantilism:...

Where's the Beef?
Howard Richman, 3/25/2011

The Chinese government has been growing its trade surplus with the United States during the Obama administration, as shown by the blue line being above the red line in the graph below:

It uses a wide variety of techniques to keep out U.S. products. For example, a March 2011 report from the United States International Trade Commission (China's International Trade: Competitive Conditions and Effects Upon U.S. Exports) reports that the Chinese government charges a 13-17% Value-Added Tax on food produced by U.S. farmers, but little to no tax on food produced by Chinese farmers. The following summary appears in Table 4.3 of the report:...

Geithner thinks our trade problems with China are solving themselves
Howard Richman, 3/4/2011

In testimony before the Senate Foreign Relations Committee on March 2, U.S. Treasury Secretary Timothy Geithner explained why he thinks that market forces will balance U.S. China trade without the Obama administration having to do anything more than talk. Here are some selections:

China understands they can no longer depend on demand from United States consumption being such a substantial contributor to growth. So, they have no alternative but to shift their growth strategy to a growth strategy that relies more on domestic demand.

"They are moving in that direction but it can't happen unless they let their exchange rate move too. If they don't let their exchange rate move, it will work against that imperative in rebalancing. It is not just China, it requires a bunch of other countries that traditionally run large surpluses to make those same changes."...

"It is essential for China that they move. If they do not move they will face the risk of much more rapid inflation, much more risk of financial crises. That is why they are beginning to adjust now. They have not moved that far yet ... in real terms against the dollar the currency is now moving at an annual rate of 10 percent a year.

"(The yuan) is still undervalued substantially, they have not moved very much yet. (But) we want this to be sustained over time, and we are going to continue to use every tool of persuasion we have directly and multilaterally to encourage them to move more quickly.

"It is inevitable it is going to happen. It is either going to happen through more rapid inflation, in which case in real terms it is moving in our direction, or it will happen because the exchange rate appreciates more rapidly. But the real annual rate against the dollar is north of 10 percent a year. If that were sustained that is a huge shift over time."

I agree with Geithner that the U.S.-China trade balance will improve in the short-term. Federal Reserve Chairman Bernanke gets the credit. His massive buying of U.S. long-term Treasury Bonds (QE2) has made long-term U.S. Treasury Bonds such a bad investment (due to anticipated future inflation) that many investors are sending their savings out of the United States, including to China....

Are China's coming reductions in import barriers a short-term or a long-term change?
Howard Richman, 3/3/2011

According to People's Daily (China considers tariff reduction to boost imports), the Chinese government is considering some cuts in its many tariff and non-tariff barriers to imports. Here is a selection:

Import tariffs will be reduced on a range of products and red tape involved in import application procedures will be further cut, to "maintain balanced trade", a senior official told China Daily.

"We will launch a series of measures to stimulate imports this year, including adjusting tariffs on some categories of goods and further simplifying the administrative process," Zhong Shan, vice-minister of commerce, told China Daily on the sidelines of the East China Fair, which opened in Shanghai on Tuesday.

Zhong declined to elaborate on the exact measures that will be introduced....

Huo Jianguo, director of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, said import tariffs on resources are comparatively low, but the government could consider reducing tariffs on high-tech goods.

The ministry said at the December conference that China will issue guidelines to promote imports of mechanical and electrical products, especially those related to new energy, energy saving, high-end manufacturing, low-carbon technology, aerospace, shipbuilding and railways.

There are two possibilities:...

Rush Limbaugh apparently agrees with Donald Trump on China trade in March 1 interview
Howard Richman, 3/2/2011

For years, the Democratic Party has been saying that they would do something about foreign government trade manipulations, but when they had complete control over the Presidency and both houses of congress in 2009 and 2010, they did virtually nothing. Turned out that they had a left wing, represented by Andy Stern who commutes between Beijing and the White House, that prefers solidarity with world workers ("Workers of the World Unite") to good paying manufacturing jobs for American workers.

Now the Republicans, led by potential presidential candidate Donald Trump, are moving toward a balanced trade position. If the Republicans take a credible position on trade in 2012, they will probably sweep the American midwest and the presidential election. No more idiot scenes with Presidential candidate John McCain standing in front of a boarded up factory while touting his unilateral free trade position.

And it's not only Trump himself, and it's not only talk show hosts Lou Dobbs and Michael Savage. It's now the most widely-listened to talk show host of them all, Rush Limbaugh....

Rising ChinaTrade Deficit Cost One-Half Million U.S. Jobs in 2010
Howard Richman, 3/1/2011

In September, Robert Scott of the Economic Policy Institute predicted (Rising China Trade Deficit will Cost One-Half Million U.S. Jobs in 2010) that our trade deficit with China would grow by $40 billion in 2010, as compared to 2009 and that this would cost the United States a half million jobs. He was very close. The goods trade data from 2010 (service data is not yet available) shows that the deficit grew by $46.2 billion. That deficit is shown in the graph below as the area between the red and blue lines:

As a rule of thumb, we generally estimate that every American manufacturing job lost to growing trade deficits costs the United States about $100,000 in manufacturing production. So, we would estimate that $40 billion in additional trade deficit would only cost the U.S. an additional 400,000 jobs. Scott, however, uses more precise methodology and comes up with an estimate of job loss that is about 25% higher. Here's what he writes about his methodology:...

Donald Trump closing on leaders in Republican race
Howard Richman, 2/28/2011

Republican voters may have a choice on trade this primary season. Donald Trump, the first of the undeclared Republican candidates for president to call for tariffs on China, has moved up to fourth place among Republican candidates according to the Newsweek Daily Beast Poll. Here are the Republican leaders:

Romney - 19%
Huckabee - 18%
Palin - 10%
Trump - 8%

In the general election, here's how the top four would do:...

G20 ministers again let China veto meaningful measures to address trade imbalances
Howard Richman, 2/20/2011

Going into the G-20 ministers meeting I pointed out that Chinese ministers would veto any meaningful attempt to adress worldwide trade imbalances. That's exactly what happened this weekend. Here's an analysis from advisorone.com

Although an accord of sorts was reached by finance ministers of the G20 at their meeting in Paris on Saturday, exchange rates and currency reserves, which are truly representative indicators of global economy imbalance, were blocked from inclusion by China. The deal is thus far less effective than it might have been....

Did Geithner lean on U.S. regulators on behalf of the Chinese government in June 2009?
Howard Richman, 2/18/2011

One of President Obama's more inexplicable decisions was his choice of Timonthy Geithner for Treasury Secretary. About the only thing recommending him was the fact that he spoke Chinese, having been partly educated in China. His incompetence was breathtaking:

In a January 2007 speech to the Council on Foreign Relations, he did not see the October 2008 financial crisis coming. In fact he said, "Improvements to risk management and to capital cushions are likely to have made the financial system more stable and more resilient."
When he was at the New York Fed he was part of the disastrous decision to close Lehman Brothers without protecting its creditors.

Now, according to Wikileaks cables, he possibly leaned on U.S. regulators to rule in favor of the Chinese government in June 2009. Here's a selection from the Reuters report:...

France pushing G-20 deal to adress global imbalances
Howard Richman, 2/17/2011

According to a Reuters article published this morning. The G-20 will meet this weekend to discuss measures that can be used to determine whether or not there are global trade imbalances. French President Sarkozy is pushing the agenda. Here's a selection:

G20 countries will have made major progress this weekend if they clinch a preliminary accord on what measures they will use to benchmark and address mismatches in the world economy, France's economy minister said on Thursday....

Her remarks came amid concern that differences of opinion within the Group of 20 may prevent finance ministers from reaching agreement at the meeting on a five-item list of indicators on which to base judgments on whether countries should alter economic policy to redress imbalances....

Is the 2010 Trade Report the Prelude to a Dollar Collapse?
Howard Richman, 2/11/2011

This morning, the BEA put out its first estimate of the U.S. trade deficit in 2010. In all it rose from $375 billion in 2009 to $498 billion in 2010. In the graph below, our monthly trade deficit in 2009 is shown in blue and our monthly trade deficit in 2010 is shown in red:

Meanwhile our merchandise trade deficit with China reached a record $273 billion in 2010, a full 55% of our total trade deficit (goods plus services) with the entire world. The growth in our bilateral trade deficit with China defied the fact that demand in China is rising about four times as fast as demand in the United States. In the graph below, our 2009 trade deficit with China is shown in blue and our 2010 trade deficit is shown in red:

The Chinese government keeps out American products through a wide variety of pretexts. Some of them are WTO-legal, including:...

Comments: 7

Donald Trump at CPAC
Howard Richman, 2/11/2011

Here's a video of Donald Trump's February 10 speech at the Conservative Political Action Conference. He was quite well received, except by some rude Ron Paul supporters.

At the moment, Trump is the only potential Republican 2012 presidential candidate who has a decent platform on trade. He says that he would apply tariffs to the countries that have been taking advantage of us. Perhaps he would impose our scaled tariff proposal which would bring in several hundred billions of revenue, at first. That revenue would quickly decline and be replaced by increased American incomes due to corporations building new ultra-modern factories in the United States in order to be on the right side of our tariff barriers.

He says that the Mexicans and Chinese he talks with can't believe what the United States is letting them get away with. He is correct. China not only manipulates the dollar-yuan exchange rate so that our prices are high and theirs low, but it also applies both tariff and non-tariff barriers to our products. Despite our supposed free-trade agreement, not only has Mexico started manipulating exchange rates, but it also has placed a 25% duty on U.S. cheese, a 20% duty on U.S. wine, 15% duties on U.S. fruit and fruit juices, 15% duties on U.S. pencils and pens, 10% duties on U.S. shampoo, hair spray, tooth paste and deodorant, and 10% duties on U.S. dog and cat food.

Comments: 50

Morici: Events in Tunisia and Egypt were caused by Chinese mercantilism
Howard Richman, 1/31/2011

In a commentary in The Street (Egypt and Stagflation), U. of Maryland economist Peter Morici argues that the events in Egypt were caused by Chinese mercantilism. It sounds a bit far-fetched. Here's how he ties it together:

China is subsidizing imports of oil and other commodities -- using the dollars it gets from currency market intervention- -- to moderate the effects of commodity price increases on its domestic gasoline and food prices. This pushes the price adjustments on the rest of the world, including the United States, and rising prices for food are hitting the poorer countries in the Middle East (those without oil) and Africa much harder than in the developed world and Asia, and contributing to social unrest and political risk....

Evans-Pritchard on China
Howard Richman, 1/24/2011

Ambrose Evans-Pritchard has a great commentary in the London Telegraph today (Appeasment is the proper policy towards Confucian China). He comes to a different conclusion than we do, but faces the facts squarely. He writes:

The political reality is that China’s export of manufacturing over-capacity is hollowing out the US industrial core, and a plethora of tricks to stop Western firms competing in the Chinese market rubs salt in the wound. It is preventing full recovery in the US, where half the population is falling out of the bottom of the Affluent Society. Some 43.2m people are now on food stamps. The US labour force participation rate has fallen to 64.3pc, worse than a year ago. Only the richer half is recovering....

Obama-Hu Summit Ignores our Imports from China
Howard Richman, 1/21/2011

In a famous Sherlock Holmes story, the key clue to the mystery is the fact that a dog did not bark. Similarly, the key clue to this week's US-China summit was something that did not happen. In his post-summit commentary, U. of Maryland economist Peter Morici nailed it:

President Obama facilitated a meeting between US exporters and firms operating in China with President Hu, while those US firms competing with imports from China got stiffed.

After that meeting, President Obama said:...

How to Balance Our Trade with China and Put Americans Back to Work
Raymond Richman, 1/20/2011

Chinese Pres. Hu Jintao made a coolie out of Pres. Obama during their two day meeting in Washington. Obama was obsequious and meekly pulled the rickshaw and made almost no criticism of Chinese mercantilist practices. Reading their remarks at their joint press conference on Jan. 20 left us with a feeling of déjà vu, words, promises, mutual sweetness and cordiality with nothing really changed. You would never guess from the meetings that the U.S. has over 14 million involuntarily unemployed, a majority of whom having lost their good-paying manufacturing jobs to companies in China, Japan, Germany, and other countries with whom we have been running trade deficits.

Adding insult to injury, American companies like Apple, Dell, HP, etc., etc., import their Chinese-made products to the United States. One estimate has it that there are ten employees of these companies employed abroad for every one employed in the U.S. It was reported that corporate leaders had a very enjoyable discussion with Hu Jinto. The U.S. has the power under international trade rules and the economic power to resolve all its trade problems quickly, but its leadership won’t do what needs to be done. The term WIMPS comes to mind.

Obama in his meeting with Jintao said:...

Hu Knows?
Howard Richman, 1/19/2011

Rosh Limbaugh nailed Chinese motives in his morning update. Here's a key quote:

The Chicoms will continue to do everything possible to undermine America from keeping their currency undervalued to stealing our intellectual property at will. They will continue to flood our markets with cheap goods to juice their economic growth and they will continue their military build up. And we'd better not say "boo" about it, because they own so much of our debt. They intend to bury us.

The Give-Away Summit
Howard Richman, 1/18/2011

This week (January 18-21) U.S. President Obama and Chinese President Hu will engage in the Give Away Summit. On the agenda at this week's negotiations in Washington, Obama will ask Hu to comply with WTO rules and also reduce his manipulation of the dollar-yuan exchange rate.

In return, Obama may offer to give Hu access to American products with military uses and he may offer to share NASA-developed space technology with China. These offers would please China's military which holds ultimate power in China and which has been preparing for a confrontation with the United States, perhaps over Taiwan, Korea, or disputed Japanese islands....

U.S. Trade Deficit with China edges up in November
Howard Richman, 1/14/2011

The overall U.S. trade deficit in goods and services (seasonally adjusted) edged down in November to $38.3 billion from $38.4 billion in October. Meanwhile the U.S. trade deficit with China in goods edged up to $25.6 billion from $25.5 billion, as shown in the following graph:

U.S. free trade policy promotes worldwide authoritarianism
Howard Richman, 1/13/2011

An annual report from Freedom House finds that authoritarianism has increased in the world for the fifth straight year. According to Breitbart:

In "Freedom in the World 2011" the Washington-based Freedom House said it had documented the longest continuous period of decline since it began compiling the annual index nearly 40 years ago.

"A total of 25 countries showed significant declines in 2010, more than double the 11 countries exhibiting noteworthy gains," the group said.

"Authoritarian regimes like those in China, Egypt, Iran, Russia, and Venezuela continued to step up repressive measures with little significant resistance from the democratic world," it said.

Significantly, the report mentions China, Russian, and Venezuela as authoritarian regimes that have stepped up their repression of their own people over the last year. These are all countries that have run huge trade surpluses with the United States, stimulating their economies while sedating ours.

The following table shows these countries' trade imports and exports with the United States from October 2009 through September 2010....

China rounds up the usual suspects
Howard Richman, 1/12/2011

At the end of the movie Casablanca, Rick (Humphrey Bogart) shoots Nazi Major Strasser so that Ilsa (Ingrid Bergman) can escape. Although French Police Chief Renault had just witnessed the shooting, when his men arrive he tells them, "Round up the usual suspects."

Life sometimes imitates cinema. China just rounded up the usual suspects. Their crackdown on copyright crimes is timed for President Hu's visit to the United States from January 18-21. AsiaOne reports (China detains 4,000 people in copyright crackdown):...

Donald Trump calls for a 25% tariff on Chinese products
Howard Richman, 1/11/2011

Donald Trump called for a 25% tariff on Chinese products on the Michael Savage radio show last night and in turn received Savage's endorsement for President:

In the interview, Trump comes off as forceful and competent. If he discovers the scaled tariff and campaigns upon a plan to balance budgets and trade at the same time, he could win the election and then fix the American economy.

Comments: 35

AEA features Dismal Forcasts of America's Economic Future
Howard Richman, 1/10/2011

According to a Reuters report (Economists foretell of U.S. decline, China's ascension) about papers presented at the current meeting of the American Economic Association (AEA), many economists share our dim prognosis of America's economic future. Reuters began:

(Reuters) - To hear a number of prominent economists tell it, it doesn't look good for the U.S. economy, not this year, not in 10 years.

Leading thinkers in the dismal science speaking at an annual convention offered varying visions of U.S. economic decline, in the short, medium and long term. This year, the recovery may bog down as government stimulus measures dry up.

In the long run, the United States must face up to inevitably being overtaken by China as the world's largest economy...

Reuters doesn't mention whether economists at the AEA convention have any solutions. But my father, son and I do. We recommend balancing the federal budget while balancing trade with the WTO-legal scaled tariff. The benefits would be enormous, as we pointed out:...

What do Obama's new top appointments have in common?
Howard Richman, 1/7/2011

President Obama's top new appointments have more in common than just past involvement in the Clinton Administration. They were both deeply involved in the decisions to get China into the WTO and to give China most-favored-nation trading status.

President Obama's new chief of staff is William Daley. According to Reuters:

Daley ... was U.S. commerce secretary when he helped usher through most-favored-nation trading status for China.

Obama's new chief economic advisor is Gene Sperling. According to Wikipedia:

Also in 1999, together with United States Trade Representative Charlene Barshefsky, Sperling successfully negotiated and concluded the China-World Trade Organization agreement in Beijing, paving the way for China to enter the WTO in 2001.

Unlike Daley and Sperling, Robert Cassidy publicly regretted the result of these China negotiations. In the June 2008 issue of Foreign Policy in Focus (The Failed Expectations of U.S. Trade Policy), Cassidy wrote:...

Requiem to Roger Milliken and red-lentil stew
Howard Richman, 1/6/2011

Patrick J. Buchanan's latest commentary (Requiem for a Patriot) is a tribute to Roger Milliken who just died at the age of 95. Buchanan begins:

Conservative Tycoon … Dies at 95,” said the New York Times headline on New Year’s Eve about the death of Roger Milliken.

Clearly, the headline writer did not know the man.

For Roger Milliken exemplified the finest in American free enterprise. He cared about his workers. He cared about his industry. He cared about his community. He cared about his country.

Into his 90s, Roger was holding strategy sessions in Washington and walking the halls of Congress to convince free-traders half his age that, Esau-like, they were swapping the manufacturing base of their nation for a mess of Chinese-made pottage down at the mall.

Buchanan's reference to "Chinese-made pottage" suggests that either he or Milliken have read our writing. The title of our 2008 book, Trading Away Our Future, appears once within the text of the book, we wrote:...

The North American Unilateral Free Trade Agreement
Howard Richman, 1/5/2011

Free Trade Agreements are worthless unless they require that trade also be balanced. Take NAFTA for example. When President Obama announced that he would focus upon jobs in 2011, he forgot to mention that he was talking about jobs in Mexico. Under his watch, our trade deficit with Mexico has climbed rapidly as shown in the graph below:

Mexico has turned the NAFTA highway into a one-way street. When President Obama refused to let Mexican trucks operate in the United States, Mexico began placing tariffs upon U.S. products. It now collects tariffs on 99 categories of U.S. products. These include a 25% duty on U.S. cheese, a 20% duty on U.S. wine, 15% duties on U.S. fruit and fruit juices, 15% duties on U.S. pencils and pens, 10% duties on U.S. shampoo, hair spray, tooth paste and deodorant, and 10% duties on U.S. dog and cat food....

Comments: 13

Proposed 'Scaled Tariff for Balanced Trade Act'
Howard Richman, 1/2/2011

Ideal Taxes Association has put a scaled tariff proposal into bill form. You'll find the text below. It would take in, as revenue, half of our trade deficit with each of those countries with whom we have a large trade deficit. The rate of the duty would be adjusted to our trade surplus with each country and would go down when our trade with that country moves toward balance.

If you are interested in helping get this bill passed, you can republish this proposal on your website and/or e-mail it to your friends. Also, you can email your offer of help to howard@idealtaxes.com (include your name, state, nine digit zip code, and organizational affiliations; subject line: "Scaled Tariff Bill").

BILL

To achieve balance in the foreign trade of the United States through a scaled tariff, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Scaled Tariff for Balanced Trade Act'.

SECTION 2. FINDINGS....

Comments: 7

Richard Duncan: World Economy on the Brink of Disaster (in 5 to 10 years)
Howard Richman, 12/31/2010

In a commentary for Business Insider (The Present: On the Brink of Disaster), Richard Duncan, the Singapore-based economist who correctly predicted that global trade imbalances would cause the Great Recession in his 2005 book The Dollar Crisis: Causes Consequences and Cures, is now predicting that the world is on the brink of economic disaster, though the disaster is still 5 to 10 years away. Here are some selections from his commentary:

The global economy is in crisis. Government intervention on a multi-trillion dollar scale is the only thing preventing a worldwide collapse into a new great depression.

This crisis is structural, not cyclical. At its core is the fact that global production, swollen by limitless credit denominated in fiat money, greatly exceeds the consumption that can be financed by the income of the individuals who comprise the world’s population. Governments around the world are borrowing, printing and spending on an unprecedented scale to absorb the global excess capacity (and to prevent asset prices from deflating), but these measures cannot continue indefinitely. The structure of the global economy is unstable and unsustainable. A catastrophic economic breakdown may be unavoidable....

Hubbard and Navarro advocate VAT and end to currency manipulation in new book
Howard Richman, 12/15/2010

Jeff Madrick reviews Glenn Hubbard and Peter Navarro's new book Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity. He points out that Hubbard and Madrick are advocating a VAT, something that we advocate also. The VAT is a consumption tax, which means that it encourages savings and wealth accumulation. It's also inexpensive to administer, requiring just 3-5% in complaince costs, compared to 12-14% for our current tax code. Most important of all, it is also border adjustible, which means that it taxes imports into our country but not exports from our country.

Madrick pretends that one of their goals is to hurt the poor, even though VAT proposals almost always provide tax credits which make them progressive at low income levels:...

Comments: 23

EPA regulation of carbon dioxide to begin January 2
Howard Richman, 12/13/2010

On January 2, President Obama's Environmental Protection Agency will start requiring that American industries use the "best available control technologies" to reduce carbon dioxide emissions. This action will:

Hurt America's economic recovery because our exporting industries will face higher energy costs,
Hurt American households because their electricity bills will rise, and
Hurt American workers who will lose jobs due to higher business costs.

Congress needs to immediately revise the Clean Air Act in order to exclude carbon dioxide from possible consideration as a pollutant. Carbon dioxide is one of the three chemical compounds (along with oxygen and water) needed to sustain life on earth. It is not a pollutant.

Will improved trade deficit of October be temporary?
Howard Richman, 12/12/2010

According to statistics released on Friday, U.S. trade numbers improved in October. The U.S. monthly trade deficit in goods and services (seasonally adjusted) improved from $45.6 billion in September to $38.7 billion in October as shown in the graph below:

About half of the trade deficit is our goods trade deficit with China. That bilateral trade deficit also improved, as shown in the graph below:...

http://www.americanthinker.com/2010/12/bernanke_to_china_stop_hurting.html

Bernanke to China: Stop Hurting Us or You'll Hurt Us -- We're published in today's American Thinker
Howard Richman, 12/10/2010

To read it, go to:

Here's how we begin:

Even though the Chinese economy is growing at a 10% pace while the United States economy is growing at a 2% pace, Federal Reserve Chairman Ben Bernanke could not resist telling the Chinese government how to run its economy. His remarks appeared in his November 17 2010 speech in Frankfurt Germany. He lectured China:

(C)ountries that maintain undervalued currencies may themselves face important costs at the national level, including a reduced ability to use independent monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows.... Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home; thus, eventually, the benefits of shifting productive resources to satisfying domestic needs must outweigh the development benefits of continued reliance on export-led growth.

The trouble is that it is the United States which is having difficulty in stabilizing its economy, not China, and the "ultimate purpose of economic growth" may not be higher living standards at home." Nations have other goals like dominating their neighbors, as Japan, the USSR and the Nazis had before WWII. Even the U.S. had dominating the Americas as an obective during the late nineteenth and twentieth centuries.

China is running huge trade surpluses (about 5% of GDP) because it is concentrating on growing its national power. And it has the help of hundreds if not thousands of multinational corporations. Her trade surplus is largely made up of the products produced by multinationals in China, including high tech products like computers, televisions, cell phones, and automobile parts. The list of companies looks likes the Who's Who of the industrial world! And make no mistake, their factories -- really co-factories -- are Chinese. The Chinese have learned from Stalin's mistakes and understand, as Lenin did, that the capitalists in their greed will provide the rope to hang them with! Recently, Andrew Grove, a founder of Intel, warned his fellow high-tech companies, like Apple, HP, Dell, and many others, that their outsourcing in China foretold a coming disaster for the U.S., noting that most had ten times as many employees producing their products in China as they did in the United States.

Although Bernanke thinks that China is sacrificing higher living standards through its present policies, he is incorrect. While hundreds of millions in the provinces have not participated in its economic growth, millions of Chinese workers have reaped substantial benefits. China has a significant middle class. It is the United States that is seeing its living standards decline and its distribution of income worsen as a result of the loss of factory jobs, all because Bernanke and America's other economic leaders don't understand the negative effects of our chronic and escalating trade deficits....

http://www.bloomberg.com/video/64536570/...

China's competitor to Boeing and Airbus
Howard Richman, 12/9/2010

Heartland Poll: Continued Public Support for Action on Trade
Jesse Richman, 12/9/2010

The newly released National Review / Allstate Heartland Poll contained an extensive battery of questions on trade and US manufacturing. The poll reveals strong public majorities in favor of a variety of measures that would move trade towards balance.

For example, 68 percent of respondents supported a policy requiring...

Bernanke starting to catch up to Evans-Pritchard
Howard Richman, 12/8/2010

Back on December 20 2008 (Protectionist dominoes are beginning to crumble around the world), British-columnist Ambrose Evans-Pritchard explained the U.S. mercantilism going into the Great Depression, and what Great Britain did about it. Pritchard wrote:

There has been much talk lately of America's Smoot-Hawley Tariff Act, which set off the protectionist dominoes in 1930. It is usually invoked by free traders to make the wrong point. The relevant message of Smoot-Hawley is that America was then the big exporter, playing the China role. By resorting to tariffs, it set off retaliation, and was the biggest victim of its own folly.

Britain and the Dominions retreated into Imperial Preference. Other countries joined. This became the "growth bloc" of the 1930s, free from the deflation constraints of the Gold Standard. High tariffs stopped the stimulus leaking out.

It was a successful strategy - given the awful alternatives - and was the key reason why Britain's economy contracted by just 5pc during the Depression, against 15pc for France, and 30pc for the US.

In his November 19 speech, Federal Reserve Chairman Ben Bernanke went back to that same period. Citing a new working paper (Did France Cause the Great Depression?) by Douglas A. Irwin, Bernanke said: ...

American Economic Leaders keep giving Advice to China
Howard Richman, 12/5/2010

With China growing about 10% per year and the United States growing at about 2% per year, I'm really getting tired of U.S. economic policy makers telling the Chinese government how to run its economy. They think that if China's leaders would just hear their cogent arguments, China would change course.

Take, for example, Treasury Secretary Timothy Geithner. In his written testimony at his January 2009 Senate confirmation hearing, he wrote:

More generally, the best approach to ensure that countries do not engage in manipulating their currencies is to demonstrate that the disadvantages of doing so outweigh the benefits. If confirmed, I look forward to a constructive dialogue with our trading partners around the world in which Treasury makes the fact-based case that market exchange rates are a central ingredient to healthy and sustained growth.

Or take Federal Reserve Chairman Ben Bernanke’s advice to China in his November 17 2010 speech. He said:

Third, countries that maintain undervalued currencies may themselves face important costs at the national level, including a reduced ability to use independent monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows.... Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home; thus, eventually, the benefits of shifting productive resources to satisfying domestic needs must outweigh the development benefits of continued reliance on export-led growth.

This statement is incorrect in two ways. First China is not practicing "export-led" growth. It is practicing "mercantilism." If it were practicing export-led growth, its trade would be balanced, but currently it is running trade surpluses of about 5% of its GDP each year. Second, China is not hurting its long-term standard-of-living by practicing mercantilism, it is hurting ours.

Modern Mercantilism

At some point, Geithner and Bernanke and the rest of our arrogant policy makers are going to have to take the time to learn about mercantilism. And they have no excuse now that the key mathematical analysis of modern mercantilism is online, Heng-Fu Zou's 1997 Dynamic Analysis of the Viner Model of Mercantilism, originally published in the Journal of International Money and Finance. Zou is Senior Economist at The World Bank with appointments at both China’s Shenzhen and Wuhan Universities. China’s current policies may be based upon that paper....

Bernanke has learned what Richard Duncan explained in 2005
Howard Richman, 12/3/2010

When Singapore-based economist Richard Duncan read Federal Reserve Chairman Ben Bernanke's November 19 speech, he wrote:

Fed Chairman Bernanke’s speech on Friday was his most important since his “helicopter money” speech of November 2002. In it he conceded the Dollar Standard is flawed. He said, “As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances.”

With that statement, the Fed revealed it has been won over by the logic expressed in my book, The Dollar Crisis (John Wiley & Sons, updated 2005). The first two lines of that book state: “The principal flaw in the post-Bretton Woods international monetary system is its inability to prevent large-scale trade imbalances. The theme of The Dollar Crisis is that those imbalances have destabilized the global economy by creating a worldwide credit bubble.”

In his 2005 book, Duncan had predicted the Great Recession that began in 2008. Duncan understood that the trade-deficit countries, especially the United States, would not be able to continue purchasing more and more imports without the income that would come from exports. Countries can only borrow so much from abroad to buy imports until they experience financial crises.

But when the Great Recession hit in October 2008, American economic leaders thought that the U.S. economy could be fixed by shoveling debt from the private sector to the public sector and through fiscal and monetary stimuli. It has been two years now and, as Bernanke noted in his speech pointing to the data graphed below, “As you can see, generally speaking, output in the advanced economies has not returned to the levels prevailing before the crisis, and real GDP in these economies remains far below the levels implied by pre-crisis trends.”

D.J. McGuire: Obama may be "best-equipped American leader to take the CCP on"
Howard Richman, 11/24/2010

In a November 23 commentary (Is Beijing Using North Korea Again?) D.J. McGuire argues that President Obama is uniquely qualified to get tough with the CCP, China's Communist Party:

Nixon’s fervent anti-Communist history made him practically the only American politician who could reach out to the CCP. Conversely, Obama’s left-wing history may make him the best-equipped American leader to take the CCP on.

President Obama has already started taking a tough stance with China. McGuire notes:...

Obama and the House can produce Economic Growth
Howard Richman, 11/22/2010

Ironically, divided government gives the United States an excellent chance to solve its economic problems. Although the Democrats may be unable to balance budgets and the Republicans may be unable to balance trade, together they may be able to do both. All that is needed is for each party to do what it has the power to do.

Republicans Can Balance the Budget

In the last election, the American people spoke. The Republicans were given the House with a mandate to move the federal budget into balance. The American people will no longer put up with reckless borrowing from our children.

The Republican House has the power to balance the budget, without any cooperation needed from the Democratic Senate or President. They can do so simply by refusing to raise the debt ceiling. That would force serious negotiations about where to cut federal spending.

But doing so could cause even higher unemployment than we have now. In his commentary that appeared in TheStreet (Chinese Mercantilism is Making a Mess), U. of Maryland economist Peter Morici predicts that moving the budget toward balance would cause 15% unemployment, unless direct action is taken at the same time to move trade into balance. Morici calculates:...

Paying the Piper
Jesse Richman, 11/19/2010

When countries run large current account deficits they accumulate debt in one form or another. And this debt can later cause serious economic harm. The graph below compares the growth rates of countries that ran large average current account deficits (more than five percent of GDP) in the 2002 to 2007 period with growth rates for countries that ran large current account surpluses during this period (more than five percent of GDP).

For the 2002 through 2007 period there are differences -- the average growth rate was higher for countries with surpluses. The differences are even more pronounced in the 2010 growth estimates.

Gordon Chang: China is not making the transition to a consumer-led economy
Howard Richman, 11/18/2010

Writing in Business Week on November 15 (China Offers No Chance of Revaluation before 2012), Gordon Change takes an honest look at what China is doing. He writes:

Analysts love to say that China is making the transition to a consumer-led economy. But such assertions aren’t consistent with the facts or common sense. The steps that the central government is taking to create trade surpluses -- such as holding down the value of its currency -- inevitably discourage consumption. The government’s stimulus program, which focuses on building infrastructure and industrial production, is also, by definition, anti-consumption....

Geithner backtracks from his call for balanced trade
Howard Richman, 11/8/2010

With the G-20 meeting coming up this weekend, U.S. Treasury Secretary Timothy Geithner is in full retreat from his call for balanced trade in his October 20 letter to his fellow G-20 finance ministers. He now says that he was just talking about a general framework that could possibly, someday, perhaps, maybe, lead to "warning indicators" that countries would not have to pay any attention to. Here's what he said specifically, according to Reuters:

Geithner reaffirmed a G20 plan to limit current account surpluses and deficits does not contain numerical targets, which he called economically unfeasible. Several countries had objected to suggestions that such imbalances be limited to around 4 percent of gross domestic product.

"What we have proposed is a framework which incorporates early warning indicators of large surpluses or deficits which can then be monitored," Geithner said.....

Obama's Failing Industrial Policy
Howard Richman, 11/5/2010

In October, U.S. manufacturing employment declined for the third straight month while overall unemployment remained unchanged at 9.6%. The graph below shows the number of workers employed in U.S. manufacturing since January 2008:

President Obama has pinned his hopes for a manufacturing revival upon industrial policy, the idea that government bureaucrats should pick the companies of the future and subsidize them. His Export Promotion Cabinet is supposed to manage this policy. But the latest anecdotal report, from the Oakland Tribune, explains why it is not working:...

Just-elected Republican Congressman Allen West from Florida calls for tougher stance on Chinese trade
Howard Richman, 11/4/2010

Here is the relevant portion of Allen West's radio-show interview with Congressman-elect Allen West:...

Speak Loudly, but carry No Stick!
Howard Richman, 10/25/2010

In my last posting, I discussed the choice facing the Obama administration after Geithner's letter to his fellow G-20 finance ministers calling for balanced world trade was applauded by UK, Canada and Australia but vetoed by the mercantilist countries. I wondered if the Obama administration would take action to achieve balance trade, or whether it would continue to think that it could talk the mercantilist countries into abandoning their successful strategy. I wrote:

If this is more than just talk, the next step will be for the Obama administration and the other English speaking countries to threaten and, if necessary, institute an Import Certificates plan or a scaled tariff that would gradually force their trade toward balance over the next few years.

Peter Morici sees the current situation through the same prism, but he doesn't expect any administration action that goes beyond diplomacy. He writes (QE2 Won't Make Big Waves as G20 Flops):

At the G20 talks, Treasury Secretary Geithner failed to accomplish a grand bargain to wind down Asian trade surpluses and boost demand for what western economies make. Opposition from champion mercantilists Japan and Germany, who pioneered some of the very tactics China now exploits on a grander scale, caused the G20 to adopt only soft, modest goals and no remedies for deficit countries like the United States.
Meanwhile China’s yuan policy and trade barriers make the Fed nearly irrelevant but for crisis management—bailing out big banks and European governments that make fatal mistakes.

Worse, President Obama’s failure to take strong action against Chinese currency manipulation—for example, a tax on dollar-yuan conversion to make the price of Chinese products reflect their true underlying cost—cripple the jobs creation effectiveness of his $800 billion stimulus spending and broader efforts to resurrect the U.S. economy.

President Obama’s exclusive reliance on diplomacy renders impotent U.S. monetary and fiscal policies, smothers jobs creation, and visits unconscionable hardships on American workers....

Geithner calls for balanced world trade
Howard Richman, 10/24/2010

In an October 20 letter to the finance ministers of the G-20 countries, Treasury Secretary Geithner called for balanced world trade with each country limiting its trade surplus or deficit to an unspecified percentage of its GDP. Only raw materials exporters with huge trade imbalances (e.g., Saudi Arabia and Russia) would be excluded from the requirement.

According to a New York Times report, Geithner's proposal was supported by the UK, Canada and Australia but opposed by Germany. The Obama administration has finally identified America's economic problem and has gotten the other English speaking countries to stand with it!

If this is more than just talk, the next step will be for the Obama administration and the other English speaking countries to threaten and, if necessary, institute an Import Certificates plan or a scaled tariff that would gradually force their trade toward balance over the next few years.

Other trade deficit countries would soon follow suit. The result would be balanced world trade. The world, led by the trade-deficit countries, would recover quickly from the Great Recession. Not only that, but the English speaking countries would continue to lead the world politically and economically, and the Obama administration would go into the 2012 elections presiding over an economic recovery.

On the other hand, Geithner's letter may just be another case in which the Obama administration substitutes words for action. The Chinese government will not give up its successful mercantilist strategy voluntarily. China's WTO-illegal cut-off of Rare Earth shipments to the United States this week may be its first rejection of Geithner's proposal. As in the past when China broke the U.S. embargo against shipping gasoline to Iran and supported North Korea's torpedoing of a South Korean ship, the Obama administration will once again wipe the Chinese spit from its face, look up at the sky, and pretend that it is raining.

Here is the text of Geithner's letter:...

Geithner undercuts Bernanke's negative-interest rate plan
Howard Richman, 10/22/2010

At the moment, the Federal Reserve is increasing the money supply in order to increase the U.S. inflation rate from about 1% to about 2% while keeping short-term interest rates close to zero in nominal terms. This action is intended to drive real American short-term interest rates further into negative territory so that Americans spend their money (instead of saving it) and so that the dollar weakens (when private savers sell their dollars in order to earn higher interest rates elsewhere).

But Treasury Secretary Geithner just took the upside out of the Federal Reserve's plan, the weakening of the dollar. As a result, the inflation that the Federal Reserve is producing will increase American imports by increasing American demand for imports, and discourage American exports because the inflation will increase American producer costs. As a result of Geithner's action, Bernanke's plan will make the U.S. economic situation worse, not better.

Specifically, Geithner endorsed the Japanese Central Bank's recent decision to buy dollars and the upcoming decision by the European Central Bank to buy dollars. Here is a what Geithner told the Wall Street Journal:...

Krugman: China is a "rogue economic superpower, unwilling to play by the rules ... What are the rest of us going to do about it"
Howard Richman, 10/21/2010

Nobel Prize winning economist Paul Krugman has come a long way in the last few years, from being an advocate of America's unilateral-free-trade policy, to being one of its harshest critics.

In an October 17 New York Times commentary (Rare and Foolish), he accuses China of violating WTO rules in its decision to halt rare earth materials exports to Japan and limiting those exports to the United States. He wrote:

http://www.americanthinker.com/2010/10/the_move_your_corporate_headqu.html

The 'Move Your Corporate Headquarters Offshore' Act -- We're published in today's American Thinker
Howard Richman, 10/19/2010

Here's how we begin:

In his weekly radio address on Saturday, President Obama said, "There is no reason why our tax code should actively reward [American corporations] for creating jobs overseas. Instead, we should be using our tax dollars to reward companies that create jobs and businesses within our borders."

He was promoting a bill with a good title, the Creating American Jobs and Ending Offshoring Act. But a more accurate name would be the Move Your Corporate Headquarters Offshore Act, since its main effect would be to cause corporate headquarters to leave the United States.

Fortunately, this bill was filibustered on September 28 by a unanimous vote of Senate Republicans joined by Senators Joe Lieberman, Max Baucus, Jon Tester, Ben Nelson, and Mark Warner. Following is an official summary of the bill:

Follow the following link to read it:

Democrats Increasingly Turning to Trade Theme
Jesse Richman, 10/15/2010

A recent analysis by Democracy Corps highlights the growing importance of trade as a major political issue favoring the Democratic Party in the 2010 midterm elections. The recommended attack:

"(REPUBLICAN HOUSE CANDIDATE) has pledged to support free trade agreements with Colombia, Panama and South Korea that will bleed American jobs and tax breaks for companies that export American jobs. As a result, that campaign has received massive financial and advertising support from big business groups that get support from foreign corporations and that champion outsourcing as good for consumers and oppose any buy-American rules. That’s a bad deal for America."

Democracy Corps lists this as one of the two most potent attack lines for Democrats to use against Republican candidates, alonside charges that the Republican candidate will support...

European Central Bank calls for a fixed exchange-rate system
Howard Richman, 10/15/2010

For several reasons, the dollar is falling rapidly against foreign currencies at the moment. This will be good for the American economy. It will make American exports less expensive and foreign imports more expensive. I predict improved U.S. economic growth in the first quarter next year.

The European Central Bank is not happy. Although U.S. trade imbalance will improve, the euro zone's trade balances will worsen. It called for a fixed exchange-rate system so that it will be justified when it intervenes to keep the dollar up relative to the euro. Here is a selection from a Reuters story:...

Gomory calls for Import Certificates to balance trade
Howard Richman, 10/14/2010

We are not the only ones proposing ways to balance trade, Ralph Gomory, one of our country's premier economists and business leaders, has also been proposing practical ways to do so.

There are two ways to balance trade, Import Certificates (ICs) and the scaled tariff. We called for ICs in our book Trading Away Our Future, but in our recent writing we have been calling for the scaled tariff. Both methods have their own advantages. ICs balance trade more surely, while the scaled tariff requires no new bureaucracy.

On September 14, Ralph Gomory (Jobs, Trade and Mercantilism -- Part II -- Dealing with Reality) reiterated his call for Import Certificates to balance trade, which he calls BT/BC (which stands for Balancing Trade by Certificates or Balancing Trade with Buffett Certificates. Specifically, he wrote:...

Let's have an Honest Trade Debate
Howard Richman, 10/9/2010

The October 9-10 issue featured the most misleading commentary that I have yet read in the Wall Street Journal: Goodbye, Free Trade? by Dartmouth economics professor Douglas A. Irwin.

The entire first page is spent trashing the Smoot Hawley tariff. Then the author subtly admits that that Smoot Hawley tariff, which didn't go into effect until 1932, was basically a justified reaction by the United States to several of our trading partners either going off the gold standard or devaluing their currencies in 1931. Essentially, the United States had to respond to other countries devaluing their currencies by either shipping away gold, devaluing the dollar, or limiting imports. We chose to limit imports. He is correct that we would have been better off devaluing the dollar.

Irwin's primary economic recommendation in this piece can be proved nonsense by a simple thought experiment. He writes:

If all major central banks were to intervene in foreign exchange markets to drive down the value of their own currencies, none would succeed in changing nominal exchange rates, but it would be equivalent to a world-wide easing of monetary policy.

Here's a thought experiment that I devised which proves that his suggestion does not result in any new money being created, it just results in central banks swapping each others' bonds:...

Michael Savage proposes 20% tariff on Chinese products
Howard Richman, 10/5/2010

In his book that just came out today, "Trickle Up Poverty," Conservative talk show host Michael Savage has proposed a tariff on Chinese goods in order to restore America's manufacturing sector, specifically:...

Comments: 7

WTO Helping China Loot Caterpillar -- We're published this morning in the American Thinker
Howard Richman, 10/4/2010

Here's how we begin:

Caterpillar is one excellent company. It is building new factories now in Texas, Arkansas, and North Carolina, from which it will export products made by American workers all around the world. Its excellent worldwide parts distribution network gives its used equipment a very high resale value. But on September 29, Caterpillar announced that it is building its twelfth factory in China -- this one to produce mini-excavators.

Why can’t Caterpillar make a profit exporting mini-excavators to China? The answer is simple: China has a 30% tariff on all excavators. In fact, it has a similar high tariff on just about every vehicle, be it a Ford car, a GMC truck, a Harley-Davidson motorcycle, or a giant mining machine made by Bacyrus International.

To read it, go to: http://www.americanthinker.com/2010/10/wto_helping_china_loot_caterpi_1.html

Trade pacifism killing Canada's Economy, not just the U.S. economy
Howard Richman, 10/3/2010

On September 23, Jim Stanford in the Canadian Globe and Mail (The New Protectionism is Shutting us Out) the current status of world mercantilism. He regrets Canada's trade pacifism, just as we regret America's trade pacifism. He writes:

Where does Canada fit into this game? As usual, we don our Boy Scout’s uniform and pledge to play fair. While China, Japan and others actively manage their currencies, we allow ours to soar unfettered. As Germany and Korea subsidize and direct technological advances, we eschew “picking winners” and leave it up to business. As countries everywhere leverage government spending into domestic jobs, we pursue trade agreements that would undermine our already-weak domestic-sourcing policies.

Our passivity in the face of others’ pro-activity has taken us from trade feast to famine. A $55-billion trade surplus in 2004 melted away to a $27-billion deficit last year, knocking a whopping 6 percentage points off Canadian GDP. By that standard, we’ve registered by far the worst trade performance of any OECD country. As deteriorating trade undermines domestic growth and employment, Ottawa’s only response is to chase more free trade pacts – whether with Panama (economically irrelevant) or Korea and the European Union (potentially explosive).

He also points out, just as we have, that John Maynard Keynes proposed a world system built upon balanced trade, writing:...

China's 30% Tariff snags Caterpillar's Technology
Howard Richman, 10/1/2010

In a response to my blog posting yesterday (Caterpillar's New Chinese Factory ignites Voter Rage) about Caterpillar's decision to build a new factory in China, Jim Dugan, from Caterpillar's public relations, commented:

[Caterpillar] did announce plans to open a new factory in China to produce mini excavators. In the last several months Caterpillar has also announced multiple plans for new factories in the United States. New factory in Texas (500 jobs), grand opening of factory in Arkansas (600 jobs) investment of $500 million for capacity and new products at two existing factories in Illinois where Caterpillar employs more than 20,000 people alone. New factory in North Carolina where we already employ 2,000.

The factory in China to produce mini excavators is not outsourced from the U.S. Caterpillar makes products like these in China to sell in China because it is not possible to make small machines like these in the U.S. and export them to China without losing money on each machine. That is not a business model (selling product at a loss) that is sustainable. Our factories in China to provide a base of operations that allows Caterpillar to export other products from the U.S. to China. Caterpillar is a NET EXPORTER to China. What we make in the u.S. and sell to China and other countries supports jobs in the U.S.

Dugan's basic argument is that Caterpillar could not profitably make these mini-excavators in the United States and sell them to China. So I decided to determine why. Why are Caterpillars mini-excavators competitive in other markets, but not in China's markets. So I looked up Chinese tariffs on excavators and found them to be 30%. Voila!:...

Japan is Back
Jesse Richman, 9/29/2010

The failure of the United States to confront Chinese mercantilism leaves China's competitors with little choice but to follow suit or see their corporations' competitiveness suffer in the face of Chinese competition. A hard hitting commentary by ANATOLE KALETSKY in the New York Times offers an intriguing analysis. Kaletsky chronicles the decision by Japan to begin major interventions in foreign exchange markets in order to drive down the value of the Yen so as to protect the competition position of Japanese companies.

"The decision to break with free-market ideology and spend government money to control the yen’s value against the dollar was mainly driven by Japan’s relationship with China, not America. Japanese companies including Sony and Toyota that had demanded government action devaluing the yen were not concerned primarily with their competitiveness against America rivals. The motivation was a fear of being undercut by exporters in China, Korea, Singapore and Taiwan — all countries that aggressively manage their exchange rates."

The US model of free trade and free market economics is, Kaletsky argues debunked in the eyes of Asia....

House Committee Pulls Teeth out of China currency bill
Howard Richman, 9/25/2010

On Friday September 24, the House Ways and Means Committee pulled the teeth out of the Currency Reform for Fair Trade Act (HR 2378) and then passed it out of committee. Rep. Timothy Ryan's (D, OH) bill would have required that the Obama administration (through the Commerce Department) place tariffs on goods produced by a currency-manipulating country when deciding industry-by-industry anti-dumping and countervailing duty suits. The bill, after passage of Committee Chairman Sander Levin's (D, MI) amendment makes such duties completely voluntary. Here's how the committee's report summarizes this change:

Importantly, the amended bill does not legislatively "deem" that a finding of fundamental currency undervaluation satisfies the requirement of export contingency, as the original bill did. With the elimination of this requirement, as well as other changes, the amended bill avoids the WTO vulnerabilities that may have been attributed to earlier versions of the legislation....

How to Win the Trade War with the Democrats -- we're published in American Thinker this morning!
Howard Richman, 9/24/2010

We urge Republican candidates to switch from a unilateral free trade position to a balanced trade position

To read it, follow the following link: http://www.americanthinker.com/2010/09/how_to_win_the_trade_war_with.html

Dan Dimicco's Sept. 15 testimony on Chinese Currency to the House Ways and Means Committee
Howard Richman, 9/17/2010

Here's his excellent testimony from the September 15 hearing of the House Ways and Means Committee on Chinese currency. I like so many of the points that he makes:

Incidentally when the Metal Miner blog reported his testimony, it also cited a similar commentary that I had recently written. See:...

Committee Hearing reveals that Currency Bill is Too Weak
Howard Richman, 9/16/2010

On September 15, the House Ways and Means Committee held hearings about Chinese currency manipulations. The committee was remarkably united. One representative after another took shots at China’s trade manipulations.

They were almost all agreed that something had to be done, that President Obama’s policy was failing, that Secretary Geithner was not helping, and that China was not playing by the international rules. But they were not united about Rep. Tim Ryan’s bipartisan Currency Exchange Rate Reform Act (HR 2378), designed to end the trade manipulations that put American goods at a competitive disadvantage in U.S. and world markets.

If China were to really stop manipulating its currency, it would have to balance trade, which would result in more American exports to China as well as fewer American imports from China. But the opposition to Ryan’s bill claimed that the bill would hurt American exporters.

For example, Rep. Dave Camp (Republican from Michigan) perceptively pointed out that China is increasingly turning to socialism as a way to keep out American products. He said: “(W)e cannot lose sight of more fundamental problems with China's economy that affect our trade balance, including the increasingly blatant and disturbing increase in the economic dominance of state-owned enterprises and the proliferation of non-tariff barriers preventing U.S. companies from exporting to China." In short, he didn’t see the bill doing anything to counteract China’s increasing barriers to American products....

How to strengthen the currency exchange rate reform bills
Howard Richman, 9/15/2010

The House Ways and Means Committee holds hearings today on China's Exchange Rate Policy. They are considering two bipartisan bills that would tackle Chinese currency manipulations, Rep. Ryan's Currency Reform for Fair Trade Act. (HR 2378) and Sen. Schumer's Currency Exchange Rate Oversight Reform Bill (S. 3134).

We submitted written testimony to the Committee and have published it on this website as our Working Paper #3. Here is the summary of our testimony:

S. 3134 and HR 2378 are excellent proposals. Just four amendments need to be made in these bills in order to make them more effective, in line with our scaled tariff proposal: (1) Change method of determining currency manipulators so that any country with over $100 billion of currency reserves and an overall trade surplus with the world is defined as a currency manipulating country, (2) Change method for calculating the countervailing duty as being half of the value of each currency manipulator’s exports to the United States after subtracting its imports from the United States, (3) Eliminate the need for piecemeal Commerce Department lawsuits by providing in the bill for a single Commerce Department suit involving all of the products of a given country so that the countervailing duty be an across the board tariff upon all of the products of that country, and (4) Provide that the rate of the countervailing duty be recalculated every quarter based upon the most recent trade data. With these four changes, S. 3134 and HR 2378 become functionally equivalent to the scaled tariff and would jumpstart our economy, restore our blue-collar middle class, and preserve our children’s economic future.

And here is the part of our testimony in which we analyze the two bills and suggest our changes:...

Tonelson and Kearns: House Ways and Means will consider filing a China currency complaint with WTO
Howard Richman, 9/14/2010

Alan Tonelson and Kevin L. Kearns have an interesting commentary in The Hill today (WTO Myths Blocking China Currency) in which they report that the House Ways and Means Committee will consider punting the ball to the WTO during their hearings on Chinese currency manipulations tomorrow. Tonelson and Kearns write:

The paramountcy of politics undercuts a second big WTO myth befogging U.S. China policy: The view that Washington should tackle currency manipulation multilaterally, by filing a WTO suit, as the House Ways and Means Committee has promised to explore at its hearing. This option, however, ignores the unmistakable nature of the organization’s politics. Although the WTO’s 150-plus members don’t agree on much, they strongly agree that growing largely by wracking up big trade surpluses with the United States is a demonstrably successful economic strategy. Therefore, they have aimed to keep America’s markets much wider open to their goods than their own markets are to America’s.

If the House Ways and Means Committee members vote to punt the ball to the WTO instead of voting out a bill that would fight currency manipulation, they will be voting for unemployment, depression, giving away American industry, and giving away our children's future. We agree with Tonelson and Kearns recommendation. They argue:...

Tonelson and Kearns: Trading Away the Stimulus
Howard Richman, 9/13/2010

Alan Tonelson and Kevin L. Kearns of the United States Business and Industry Council had an excellent op-ed (Trading Away the Stimulus) in the September 9 New York Times. They argued that the trade deficit has eaten up the stimulus:

For many people, the trade deficit seems unrelated to the nation’s continued economic crisis. But it is actually a central reason why American growth has lagged and President Obama’s stimulus hasn’t led to a robust recovery: since February 2009, the government has injected $512 billion into the American economy, but during roughly the same period, the trade deficit leaked about $602 billion out of it and into foreign markets.

And they suggest several remedies, starting with a provision like that in the two bipartisan bills currently being considered in the House and Senate, the Currency Reform for Fair Trade Act (HR 2378) intoduced by Rep. Timothy Ryan and the Currency Exchange Rate Oversight Reform Bill (S. 3134) introduced by Sen. Charles Schumer. Both would have the Commerce Department take currency manipulations into account when assessing anti-dumping and counter-veiling duty investigations. They write:...

U.S. Trade Deficit Still Growing
Howard Richman, 9/10/2010

On Thursday, the Bureau of Economic Analysis released trade statistics which showed that the U.S. trade deficit fell in July. But the July data was along the same upward trend line as the February through May data.

The following chart shows the monthly U.S. trade deficits from 2009 (blue) and 2010 (red). This is the full trade deficit, including both goods and services, and has been calculated on a seasonally adjusted basis:

About half of our trade deficit is our goods trade deficit with China. It is intentionally produced by the Chinese government as part of its successful mercantilist strategy, designed to maximize exports and minimize imports. That strategy was explored by Peking University professor Heng-Fu Zou in his article, Dynamic Analysis of the Viner Model of Mercantilism which appeared in the 1997 volume of Journal of International Money and Finance, and then implemented by the Chinese government at the beginning of this decade. Seeing the Chinese success, many other governments have been implementing the same mercantilist strategy.

The Chinese government uses yuan to buy dollars in foreign exchange markets to prevent the yuan from rising and the dollar from falling to a trade-balancing level. Then it loans those dollars to Americans. At the same time, it takes various measures to keep out American imports (tariffs, purchasing restrictions, freely permitting piracy while delaying legitimate items, etc.). Here is our trade deficit in just goods (not services) with China, not seasonally adjusted:

Morici Proposes a Scaled Tariff Variant to Confront China
Jesse Richman, 9/9/2010

In a posting on the CNBC website, University of Maryland economist Peter Morici argued forcefully that inattention to the trade deficit is costing the Democrats this election.

"Without the second quarter jump in imports—led by consumer goods from China and boosted by an undervalued yuan and export subsidies President Obama neglects—GDP growth would be close to 5 percent, hundreds of thousands of Americans would be finding jobs, and Democrats...

Summers was given the royal treatment in China
Howard Richman, 9/8/2010

Summers was not shunted to lower-level aids who were unable to make decisions, but met with Chinese President Hu Jintao and with Bernanke's counterpart Zhou Xiaochuan, the head of the People's Bank of China. The Chinese went out of their way to achieve an atmosphere of friendliness. Here's a selection from the Reauters' report of the meeting:...

Summers heads to China to rescue U.S. recovery
Howard Richman, 9/7/2010

When Lawrence Summers read the latest unemployment and GDP reports, he probably arrived at the same conclusion that my father, son and I did (Obama Did Create 3 million Jobs -- In China) -- that the rising trade deficit was killing the U.S. economic recovery. So on Saturday, he left for China to persuade the Chinese government to loosen its currency manipulations and other trade manipulations which maximize Chinese exports to the United States while minimizing Chinese imports from the United States.

In anticipation of his meeting, the Chinese government is erecting a brick wall. They are claiming that they don't keep their people from buying U.S. products. They are claiming that if only we sold them the high tech gear that their military needs, trade would move toward balance. They are claiming that their manipulation of the yuan-dollar exchange rate is an internal Chinese issue. They don't plan to give in one iota. Here is a selection from the Associated Press report:...

Commerce Department refuses to investigate Chinese currency manipulations
Howard Richman, 9/5/2010

In February (Bipartisan group of fifteen senators call upon Commerce Department to investigate China's currency manipulations), fifteen senators wrote a letter to the Secretary of Commerce, asking him to investigate China's currency manipulations. This week they got their answer, "No."

Here's a selection from the Senators' February letter:

Our review of the 11 Commerce Department determinations not to investigate petitioners' allegations concerning China's currency manipulation suggests that the Department has prejudged the outcome of a subsidy investigation it has yet to do, rather than assessed the sufficiency of the allegation on the basis of "information reasonably available" to petitioners to determine whether to launch an investigation. This is troubling and suggests that the Department is treating allegations involving China's actions on currency differently than it has treated other allegations, including other currency-related allegations involving other countries.

Here's the reply they got, as reported by the China People's Daily:...

Unions Divided on China Policy
Howard Richman, 9/2/2010

The just-out September 20 issue of The Nation has an interesting article by Robert Dreyfus about division within the American union community on China (China in the Driver's Seat).

On the one side is Andy Stern, former President of the Service Employees International Union (SEIU) who makes frequent trips to China to visit with China's Communist-controlled All-China Federation of Trade Unions (ACFTU). (According to Wikipedia, Stern also makes frequent visits to the Obama White House.)

Stern justifies his trips to China with the claim that he is helping push the ACFTU in a positive direction. Dreyfus writes:

"I get in trouble on Glenn Beck saying, 'Workers of the world unite!' It's not just a slogan," Stern says. It's critical, he adds, for US and Chinese workers to see each other as allies, and he argues that efforts such as his can help shift the ACFTU in a direction that will make it much more representative of its hundreds of millions of members....

On the other side are the United Steel Workers, the AFL-CIO, and the Economic Policy Institute. Dreyfus writes:...

Scott Paul: The Onshoring Trend is Phony
Howard Richman, 8/25/2010

Writing in the Huffington Post on August 20 (The Onshoring Trend is Phony), Scott Paul pointed out:

On Friday August 6th, no less an authority than the president himself heralded a USA Today front page story headlined: "Some manufacturing heads back to USA." I watched CNBC that morning -- the July unemployment figures were just out -- and its anchors also trumpeted the news. So did the House Democratic leadership, which viewed the headline as a positive development and vindication of its recent focus on manufacturing. I don't blame any of these folks for trying to squeeze the good news out of an otherwise horrible day of economic news, but it turns out that exactly the opposite is happening,
Turns out they were all misinformed. Actual hard data released by the Federal Reserve Bank of Philadelphia today shows that onshoring, in fact, has declined over the past two years. Only 4.5 percent of manufacturers surveyed indicated that they had brought work back to the U.S. since the beginning of the year, compared to 6.2 percent in a survey two years ago. On the other hand, offshoring continues at a higher, though slightly diminished, pace: 9.7 percent of companies indicated that they had offshored work, compared to 11.1 percent two years ago....

Greg Richards: "We must be much more aggressive with mercantilist countries in enforcing the rules of the road so that we protect out production and technology."
Howard Richman, 8/24/2010

In the August 22 American Thinker, Greg Richards (Conviction Conservatives and the American Renaissance) argues that conservatives must reexamine America's trade policy. Here is a selection:

In economics, we have to reassess one of the most firmly held views in academic economics, and that is the value of free trade -- or perhaps not free trade per se, but trade as we find it. Going back to the 1970s, Japan was successful with its export-led growth model, which was a mercantilist model. Yes, it is true that this model means that the mercantilist country is offering us cheap goods in return for "only" our paper....

Barr McClellan: "Malaise has returned"
Howard Richman, 8/22/2010

In an article in the August 22 Foreign Policy Journal (Open Trade Season: Ten Steps for Job Creation), Barr McClellan advocates balanced trade as the way to restore U.S. economic growth. McClellan is the former personal lawyer of LBJ and the co-author of Made in the USA: Corporate Greed, Tax Laws and the Exportation of America's Future. Here is his realistic assessment of where the economy is right now:

The impact of so-called free trade and its huge imbalances has been in business and jobs. After two years of grants and incentives, the economy is dead, there are no jobs, unemployment is over 9% and malaise has returned.

He advocates a ten step program to bring more jobs to the United States. Tariffs only figure in one of his steps:...

Krugman: "We're in a world in which mercantilism works"
Howard Richman, 8/17/2010

The New York Times had an August 15 editorial (Return of the Killer Trade Deficits) which parallels the commentary that my father, son and I wrote for the August 16 American Thinker. The Times looked at the U.S. June trade numbers released last week and noted that the exploding U.S. trade deficits are an alarming trend. While we were concerned with the ramifications upon the American economy, the Times was only concerned with the effect upon the world economy. Here is a selection from their editorial:

(T)rade statistics released last week indicate that American consumers are sucking in large quantities of imports as spending recovers, while weak demand in the rest of the world is crimping American exports.

Meanwhile, China is mopping up demand everywhere you look with its artificially cheap supply of goods. Germany, the world’s other exporting power, is cutting its budget and relying on foreign demand to drive its economic rebound. This isn’t sustainable.

The Times is pretending that the U.S. problem is also the world's problem. What nonsense! A U.S. trade deficit is a one sided problem. Our trade deficits hurt us. The resulting trade surpluses in Europe and China help them. The Times advocates more of what the Obama administration has already been doing -- talk, talk, and more talk -- while they oppose anything that would work. Here is what they say about tariffs:...

Obama Fiddles while Economy Falters - We're published in the American Thinker this morning
Howard Richman, 8/16/2010

Here's how we begin:

The Economic Times of India called the latest U.S. trade data, released August 11, a "grim set of trade figures." In June, the U.S. trade deficit rose by $7.9 billion or 19 percent to $49.9 billion. Meanwhile growth of the U.S. economy was faltering from 3.7% during the first quarter to 2.4% during the second. The two are related. The rising trade deficits have been causing demand to leak abroad out of the American economy, causing growth to slow. The graph below shows the monthly trade deficit since President Obama took office:

Instead of tackling the main problem of the economy, the high unemployment rate of more than 9%, the Obama administration wasted its first year in office pursuing a chimera called National Health Care and followed that up by wasting six months of additional time and money creating a new giant bureaucracy to regulate the banking industry to prevent a possible collapse of the banking system when we have not even emerged from the current collapse yet.

If instead, President Obama had balanced trade, the U.S. would have gained enough jobs to produce an additional $49.9 billion worth of goods per month. With each U.S. manufacturing worker producing approximately $10,000 worth of product each month, this production would have employed about 5 million more manufacturing workers, not to mention additional jobs from workers constructing the new factories and not to mention the jobs providing services to the newly employed manufacturing workers....

Dan Drezner gives Obama an "F" for his trade agenda
Howard Richman, 8/8/2010

We are not the only ones disappointed with the Obama administration's trade policy. Writing at ForeignPolicy.com, Daniel Drezner (How I would grade Obama's Foreign Policy to Date) gives Obama an "F" on trade, writing:

3) Trade: Blech. Let me repeat that -- blech. I understand that the administration is on barren political terrain when dealing with this issue. Still, the phrase "Obama administration's trade agenda" is pretty much a contradiction in terms at this point. The Doha round is dead, and the only trade issue that has the support of policy principals is the National Export Initiative -- and you know what I think about that. Unlike the other three issues, the administration hasn't even bothered to put much effort onto this one -- though the recent pledge to get the Korea-U.S. Free Trade Agreement (KORUS) ratified is promising. GRADE: F

He separates balancing global demand from trade policy, though they are really the same thing, and gives Obama a "D" for that, though I don't see the reason for such a high grade:

We are in the persistent depression predicted by Keynes
Howard Richman, 8/3/2010

U. of Maryland economist Peter Morici's analysis of Friday's 2nd Quarter GDP report is just about identical to mine. He calculates that demand for American products only grew by 1.3% in the second quarter, while I calculate 1.4%. He calculates that the trade deficit sapped 2.8% from growth, while I calculate 2.7%. According to both of us, the trade deficit is causing the economic recovery to stall.

Morici is more precise than me in his predictions. He expects a double-dip recession starting in November. He writes:

Unless spending picks up (and indicators are that is not happening), once businesses stop piling up unsold goods, layoffs will outnumber hires, unemployment will rise with a vengeance, and the economy will head into a second dip. That will not likely happen until after the election. It will show up in fourth-quarter data.

Neither Morici nor I deserve all that much credit. We are simply reading the current statistics in order to determine what is happening today. John Maynard Keynes predicted this persistent depression back in 1936 in the chapter about mercantilism and its victims from his book The General Theory of Employment Interest and Money, writing:...

Economists still failing to understand the effects of mercantilism
Howard Richman, 7/31/2010

When John Maynard Keynes explained to economists why mercantilism works and how it destroys the prosperity of its victims, most economists ignored him. Although the recent success of Chinese mercantilism is forcing economists to revisit the issue, most still oppose any action by the United States against it.

Take for example a 2010 working paper (Undervaluation through foreign reserve accumulation: Static losses, dynamic gains) by U. of Maryland economist Anton Korinek and World Bank senior advisor Luis Serven. The authors correctly conclude that the accumulation of foreign currencies by the mercantilist countries produces short-term (static) losses and long-term gains. But at the end of the paper, they conclude, without citing any evidence whatsoever, that there is no harm to the victim countries.

Here is their second-to-last paragraph in which they argue that the victim countries (developed countries) actually benefit from mercantilism and that the only fellow developing countries are harmed:...

Trade Deficit Saps 2nd Quarter Growth
Howard Richman, 7/30/2010

Today's economic story is very simple. The Obama administration and Congress have been trying to pump up the economic tire, without first patching the trade deficit leak. The faster they pump, with stimulus after stimulus, the faster the trade deficits grow.

As shown in the chart below, taken from data released this morning by the BEA, increased purchases by consumers contributed 1.1% to 2nd quarter economic growth, increased fixed investment purchases by businesses contributed 2.2% to growth, increased purchases by government contributed 0.8% to growth, and inventory build-ups contributed 1.0%. But net exports sapped 2.7% from GDP growth as imports increased without a corresponding increase in exports. If you add it all up, GDP grew by 2.4%.

Geithner's job is to finance federal government expansion
Howard Richman, 7/26/2010

On a football team, each player has his own job to do. The quarterback's job is to throw the ball. The receiver's job is to catch it. The offensive line's job is to protect the quarterback and block for the running backs.

Each member of the Obama administration also appears to have his own job. On the July 25 Meet the Press, Treasury Secretary Geithner revealed his job. He was congratulating himself on keeping U.S. long term interest rates low saying, "My job is to make sure we can borrow to finance."

Other things being equal, keeping long-term interest rates low would not only help with the administration's huge expansion of the U.S. government, it would also be good for the U.S. economy. After all, low interest rates usually encourage business investment. But that is only true when there are investment opportunities.

As my father, son and I demonstrated in our 2008 book (Trading Away Our Future), when low interest rates are produced by mercantilism, the same factor that produces the low interest rates also takes away investment opportunities.

In February 2009 Secretary of State Hillary Clinton visited China. Her job was to beg the Chinese government for loans. If the Chinese government would have let their people buy our products, we would have gotten investment opportunities. Instead they loaned us the dollars earned from trade, and we got low interest rates. Breitbart reported at the time:...

Some criticisms of our Scaled Tariff proposal
Howard Richman, 7/25/2010

On Monday (July 19) we published our Scaled Tariff proposal at Enter Stage Right (The Scaled Tariff would Resuscitate the U.S. Economy). Essentially we were proposing a tariff upon the countries that have been practicing mercantilism, as evident from their foreign exchange accumulations. The tariff rate would go up when our trade deficit with that country goes up, go down when our trade deficit with that country goes down, and disappear when trade approaches balance.

There have been 5 criticisms of our proposal in the discussion on the Enter State Right website. Here are those criticisms, and my responses:...

Congress busts the budget to create 90,000 manufacturing jobs
Howard Richman, 7/22/2010

Some people do things the hard way, and some people do them the easy way. Right now Congress is doing things the hard way. They are spending money that they don't have, in order to create thousands of manufacturing jobs. They don't even seem to know that there is an easy way that would raise money that they need while creating millions of manufacturing jobs.

Reuters reports that on July 21, the U.S. House of Representatives passed a bill that will bust the budget in order to create 90,000 manufacturing jobs. The bill eliminates duties paid by U.S. manufacturers on raw materials when the raw materials are inputs into final products. Democrats voted 245 to 1 in favor. Republicans voted 129 to 42 in favor. But the Republican leadership opposed the bill because eliminating tariff revenue on raw materials would expand the already sky-high U.S. government budget deficits.

According to Reuters, House Democrats plan other measures to help U.S. manufacturing. If this bill is any indication, the other measures will also bust the budget in order to create some tens of thousands of manufacturing jobs.

But saving manufacturing jobs need not require any budget-busting expense. In fact, doing so the easy way would greatly reduce the budget deficit. Congress would take in tens of billions of dollars of tariff revenue while producing millions of new manufacturing jobs simply by balancing trade through the scaled tariff that my father, son and I proposed in our July 19 commentary, we wrote (The Scaled Tariff would Resuscitate the U.S. Economy):...

The Scaled Tariff would Resuscitate the U.S. Economy
Raymond Richman, Howard Richman and Jesse Richman, 7/19/2010

[Note: This commentary was initially published by Enter Stage Right (www.enterstageright.com) on July 19, 2010.]

In a commentary in the July 5 issue of Business Week (How to Make an American Job Before It’s Too Late), Andy Grove, a founder of Intel and its former CEO makes the spectacular prediction that the outsourcing of production of technologically advanced products by our product innovators is an act of economic suicide. He writes:...

Fed: Possibly 5 or 6 years before sustainable growth
Howard Richman, 7/15/2010

According to minutes of the Federal Reserve's June 22-23 meeting, released on July 14, Federal Reserve officials downgraded the prospects for future U.S. economic growth. Connie Maden reports:

Fed officials expect below normal growth through 2012, and their outlook on unemployment has dipped. They said that it may take as long as five or six years before the economy returns to a longer run sustainable path.
There seems to be little pressure on inflation. The Fed uses the price index for personal consumption expenditures, excluding food and energy, as its main tool. The estimates are for inflation to remain in the 0.9% to 1.2% range.

Growth estimates were lowered to between 3% to 3.5%, down from 3.2% to 3.7%.

At the meeting Federal Reserve officials considered resuming buying long-term bonds or further increasing the money supply. They finally decided to just wait and see what happens. In a Seeking Alpha commentary (Quarterly Forecasts: Slow Growth or Double Dip?), University of Maryland economist Peter Morici notes that they are out of answers:...

Michael Pettis: U.S. is "likely to be swamped by a tsunami of foreign capital"
Howard Richman, 7/14/2010

In a very clear-thinking blog entry, Michael Pettis explains that the biggest danger to the American economy is that the world's mercantilist countries (he calls them the "capital exporters") are flooding the U.S. with foreign capital. He writes:...

Trade deficit rises again in May
Howard Richman, 7/13/2010

The Commerce Department just released the trade deficit data for May. U.S. exports were up, but imports rose even faster. Here's the opening paragraph from the press release:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total May exports of $152.3 billion and imports of $194.5 billion resulted in a goods and services deficit of $42.3 billion, up from $40.3 billion in April, revised. May exports were $3.5 billion more than April exports of $148.7 billion. May imports were $5.5 billion more than April imports of $189.0 billion....

Geithner's Three Currency Manipulation Reports
Howard Richman, 7/9/2010

The typical folk tale has three examples, as in the Three Little Pigs and Goldilocks and the Three Bears. After the third example, even little children can see the pattern.

On July 8, Treasury Secretary Timothy Geithner gave us the third example from which we can judge his reliability. He issued his third semiannual report to Congress about which countries are manipulating their currencies. For the third time, he concluded that China is not manipulating its currency.

In contrast, the report's annex notes that the Chinese government had accumulated $2.4 trillion worth of currency reserves by December 2009 as part of its mercantilist strategy....

Obama Touts his Failing Trade Policy
Howard Richman, 7/7/2010

President Bush, whose trade policies caused a decade of American stock market decline, liked to tout them while standing outside a Boeing (BA) aircraft factory, Boeing being one of America's premier exporters. On July 7, President Obama, having continued Bush's trade policies, brought Boeing CEO Jim McNerny Jr. to the White House to flank him while he discussed a progress report claiming success in enhancing U.S. exports. The report noted:

The Council of Economic Advisers’ analysis shows that over the past nine months, the increase in US exports contributed more than one percentage point to the US growth rate. During our recovery, exports have contributed as much as domestic consumption to our growth.

It cited a couple of examples of recent success at promoting U.S. exports:

U.S. pork exports. In March the Chinese government agreed to stop preventing its people from buying US pork products. But the report neglected to mention that in February the Chinese government had placed new tariffs of up to 105% on US chicken products.
Boeing aircraft exports. Last week, the WTO ruled against European subsidies to Airbus, which should make it easier for Boeing to compete. But the report failed to mention that the Chinese government has been pouring billions of yuan into a new Boeing competitor, Commercial Aircraft Corporation of China.

The chart below shows that both imports and exports have been growing since the depths of the recession in May 2009:

Indeed, as the Council of Economic Advisors reports, the growth in exports during the 9 months from July 2009 to April 2010 has been impressive:

In July 2009, U.S. exports were $130 billion.
In April 2010, U.S. exports were $149 billion.

But, just as exports add to U.S. growth, imports subtract. From July 2009 to April 2010, the growth in U.S. imports has been even greater:

In July 2009, U.S. imports were $163 billion.
In April 2010, U.S. imports were $189 billion....

The Currency Reform Bill Won't Work: What Should Replace It and Why
Howard Richman, 7/4/2010

In a July 4 commentary, Ian Fletcher, author of Free Trade Doesn't Work: What Should Replace it and Why, argues that the bipartisan Currency Exchange Rate Oversight Reform Bill would only be a small first step toward solving our trade problems. He begins:

It's nice to see the long-stewing Chinese currency manipulation pot bubbling a bit again, thanks to China's latest blatantly disingenuous move to allow a token fluctuation or two of the yuan. And it's great that Senator Stabenow's currency bill is inching towards the floor of the Senate. (The underlying idea, giving American industries formal trade remedies against currency manipulation by foreign governments, was actually thought up several years ago by Kevin Kearns, president of my organization, the U.S. Business & Industry Council.)

Later in the commentary, Fletcher points out that the bill is seriously flawed because (1) it acts slowly and (2) it relies upon industries filing lawsuits with the Commerce Department:

Would the ... currency-reform bill get us out of this trap, if it passed? As noted, it's definitely a positive move, but it's still just a start. Its key limitation is that its approach is gradualist and, above all, reactive, because it depends on victimized industries filing lawsuits under the trade laws. So it will ultimately need to be supplemented with a much more comprehensive strategy.

Fletcher doesn't mention two other very serious flaws:...

Steven Pearlstein calls for direct action against mercantilism
Howard Richman, 6/30/2010

In a June 30 commentary (Steering U.S.-China economic relations toward a new normal) Washington Post business columnist Steven Pearlstein argues that we need to take real action now to end mercantilism, beginning with Chinese mercantilism. The entire commentary is worth reading. Here are just his action steps:

So if the urgent need is to rebalance the global economy by rebalancing the U.S.-China economic relationship, we are probably going to have to begin this process on our own. And that means establishing some sort of tariff regime that will increase the cost of imports not just from China, but other countries that keep their currencies artificially low, restrict the flow of capital or maintain significant barriers to imports of goods and services. The proceeds of those tariffs should be used to encourage exports in some fashion....

Obama's G-20 Summit Setback -- we're published in American Thinker this morning
Howard Richman, 6/30/2010

We begin:

At his press conference following the June 25-26 Toronto meeting of the G-20 nations, President Obama claimed that the summit had been a success:

We came to Toronto with three specific goals-to make sure the global recovery is strong and durable; to continue reforming the financial system; and to address the range of global issues that affect our prosperity and security. And we made progress in each of these areas.

But in an op-ed in the Wall Street Journal a few days before the meeting (Our Agenda for the G-20), Secretary of the Treasury Timothy Geithner and National Economic Council Director Lawrence Summers revealed what the U.S. administration had hoped to accomplish. They wrote: "Stronger growth with solid job creation here in the U.S. depends on an expanding global economy." In other words, they wanted the G-20 to commit to an expansionary economic program so that U.S. exports would grow.

They wrote...

Seven Options for Tackling Trade with China
Howard Richman, 6/24/2010

In a June 23 commentary (Five Options for Tackling Trade with China), Bloomberg Businessweek's Economics Editor Peter Coy laid out five options for tackling trade with China. He included two options that would be effective:...

China riggles off the hook
Howard Richman, 6/22/2010

Yesterday the Chinese government let the yuan strengthen 0.4% vs. the dollar. The yuan-dollar exchange rate went from 6.83 yuan to the dollar to 6.79 and world stocks boomed. Then the Chinese government weakened the yuan back to 6.82 and world stocks may fall. Here's the relevant sentence from the Associated Press story:...

Why is Washington's China rhetoric growing harsher?
Howard Richman, 6/20/2010

Chinese-business advisor Benjamin A. Shobert has an interesting commentary in the Asia Times which discusses the recent escalation of rhetoric in Washington about Chinese mercantilism. After quoting Senators Charles Schumer and Debbie Stebenow and Representatives Sandy Levin and Tim Ryan, he has an excellent insight into the cause of their increasingly harsh rhetoric:

Against the backdrop of a general economic frustration in the US, it is easy to miss that much of what lies beneath Washington's concerns is not simply Beijing's economic policy but a more general and caustic concern that how China was anticipated to evolve and embrace global rule sets and overall liberalize is not happening, which begs the political question of whether the sacrifice American workers are perceived to have made by opening their markets to China has, in fact, been worth it.

Then he descends into Marxist class warfare rhetoric, giving an alternative explanation:...

Congress plans ineffective action against Chinese mercantilism
Howard Richman, 6/17/2010

Congress is giving the Obama administration until shortly after the upcoming G20 meeting. Then, if the Chinese do not strengthen the yuan and the administration continues to waffle, they plan to pass a bill that would probably lead to U.S. tariffs on many Chinese products. Here's a selection from a Business Week article which lays out the schedule:

June 16 (Bloomberg) -- The U.S. Congress will act if China fails to raise the value of its currency, the yuan, House Ways and Means Committee Chairman Sander Levin said.

“Seven years of patience from the United States and the international community have run out,” Levin, a Michigan Democrat, said today at a hearing in Washington. After the Group of 20 world leaders meets this month, “if China does not act and the administration does not respond promptly thereafter, the Congress will act.”

There is bipartisan support for action:

“There is a clear and unified message this Congress would like to send to China and it is this: China is not acting in good faith and is aggressively engaged in a series of troubling and downright protectionist policies,” Michigan Representative Dave Camp, the top Republican on the panel, said today. China’s actions could “spur a breakdown in our relationship.”

But there is some division: American businesses are more worried about China's non-tariff barriers to American products, especially the catalogs published by the Chinese government which exclude American products from China's huge government-controlled sector. In November and December, the Chinese government threatened to exclude even those businesses producing in China if they didn't move their R&D and patents to China. Business Week briefly brings up this point:

Business representatives and lawyers said they were focused on China’s specific barriers to U.S. exports such as its indigenous innovation policy, not the exchange rate.

Congress should act, but it has the wrong goal....

Is the Chinese government moving against Taiwanese and Japanese corporations?
Howard Richman, 6/13/2010

Over the last month, strikes have broken out against many factories of Japanese and Taiwanese corporations in China, leading to huge wage increases. There have been many theories laid out as to why the strikes are occurring. For example, when Associated Press reported the story, they reported the following possible explanations:

Analysts said the recent labor actions were related specifically to job conditions and wages rather than any wider issues such as friction with Japan, which has at times prompted public outbursts against the Japanese in China....

Younger Chinese now seeking work in factories were raised in an era of relative plenty and have less tolerance for highly regimented factory living than older generations familiar with hunger, political unrest and poverty.

These theories do not explain why only Japanese and Taiwanese factories have been involved. Other articles have proposed that Japanese and Taiwanese factories pay lower wages than western factories or that Japanese and Taiwanese factories tend to employ workers from the same home towns, making worker unity more likely.

All of these explanations are indeed possible, but I have a different one. I suspect that the Chinese government is specifically targeting Japanese and Taiwanese factories in order to make them less competitive than Chinese-owned factories within the Chinese market as part of a foreign policy which is targeting these countries.

My theory is supported by the clear involvement of the Chinese Communist Party in permitting the strikes and controlling their message. The following comes from a report about Chinese unions put together by The Economist:...

Yves Smith: "the US example show how a naive posture towards trade may not help its citizens"
Howard Richman, 6/3/2010

Yves Smith is the author of Econned and runs the blog at www.nakedcapitalism.com. In an interview at the DNAIndia website (The PIIGS Should Exit the Euro), she basically agrees with us that imbalanced trade lies behind the European and American economic disasters. Here is a selection:...

Bruce Bartlett: We should raise taxes to lower our trade deficits
Howard Richman, 6/2/2010

In a recent blog entry (The National Debt and National Security), conservative economist Bruce Bartlett advocates raising taxes in order to reduce our trade deficits so that we can stop borrowing so much money from China.

Bartlett is clearly thinking about the right problems. In this blog entry he shows that he understands the negative national security implications of borrowing money from China. He also shows that he understands that trade deficits slow our economic growth. He thinks that raising taxes would balance our budgets which would cause us to borrow less money from China. His goal is to enhance domestic investment, specifically:...

AFL-CIO's Trumka asks Obama for stronger action on China
Howard Richman, 5/27/2010

The AFL-CIO may be changing course. Back in November 2008, AFL-CIO policy director Thea Lee approved President-elect Obama's plan to ignore the trade deficits. She told Reuters: “Starting at home will be the key to unlocking any forward movement on the trade agenda.”

Back then, there were 13.1 million workers employed in American manufacturing. Now there are only 11.6 million. Now, AFL-CIO President Richard Trumka is starting to get restive. TradeReform.org reports the text of his May 3 letter to President Obama. In that letter, he comes out strongly against China's currency manipulations:

I wanted to let you know that the AFL-CIO intends to consult with our coalition partners and take steps to refile our Section 301 case on currency manipulation if the Chinese government does not act to reverse the undervaluation of the yuan in the next several months. Going forward, market forces must be allowed to determine the exchange rate between the United States and China - not systematic and one-sided intervention....

But he is not especially concerned with the loss of 1.5 million more American manufacturing jobs. His main concern is the welfare of Chinese workers. His strongest words object to President Obama's acquiescence to the Chinese government's suppression of workers' rights:...

The global warmers' shell fish hoax
Howard Richman, 5/14/2010

About a month ago I was watching a network morning news program, and there was Sigourney Weaver being interviewed by a network interviewer. She was explaining the latest global warming scare. It's already happening, she was saying. The build up of carbon dioxide in the atmosphere was causing a build-up of carbolic acid in the ocean. All the shell fish were going to die.

It was like those experiments you can do, when you put an egg shell in vinegar, and the acid eats away at the egg shell until it dissolves. She gave the earth, something like 50 years.

She had recently narrated a documentary (Acid Test: The Global Challege of Ocean Acidification), and thus knew all about the topic. I waited for the interviewer to bring out someone to present the other side, somebody to challenge her statements, But no.

Instead, he asked her why other people didn't agree with her. Then he accepted her explanation that the skeptics were just unwilling to accept scientific truth. That might not be exactly what she said, but it was something like that.

I was skeptical. I knew about the theory that has already displaced the carbon-dioxide-causes-climate-change theory among most physicists. Just watch this lecture by Jasper Kirkby at the Cern, Europe's premier scientific institution, and you will know about it, too:...

One or more members will have to exit the euro zone to restore competitiveness
Howard Richman, 5/12/2010

In his April 29 posting on this blog (The Greek Crisis Reveals the Fatal Weakness of the Euro and Gold Standard), my father pointed out that the euro fix ignores the underlying cause of the crisis, the trade deficits in Greece, Portugal and Spain.

Nouriel Roubini apparently understands this dimension of the crisis. In an interview with Bloomberg, he repeatedly predicted that within the next several years, one or more members of the euro zone would have to withdraw in order to restore their competitiveness. Here's the interview:

Trade Deficit up again in March
Howard Richman, 5/12/2010

This morning, the BEA issued its preliminary estimate of our March 2010 trade statistics. Our trade deficit climbed again, led by a growing trade deficit with Europe. Overall, our trade deficit rose from $39.4 billion in February to $40.4 billion in March. Meanwhile our trade deficit with the European Union rose from $5.3 billion in February to $7.1 billion in April, probably as a result of the dollar rising v. the euro....

China uses industrial policy is to keep out US products
Howard Richman, 5/11/2010

Alan Tonelsen of American Economic Alert pairs a revealing set of quotes in a May 10 blog posting (Obama Administration's China Trade Brain-Locke):

"We believe increasing our exports to China - not limiting our imports from China - is the best way to address the trade deficit.”–Secretary of Commerce Gary Locke, May 4, 2010

The United States is concerned "about China's increasing use of industrial policies that may restrict market access and discriminate against foreign goods and services”–Secretary of Commerce Gary Locke, May 4, 2010

The Washington Post had a good article about China's industrial policy on May 7 (China's industrial policy is bigger concern than yuan, U.S. executives say). Here's a selection:...

Auctioning Import Certificates is consistent with WTO rules
Howard Richman, 5/4/2010

Import Certificates, whether across-the-board or targeted toward the currency-manipulating countries, would provide the most effective way to solve America's trade deficits. Warren Buffett first proposed this method to balance trade in a Fortune Magazine article. He wrote:

We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties – either exporters abroad or importers here – wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

In Trading Away the Future (2008), my father, son, and I endorsed Buffett's plan, while at the same time endorsing a more limited plan as being more consistent with WTO rules. We wrote:

Our plan differs from Buffett’s plan in that we would have the Department of Treasury auction the Import Certificates, rather than have the Import Certificates issued directly to exporters. Also, the certificates would just be targeted to individual dollar mercantilist countries, as evidenced by their excessive amounts of dollar reserves....

Our plan has the advantage that it is much more modest. It could more clearly be instituted without violating World Trade Organization rules since it would only impose import certificates upon countries having a large trade surplus with us. Article 12 of the Uruguay Round GATT agreement specifically lets countries running a threatening overall trade deficit restrict imports from any country with whom they are running a trade deficit. Our plan would simply enforce the International Monetary Fund agreement that countries should not manipulate their currency values. The result would be a more balanced playing field under the current rules of international trade.

In an Economic Policy Institute December 2009 working paper (#288) (Addressing Balance of Payments Difficulties Under World Trade Organization Rules) Terrence P. Stewart and Elizabeth J. Drake of the Law Offices of Stewart and Stewart, agreed with our conclusion that auctioning the Import Certificates would be more consistent with WTO rules than distributing them to exporters. Specifically:...

Pretend Free Trade vs. Balanced Trade -- The national debate kicked off on FoxNews yesterday
Howard Richman, 4/30/2010
...

China raises its tariff on some US nylon products to 96.5%
Howard Richman, 4/26/2010

The Chinese government has continued its successful policy of imposing tariffs and non-tariff barriers upon U.S. products.

1. In 2009, the Chinese government excluded American products from its catalogs of the products that could be purchased with its consumer subsidies. Through this means and others it reduced imports from the United States despite the growth of the Chinese economy by a reported 8.7%.

2. In February, new Chinese tariffs of up to 105% on American chicken products helped the Chinese government reduce imports from the United States, despite growth in the Chinese economy by a reported 11.9%.

3. On April 13, China's Commerce Ministry announced new duties on a type of U.S. steel used in the power sector.

4. This week, the Chinese government raised its tariffs on som U.S. nylon from 36.2% to 96.5%, The Wall Street Journal's Market Watch reported on April 22:...

Why we should tax interest earned by foreigners in the United States
Howard Richman, 4/22/2010

In my last commentary, I pointed out the unintended consequence of the revenue enhancing part of the HIRE Act which would cause a greater net inflow of foreign savings to the United States which would reduce American manufacturing jobs and investment.

Instead, I advocated several alternatives that would have the opposite effects, such as Congress restoring the 35% withholding tax on foreign interest earned in the United States (a tax which was withdrawn in 1984).

My alternative proposal would tax interest income just as dividend income is already taxed, with each country taxing income earned in that country.

After foreign governments reciprocate, American tax payers would pay income tax on interest earned abroad to foreign governments but get a tax credit which they could deduct from their tax liability to the American government on those interest earnings.

My proposal is fair. It gives foreigners no advantage over Americans when lending to Americans. Moreover, it recognizes the destructive nature of most financial capital inflows.

There is a simple taxation principle here. For reasons of fairness and tax efficiency, income should be taxed where it is earned. Double-taxation is avoided when your own government rebates foreign taxes.

Although I generally hold that the FairTax would be a huge step forward over our current income tax. The current FairTax bill shares a problem with our present income tax law. In other words, there should not be any exceptions to the sensible policy of part (a) of Section 905 of the FairTax bill of 2009. Part (b) should be deleted from the bill. Section 905 currently reads:,,,

Congress passes foolish tax change that will increase US trade deficits
Howard Richman, 4/21/2010

As part of the Hiring Incentives to Restore Employment (HIRE) Act (HR 2847) signed by President Obama in March, Congress passed one of the most foolish tax changes possible, one that was designed to raise revenue, but whose unintended consequence will be higher trade deficits and fewer American manufacturing jobs.

The revenue measure (see Title V of the bill) will tax Americans who put their savings abroad in order to avoid paying American income taxes. It requires foreign banks to report the income earned by Americans. If they don't, then any income owned by the foreign banks will be subject to a 30% withholding tax on any income the banks earn in the United States. The result will be that foreign banks will report income earned by American savers abroad. The unintended consequence will be to reduce the amount of American savings that goes abroad.

The net flow of savings into a country causes trade deficits. As a result of this provision, net savings will flow into the United States, which will raise the currency exchange rate of the dollar, which will reduce American exports and increase American imports, which will reduce American manufacturing jobs and manufacturing investment.

Congress could have raised increased revenue in ways that would have reduced our trade deficits:...

China's temporary trade deficit largely due to stockpiling of commodities
Howard Richman, 4/18/2010

Here's an excerpt from an April 12 commentary (Unpacking China's Trade Deficit) by Rachel Ziemba from Roubini' Global Economics:...

Geithner will Punt on China Currency
Howard Richman, 4/16/2010

Treasury Secretary Timothy Geithner is expected to make his semi-annual declaration to Congress of whether any countries are manipulating their currencies. Geithner has twice told Congress that China does not manipulate the dollar-yuan exchange rate, despite the fact that China has kept the rate fixed for the last year and half.

Geithner's report was due on April 15, but was delayed by the administration until after President Hu's visit to Washington on April 12-13 for the Nuclear Security Summit, where Hu stiffed Obama on both the exchange rate and Iran. The economic world has been wondering how the Obama administration would react.

An April 15 Voice of America story gives the first indication. Speaking to an association of American news editors. Geithner came out squarely in favor of letting China manipulate the yuan-dollar exchange rate:...

Boston Globe spins nuclear summit as success
Howard Richman, 4/15/2010

Here is a key paragraph from their editorial:

President Barack Obama's meetings with leaders at the summit produced two encouraging moves in the direction of nuclear security. China's President Hu Jintao agreed to cooperate in crafting new, targeted U.N. sanctions on Iran. This was bad news for Ahmadinejad but good news for everyone who wants to prevent the further spread of nuclear weapons.

Here's what really happened, from a Reuters story:...

Obama bows as Chinese President Hu stiffs him
Howard Richman, 4/14/2010

[This piece was published in the American Thiner on April 15: See: http://www.americanthinker.com/2010/04/obama_bows_while_hu_stiffs_him.html]

President Obama bowed to Chinese President Hu while they shook hands at the beginning of the April 12-13 Nuclear Security Summit in Washington. President Hu did not bow back. The rest of the summit played out the same relationship.

First, Hu rejected Obama's request that China stop using currency manipulations to steal American industry. At a press conference, President Obama tried to paper over the slight. He said,

With respect to the currency issue, President Hu and I have had a number of frank conversations. As part of the G20 process we all signed on to the notion that a rebalancing of the world economy would be important for sustained economic growth and the prevention of future crises. And China, like the United States, agreed to that framework. We believe that part of that rebalancing involves making sure that currencies are tracking roughly the market and not giving any one country an advantage over the other.

Next, Hu stiffed Obama's request for sanctions against Iran. Instead, China started shipping gasoline, giving Iran the key import that it needs. The following begins a Reuters story:

State-run Chinaoil has sold two gasoline cargoes for April delivery to Iran, industry sources said on Wednesday, stepping into a void left by fuel suppliers halting shipments under threat of U.S. sanctions.

By bowing to President Hu's intransigence, President Obama is announcing that he will let Hu continue to de-industrialize the United States and that he will let totalitarianism replace democracy and the free market as the world's dominant social and economic system. President Hu is refusing to adjust China's currency to the market level so that he can continue to steal American manufacturing industries. He is shipping gasoline as part of his continuing support to the world's most repressive regimes in North Korea, Burma, Sudan, and Iran....

U.S. Trade Deficit up in February
Howard Richman, 4/13/2010

This morning, the Bureau of Economics Analysis released their preliminary trade statistics for February. Imports jumped by $2.7 billion while exports creaped up by $0.3 billion. Whenever U.S. demand begins to grow, the trade deficit rises, letting demand out, and slowing the recovery.

Our trade numbers with China do not show any progress. Although down since January 2010, the deficit was up since February 2009. Also, Chinese imports from the United States were down slightly in February 2010, as compared to January 2010. There is no evidence, here, that the Chinese government is taking down its many tariff and non-tariff barriers to U.S. products.

Earlier this week (Trade Deficit Burdens Economic Recovery). University of Maryland economist Peter Morici calculated just how much the growing trade deficit was holding down U.S. growth. He wrote:...

Smoot-Hawley did not cause the Great Depression
Howard Richman, 4/11/2010

Ian Fletcher, author of Free Trade Doesn't Work: What Should Replace it and Why? had an excellent commentary in the Americnan Thinker on Friday (Protectionism Did Not Cause the Great Recession). Here's how he begins:

The debate over free trade is riddled with myth after myth. One that keeps resurfacing, no matter how many times it is discredited, is the idea that protectionism caused the Great Depression. One occasionally even hears that this same protectionism -- specifically, the Smoot-Hawley tariff of 1930 -- was responsible in significant part for World War Two! This is nonsense dreamed up for propaganda purposes by free traders, and it can easily be debunked.

Let's start by reminding ourselves of a basic fact: The Depression's cause was monetary. The Federal Reserve had allowed the money supply to balloon excessively during the late 1920s, causing it to pile up in the stock market as a bubble. The Fed then panicked, miscalculated, and let the money supply collapse by a third by 1933, depriving the economy of the liquidity it needed to breathe. Trade had nothing to do with it.

The Smoot-Hawley tariff was simply too small a policy change to have so large an effect as triggering a depression. For a start, it applied to only about one-third of America's trade: about 1.3 percent of our GDP. One point three percent! America's average tariff on goods subject to tariff went from 44.6 to 53.2 percent -- not a very big jump at all. America's tariffs were higher in almost every year from 1821 to 1914. Our tariffs went up in 1861, 1864, 1890, and 1922 without producing global depressions, and the great recessions of 1873 and 1893 spread worldwide without needing the help of any tariff increases.

He is entirely correct. Those who have studied the depression agree. Christina Romer, now Chair of President Obama's Council of Economic advisors, summarized their consensus in her Encyclopedia Britanica entry about the Great Depression:...

Charleston Post Courier editorial advocates Buffett's Import Certificates to balance trade
Howard Richman, 4/6/2010

Here's a selection from their excellent editorial:

Now the politics look improved for a response to China's currency game, in part because China has openly rebuffed President Obama's efforts to address the trade imbalance and toughen sanctions in Iran and North Korea....

NPR explains Chinese currency manipulation
Howard Richman, 4/4/2010

Obama punts on Chinese currency manipulation
Howard Richman, 4/3/2010

The international New York Times reports that the President Obama's Treasury Department will not declare China to be a currency manipulator before Chinese President Hu's visit in April. Here's a selection from the story:

For now, the United States is setting aside the most potentially divisive issue, deferring a decision on whether to accuse China of manipulating its currency, the renminbi, until well after Mr. Hu’s visit, according to a senior administration official. That decision, the official said, reflects a judgment that threatening China is not the best way to persuade it to allow the renminbi to appreciate against the dollar.

Meanwhile there is a bypartisan coalition in Congress who make take action, whether Obama does or not. Public Citizen reports:...

China's multiple barriers to American products
Howard Richman, 4/1/2010

The latest statistics released on March 18 by the BEA show that for every $1 that the United States bought from China in 2009, the Chinese government only let its people buy 28¢ of American products. Although the Chinese economy was growing by 8.7%, the Chinese government managed to shrink Chinese imports of American goods and services.

The 2010 National Trade Estimate (NTE) released on March 31 by the Office of the United States Trade Representative explains how the Chinese government kept out American products. Although the report ignored China's currency manipulations, which raise the cost of all American goods and services in China by somewhere between 25-40%, it still found plenty to talk about. Currency exchange rate manipulation is only one of the many ways that the Chinese government keeps out American products. The report focused upon the Chinese government's expert use of tariff and non-tariff barriers....

Lies, Damned Lies, and Chinese Statistics
Jesse Richman, 3/29/2010

Although it isn't clear that the Obama administration has taken it seriously, the Chinese government has clearly taken Paul Krugman's call for a 25 percent tariff seriously. On March 14th, Chinese Premier Wen Jiabao argued that efforts by the U.S. and Europe to get China to allow its currency to appreciate were protectionist. He also asserted China's committment to balanced trade.

But all this depends upon what the meaning of balance is...

U.S. Corporations not helping China avoid Krugman's tariff
Howard Richman, 3/28/2010

In the mystery story Silver Blaze, Sherlock Holmes uses the clue that a dog didn't bark to help unravel a mystery. The significant thing that happened in U.S.-Chinese relations last week was similar.

With the exception of Morgan Stanley, which is partially owned by the Chinese government, American corporations did not comply with the Chinese government's request that they oppose the 25% across-the-board tariff on Chinese goods proposed on March 14 by Nobel Prize winning international economist Paul Krugman.

On March 19, Canada's Globe and Mail, reported that the Chinese government was asking those American corporations doing business in China to intervene on its behalf:

The Chinese are also courting U.S. multinationals that benefit from low-cost Chinese exports, hoping they will use their considerable lobbying clout to blunt any protectionist retaliation. Analysts say that is already happening.

But on March 29, Reuters reported (U.S. Companies Suddenly Shy on Chinese Yuan Squabble) that they are not barking. Here is a selection:...

Sidney Sherman traces start of America's decline to giving away our manufacturing to Asia
Howard Richman, 3/26/2010

In today's American Thinker, Sidney Sherman traces America's decline (The Looting of America). He starts with our willingness to give away our manufacturing to Asia. Here is a selection:

Phase 1: Manufacturing 1990-2000

Well before the Clinton era, in 1991, I remember an acquaintance telling me that California would no longer be a manufacturing power, that its future was as an import-export center. I laughed it off at the time, but within five years, I was startled by this acquaintance's prophecy. Locally, entire business parks became ghost towns. Machine shops, PC board fabrication, painting companies, and a host of other small enterprises that supported larger manufacturing operations vanished from the landscape.

As the Clinton years dragged on, we became numb to the looting. As it became grander and bolder, we watched entire factories pack up and move. We heard the "giant suckin' sound." However, it wasn't coming from the south, but from across the Pacific. By the end of the '90s, we were just beginning to realize that we couldn't buy anything that wasn't made in China. Welcome to the "global economy."...

Volcker is realistic about China
Howard Richman, 3/25/2010

Former Federal Reserve Chairman Paul Volcker, now head of Obama's Economic Recovery Advisory Board, participated in the Wall Street Journal's Future of Finance Initiative. When asked about China, here's what he said:

I think the Chinese are a little disingenuous to say, ‘Now isn’t it so bad that we hold all these dollars.’ They hold all these dollars because they chose to buy the dollars, and they didn’t want to sell the dollars because they didn’t want to appreciate their currency. It was a very simple calculation on their part, so they shouldn’t come around blaming it all on us....

Carbon tax: Sarcozy backs off, Sen. Kerry pushes forward.
Howard Richman, 3/24/2010

Sometimes political parties change course when they find themselves advocating policies that would both hurt their country and their own future electoral chances. Sometimes they don't.

French President Nicolas Sarkozy of France is scrapping plans for a carbon tax that would hurt French competitiveness. He was responding to the defeat of his party in recent French elections.

Meanwhile, Senator Kerry is advocating that the United States go forward with a carbon tax despite its negative effects upon American competitiveness and despite the huge defeat of his party in a recent Massachusetts election....

Peter Morici: Our current China policy is "appeasement"
Howard Richman, 3/23/2010

University of Maryland economist Peter Morici had another excellent commentary published today by Seeking Alpha (Google and the Larger China Challenge). He discusses the relationship between free markets and democracy in China:...

Krugman vs. Roach on US-China trade deficits
Howard Richman, 3/22/2010

On March 19, in response to Nobel-Prize winning international economist Paul Krugman's call for a 25% across-the-board tariff on Chinese products, Morgan Stanley Asia Chairman Stephen Roach opposed the measure, arguing that America's low savings rate causes our trade deficit with China. Bloomberg.com reported:

Morgan Stanley Asia Chairman Stephen Roach said that Paul Krugman’s call to push China to allow a stronger yuan is “very bad” advice and that increased Chinese spending is a better way of reducing trade imbalances.

“We should take out the baseball bat on Paul Krugman -- I mean I think that the advice is completely wrong,” Roach said in an Bloomberg Television interview in Beijing when asked about Krugman’s call, characterized as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which is raising U.S. savings, Roach said.

Roach is making two arguments, both of them suspicious:...

Needed, a Cross-the-Board Tariff on Imports From China
Raymond Richman, 3/21/2010

In a recent article in Barron’s magazine, Dan Dimicco, CEO of NUCOR Steel, and Peter Navarro, Prof. of Economics and Public Policy at the University of California at Irvine, have joined a number of prominent public figures, including Nobel-prize winner Prof. Paul Krugman, who are criticizing the Chinese government for keeping the value of its currency low, arguing that it is responsible for our huge trade deficits and world-wide instability. Prof. Krugman proposed a substantial temporary tariff to force China to revalue the Chinese yuan.

They write: "In a world of free trade and floating exchange rates, the U.S.-China trade imbalance couldn't persist. As the U.S. trade deficit rose, the dollar would fall relative to the yuan, U.S. exports to China would rise, imports from China would fall, and trade would rebalance." We do not believe that the historical evidence justifies this conclusion.

The value of the yuan is not the real cause of our trade deficits nor will revaluing its foreign exchange rate have much if any effect on our trade deficits. As I wrote on this blog a few days ago, “In 1971 the United States under Pres. Nixon imposed a 10 percent surcharge on imports, which was removed when Germany, Japan and other nations raised the dollar value of their currencies. The German and Japanese revaluations hardly interruupted the growth of their trade surpluses. We believe that China would respond as Germany and Japan did following the U.S. action. They appeared to be addressing U.S. concerns but it was an empty gesture. In any case, it had little long-term effect.” We do not need a temporary tariff. We need to impose a uniform tariff on all imports from China, whose rate will rise and fall as the trade deficit increases and falls.

NY Times ignores China's R&D Rules
Howard Richman, 3/20/2010

In a story in the March 17 New York Times celebrating U.S. R&D moving to China (China Drawing High-Tech Research from U.S.), Keith Bradsher completely failed to mention the Chinese government’s new November and December rules requiring that American firms move their R&D and patents to China as a condition for doing business with the Chinese government....

Why Krugman's China Argument Matters
Jesse Richman, 3/19/2010

Those who favor particular policy goals are fond of finding a nobel laureate in Economics willing to sign on to their particular policy perspective. In the totting up of endorsements, sometimes what gets lost is the crtical consideration -- does this nobel laureate specialize in knowing well the area that the endorsement involves...

Relative currency values are not static
Howard Richman, 3/19/2010

The Canadian Globe and Mail has an excellent report on the Chinese currency issue. It reports that Congress has gotten into the act with a bipartisan Senate Bill sponsored by Senators Charles Schumer and Lindsay Graham.

But, I was especially impressed when an argument of ours from Trading Away Our Future got into print in this article. Here it is:

The Chinese allowed the yuan to appreciate by 22.5 per cent against the U.S. dollar between 2006 and mid-2008, but then froze it at a level of about 6.8 to the greenback in response to the global crisis, where it has remained. But its implicit value has been rising steadily, thanks to the Chinese economic gains during that time.

Obama's Trade Policy Agenda -- we're published in American Thinker this morning
Howard Richman, 3/18/2010

Here's how we begin:

On March 1, 2010, Ambassador Ron Kirk, United States Trade Representative, disclosed "The President's 2010 Trade Policy Agenda." Although the agenda claims that the Obama administration has brought substantial change to U.S. trade policy, the policies it outlines have fundamental limitations likely to render its goals mere talk and its results insubstantial.

The agenda asserts that the administration's goal is "Making Trade Work for America's Working Families." The agenda asserts that "President Obama's economic strategy halted the slide into a deep economic crisis and laid the foundation for renewed American prosperity that is more sustainable, fairer for more of our citizens, and more competitive globally." But the facts are not so rosy. Since Obama was inaugurated, America's working families have lost 1 million more manufacturing jobs, the unemployment rate has soared from 7.7% to 9.7%, and real U.S. GDP has declined by 2.4%. The United States may be out of the recession, but isn't yet out of the depression.

The agenda announces that President Obama has set a goal "of doubling U.S. exports in the next five years" to create 2 million jobs. It creates a new bureaucracy called the Export Promotion Cabinet which will fund export promotion programs, tools for small- and medium-sized businesses, reduction in barriers to trade, and open new markets. According to the agenda, government officials, in their extreme wisdom, have selected which industries should be promoted, specifically:...

Krugman on China currency
Howard Richman, 3/17/2010

130 Congressman sign letter to Treasury and Commerce Departments asking them to address Chinse currency manipulations
Howard Richman, 3/16/2010

[The March 15 letter was circulated by Democratic Congressman Mike Michaud (ME) and Tim Ryan (OH) and was signed by 90 Democrats and 40 Republicans. Here is the text.]

Dear Secretary Geithner and Secretary Locke:

We write to express our serious concerns about China’s continued manipulation of its currency. By pegging the renminbi (RMB) to the U.S. dollar at a fixed exchange rate, China unfairly subsidizes its exports and disadvantages foreign imports. As we work to promote a robust U.S. economic recovery, it is imperative that we address this paramount trade issue with all available resources. We urge your agencies to respond to China’s currency manipulation with the actions outlined in this letter. Doing so will allow American companies and workers to compete fairly against their Chinese counterparts and will boost U.S. economic recovery and growth.

The impact of China’s currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors. U.S. exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports. The devaluation of the RMB also exacerbates the already severe U.S-China trade deficit. Statistics show that between January 2000 and May 2009,China’s share of the U.S. trade deficit for non-oil goods grew from 26% to 83% -- an untenable pattern for American manufacturers. And finally,China’s exchange-rate misalignment threatens the stability of the global financial system by contributing to rampant Chinese inflation and accumulation of foreign reserves. For these compelling reasons, we ask your agencies to pursue the course of action below....

Paul Krugman calls for 25% cross-the-board tariff on Chinese goods
Howard Richman, 3/15/2010

In a commentary in Sunday's New York Times (Taking on China), Nobel Prize winning economist Paul Krugman called for an accross the board 25% tariff on Chinese goods. Here is his specific recommendation:...

What is the real reason why the Obama administration won't do anything about China?
Howard Richman, 3/15/2010

In a piece that extols Obama's trade policy, and recognizes that Chinese mercantilism is hurting the United States, the Washington Post excuses Obama's decision to do nothing, except talk, because of the danger that China might find "effective ways to retaliate." What retaliation are the Washington Post and the Obama administration afraid of?...

Washington Post: There's nothing that we can do about Chinese mercantilism
Howard Richman, 3/14/2010

The business section of the Washington Post had an article which layed out Obama's trade agenda. When it came to China, they correctly identified Chinese trade policies as mercantilist and then concluded that there's nothing we can do about it. Here's the relevant passage in which they conclude that Obama is right in doing nothing:...

U.S. exports down in January
Howard Richman, 3/12/2010

According to preliminary trade statistics released yesterday by the Bureau of Economics Analysis, U.S. exports decreased from $143.2 billion in December to $142.7 billion in January, showing that President Obama's plan to double U.S. exports over the next five years is off to a rocky start.

Meanwhile, U.S. imports in January went down even more, from $183.1 billion in December to $180.0 billion in January, suggesting that the American economy is headed downward into another recession....

GreenJobsGate
Howard Richman, 3/11/2010

The Obama administration has rejected the ideas we favor which would promote all American products indiscriminately. They prefer an industrial policy in which they get to choose the winners and losers. They have chosen the wind industry to be their winners and the industries that use energy to be their losers.

Christopher Horner had a commentary at Pajama's Media on March 9 on some shady practices within the relationship between the Obama administration and the American Wind Energy Association, a lobbying group. Here is how he begins:...

British exports see biggest fall in three years
Howard Richman, 3/9/2010

If wishful thinking were enough, then Britain's exports would be increasing right now, in time to get Gordon Brown reelected. However, in January they were falling not rising. Here's a selection from the story (Blow for Gordon Brown as exports see biggest fall in three years) from the London Evening Standard:

Gordon Brown's hopes of an export-led recovery before the general election were dealt a hefty blow today.

Official figures showed that UK exports suffered their biggest fall for more than three years in January....

Heritage Foundation's Terry Miller claims Obama is a mercantilist
Howard Richman, 3/8/2010

Terry Miller, writing on the Heritage Foundation's website (Obama's Mercantilist Approach to Trade) claims that Obama is a mercantilist since he talks about balancing trade. Miller is making two fundamental mistakes: (1) he mistakes talk for action, and (2) he equates self-defense against mercantilism with mercantilism.

Here is the passage in which he mistakes talk for action:

We first heard Obama’s mercantilist approach in the State of the Union address. He called for greater exports, a “doubling” over five years. He proposed a National Export Initiative “to help farmers and small businesses increase their exports.” That’s policy code for export subsidies. He called for greater enforcement of trade agreements. That’s policy code for protectionism....

Here's the passage in which he equates self-defense against mercantilism with mercantilism:

[Obama's] 2010 Trade Agenda is a recipe for economic failure and stagnation. Much of the focus is on enforcing rules to restrict other countries’ access to the U.S. market. It’s a begger-thy-neighbor approach in which we would sell more to other countries while restricting their ability to sell to us. Such a model is unsustainable internationally: not every country can run a trade surplus....

Trading Away Productivity - Tonelson and Kearns in March 5 NY Times
Howard Richman, 3/7/2010

Alan Tonelson and Keven Kearns of the US Business and Industry Council had a great commentary in he New York Times on Friday. They argue that US productivity measures are inaccurate:

But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.

The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.

This oversight is no secret: as Labor Department officials acknowledged at a 2004 conference, their statistical methods deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain.

They go on to argue that the United States needs a pro-manufacturing policy:...

Unemployment report shows stagnant economy in February
Howard Richman, 3/5/2010

The latest unemployment report from the Bureau of Labor Statistics had unemployment stay at 9.7% while employment lost 36,000 jobs. In other words, the economy is still stagnating....

Commerce Dept. sets miniscule tariff on Chinese glossy paper
Howard Richman, 3/4/2010

Yesterday, Commerce Secretary Gary Locke set a miniscule preliminary tariff, ranging from 3.92% to 12.83% on Chinese glossy magazine-quality paper to offset Chinese government subsidies to paper exporters. This miniscule tariff ignores the fact that Chinese currency manipulations alone provide a 20% to 40% subsidy on all Chinese exports as well as a 20% to 40% import duty on all American exports to China.

In February, a bipartisan group of 15 Senators wrote a letter to Secretary Locke asking him to "consider allegations that China's manipulation of its currency is a countervailable subsidy" when making this determination. The letter stated:...

Obama: 'It's very hard to ship windows from China'
Howard Richman, 3/3/2010

President Obama is aware of the fact that his decision to stimulate the American economy without closing the trade deficit leak is producing jobs in China, not the United States. Even ABC News is onto this story. (See this report.)

In remarks on March 2 at Savannah Technical College, President Obama claimed that his "Homestar" program would subsidize American production because energy-efficient windows are produced in the United States and "it's very hard to ship windows from China":...

Bipartisan group of fifteen senators call upon Commerce Department to investigate China's currency manipulations
Howard Richman, 3/1/2010

[Here is the text of the letter:]

We write to express our serious concern that the Commerce Department has failed to properly consider allegations that China's manipulation of its currency is a countervailable subsidy. U.S. manufacturers have filed at least 12 allegations - most recently on January 13 in the Coated Paper investigation - that the Chinese government is actively engaged in keeping the value of its currency artificially low to promote the growth of export-oriented industries. We urge the Department to properly consider the allegation and the information provided by petitioners in determining whether to investigate China's actions.

Around mid-July 2008, China abandoned any pretense of letting its currency appreciate. After a few years of modest progress, China's government, once again, has fixed the value of yuan against the dollar and walked away from its commitments to reform its currency policies. The result is continued undervaluation of China's currency - by some estimates as much as 40 percent - and serious economic harm to U.S. manufacturers forced to compete against subsidized Chinese imports.

For example, the value of China's paper and paperboard exports to the United States increased by 21 percent between 2006 and 2008, jumping from $1.9 billion to $2.3 billion. The dramatic increase in exports is due in large part to substantial Chinese government subsidies. Those government subsidies include China's continued devaluation of its currency vis-à-vis the U.S. dollar, a government policy designed to promote and fuel continued growth in export-oriented industries. As senators from key paper product-producing states, we are very concerned that domestic paper manufacturers and paper industry workers are substantially harmed by subsidized Chinese imports.

China's mercantilist policies are undermining the health of many U.S. industries - industries that inject billions of dollars into the U.S. economy and employ hundreds of thousands of American workers. In the face of China's actions to subsidize its exports at the expense of U.S. manufacturers and workers, the Department needs to act....

Pfizer moving R&D from Connecticut to China
Howard Richman, 2/25/2010

Pfizer may be the first American company to respond to China's demand that they move their R&D to China in order to do business with the Chinese government. The following is an excerpt from an article (Western Firms move R&D and other Assets to China) in the February 25 issue of China Daily:...

New York-based Pfizer said last month it's expanding R&D operations in Wuhan, China. At the same time, it's closing a big R&D center in New London, Conn., and consolidating research at its Groton, Conn., lab. Pfizer is also sharply expanding its R&D facility in Shanghai and raising drug output in Dalian, in Liaoning Province....

http://www.americanthinker.com/2010/02/obama_giving_us_rd_to_china.html

Obama giving US R&D to China - we're published in today's American Thinker
Howard Richman, 2/24/2010

Here's how we begin:

The United States and China are involved in a trade war, the outcome of which will determine who gets America's remaining manufacturing industries and research and development centers. The Chinese are actively fighting; President Obama is actively talking.

The Chinese government fired a huge broadside in December when it issued new rules requiring that American corporations doing business in China move their research and development centers and patents to China as a condition for selling goods and services to the Chinese government.

Nineteen trade groups that represent America's largest corporations responded with a January 29 letter to several U.S. government officials. Here is a selection:

You can read the rest at:

A Review of W. Raymond Mills "Managing ForeignTrade"
Raymond Richman, 2/23/2010

We have published a working paper by W. Raymond Mills (Managing Foreign Trade, Ideal Taxes Association, Working Paper #2, February 23, 2010). He begins with this insightful paragraph.

It is ironic that the man-on-the-street in any town in Ohio has a better understanding of the harm done to the U.S. economy by the trade deficit than do the experts who study the problem. The ordinary citizen knows that goods manufactured overseas and sold in the U.S. reduce output among U.S. manufacturing firms. The ordinary citizen knows that unbalanced trade – more imports than exports – means that foreign producers are, on net (using Greenspanese) displacing and replacing U.S. firms and U.S. manufacturing jobs.

It is a mystery how our leaders in Washington could observe the damage being done to U.S. industry during the past thirty years without taking counter-action. It is no mystery to one who has studied economics. Economists have gone from embracing the principle of comparative advantage, first enunciated by David Ricardo in the second decade of the 19^th century, to concluding , that trade under all conditions was beneficial to the trading partners, a non-sequitur. Every example of the benefits of trade from David Ricardo to Paul Krugman shows trade to be in balance, just as in barter, with each exchanging a basket of goods it values more for a basket of goods it values less. While this suggested that free trade, an absence of tariffs and other barriers to trade, would be beneficial to all trading partners, the only conclusion warranted was that balanced trade was beneficial to all trading partners. Nothing in economic theory suggests that one side practicing free trade would result in trade beneficial to all parties. The book we authored, Trading Away Our Future (Ideal Taxes, 2008), argued that our trading partners were not practicing free trade and that balanced trade, not free trade, was the first principle of international trade....

IMF figuring out capital inflows; U.S. still clueless
Howard Richman, 2/22/2010

The International Monetary Fund is beginning to figure out that capital inflows are destructive. Alan Rappeport of the Financial Times reported on February 22 that the International Monetary Fund now favors letting underdeveloped countries limit the financial capital flowing into their countries.

Their new position recognizes that the inflow of financial capital strengthens the currency of the country receiving a net inflow, thus hurting that country's industries in world competition, The resulting trade deficit, in turn, leads to a financial crash....

China's not selling. China's Buying
Howard Richman, 2/19/2010

Recently, the Chinese government sold some of its U.S. Treasury Bonds, but the dollar-yuan peg hasn't budged. This means that the Chinese government is continuing to pour Chinese savings into U.S. financial assets at the rate of about $400 billion per year.

In order to understand Chinese policy, it is necessary to understand that the Chinese government buys U.S. bonds as part of its mercantilist strategy to keep the dollar high and the yuan low, so that Chinese industries steal market share from American industries and so that China gets America's manufacturing and research and development jobs.

The Chinese government knows that American assets are a lousy investment. It is obvious that the dollar will eventually fall by at least 25% vs. the Chinese yuan. Moreover, the People's Bank of China has had to actively suppress domestic consumption by raising bank reserve requirements in order to get the yuan needed to buy dollars without causing inflation.

A commentary by Brian Miller from today's Globe and Mail explains that when China has been selling U.S. Treasury Bonds, it has been shifting its assets from visible accounts into hidden ones. Here is a selection:...

US Companies Required to move Research Centers to China
Howard Richman, 2/18/2010

On January 29, nineteen trade groups including the U.S. Chamber of Commerce and the National Association of Manufacturers sent a letter to U.S. government officials about China's new requirement that they move their research and development centers to China as a condition for doing business with the Chinese government. Here is a selection:

Of 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 govenrment procurement. Among the criteria for eligibility for the catalogue is that the products contain intellectual property that is developed and owned in China and that any associated trademarks are originally registered in China. This represents an unprecedented use of domestic intellectual property as a market-access condition and makes it nearly impossible for the products of American companies to qualify unless they are prepared to establish Chinese brands and transfer their research and development of new products to China.

These organizations concluded their letter with the following request:...

Obama �trying to head off critics in Congress who think the administration is lying down in front of the Chinese�
Howard Richman, 2/17/2010

A commentary by Kendra Marr in The Politico (White House takes tougher tone with China) reports Peterson Institute for International Economics Senior Fellow Nicholas R. Lardy saying that the Obama administration's "tougher tone" with China is mainly for public consumption:

For now, however, these moves are just “trying to head off critics in Congress who think the administration is lying down in front of the Chinese,” Lardy said.

The Peterson Institute may have inside knowledge about the Obama Administration's trade rhetoric. Just after President Obama was elected, Senior Fellow Gary Hufbauer correctly told Reuters:...

"Playing Chicken with China" - we're published in today's American Thinker
Howard Richman, 2/15/2010

Here's how we begin:

There is a game of chicken being played on trade policy with China, with potentially severe consequences for the world. China's response to U.S. and European efforts to constrain its mercantilist policies is to threaten an escalating trade war in which some or all parties may lose. To win, the U.S. must transform the game.

Recently, China announced that it was imposing tariffs of up to 105.4 percent on U.S. chicken exports. One of the products in dispute is apparently chicken feet. Because these are sold for ten times as much in China as in the U.S., China accuses U.S. chicken producers of dumping chicken feet below cost in the Chinese market. China had earlier imposed tariffs on American nylon products after the Obama administration imposed tariffs on Chinese tires, authorized by China's agreement with the United States when it entered the World Trade Organization. The chicken tariffs were announced after the U.S. offended China by selling weapons to Taiwan, which it claims as Chinese territory.

Given the substance of the current dispute with China, it is ironic that the "game of chicken" (a long-studied model of conflict) offers insights into how the U.S. should proceed. In this game, two players must decide between aggressive and cooperative strategies. Mutual selection of cooperative strategies provides reasonably good payoffs for both. But a player is better off selecting an aggressive strategy when faced with an opponent who cooperates. In this situation, the cooperator suffers. However, the cooperator does not necessarily benefit from switching to an aggressive strategy as well. If both players select the aggressive strategy, both suffer enormous losses....

And here is how we conclude:...

ABC News on Green Stimulus Jobs Going to China
Howard Richman, 2/14/2010

Restore American Jobs and Do It Quickly
Raymond Richman, 2/13/2010

The world economic crisis is in danger of turning into Great Depression II. The economic stimulus package, the Troubled Asset Relief Program. cash grants to households, subsidies like "Klunkers", subsidies to home remodelling,to wind turbines and solar panels, and cash grants to households by both Pres. GW Bush and Pres, Obama have had little effect and unemployment continues to increase. The first step, and it is urgent that we do it, is to bring our foreign trade into balance. Our trade deficit in goods reached over $800 billion in 2008, the equivalent of 8 million U.S. jobs.

We have built up huge trade deficits with Germany, Japan, and China, countries embarked on an import-substitution (protective tariffs) strategy and an export-based strategy of development (building products for export), employing barriers to imports and subsidies to exports. Economists have a term for this -- mercantilism. Communist China when it saw the success of free markets in its agricultural sector, liberalized its manufacturing sector, too, permitting multi-nationals, in partnership with Chinese firms, to build factories and adopted the same mercantilist strategy. The mercantilist strategy of protective tariffs and export subsidies succeeded in converting the U.S. by the mid-1980s from the world’s leading creditor nation to the world’s leading debtor nation. This was the result of the growing trade deficits of the U.S. with each of these countries.

The traditional mechanism for correcting trade deficits and bringing trade into balance...

No growth in US goods exports to China in 2009
Howard Richman, 2/11/2010

According to preliminary trade statistics released by the Bureau of Economic Analysis on February 10, U.S. goods exports to China shrunk by a miniscule .002% in 2009 while U.S. goods imports from China shank by a massive 12.2%. These statistics reflect the relative growth rates of the two economies, as shown in the following table:...

Obama's Failing China Strategy
Howard Richman, 2/10/2010

James Morrissey, Washington Correspondent for Textile World had a very interesting February 9 report about Obama's China strategy:

At a meeting with the Senate Democratic Policy Committee, the president said, "We must get much tougher about enforcement of existing trade rules, putting constant pressure on China and other countries to open their markets in reciprocal ways."

Obama specifically mentioned currency manipulation, saying, "One of the challenges that we've got to get much tougher about is currency rates and how they match up to make sure that our goods are not artificially inflated and their goods are not artificially deflated in price." He said such actions place the United States at "a huge competitive disadvantage."...

The Democratic Senators seem content to follow Obama's, leadership, but Republican Senator Grassley is urging stronger action. Morrissey reports:...

Summers says everything is fine in our China relationship
Howard Richman, 2/9/2010

Just before China announced plans to slap tariffs of 43.1%-105.4% on American chicken parts, President Obama's chief economic advisor Lawrence Summers told Judy Woodruff that everything was fine in our China relationship. Business Week reported:

Summers downplayed friction between the U.S. and China, including charges that a recent computer attack targeting Google Inc. came from China. The relationship between the two nations is resilient enough to withstand occasional dust-ups, he said.

But nothing has been fine in our economic relationship with China for the entire decade of the 2000s. Over that decade China engaged in massive currency interventions in the dollar-yuan market so it could minimize imports and maximize exports. Many of the other Asian countries did the same. As a result, the U.S. lost 5.7 million manufacturing jobs, as compared to just 0.5 million lost during the previous decade.

Unfortunately, Summers is a slow learner. So far, his education has cost the United States over a million manufacturing jobs and has cost the Democratic Party two Gubernatorial seats and a Senate seat. During the next three years, his education will probably cost his boss's party the Presidency, the House and the Senate.

But there is still hope that he can learn. His statements at the annual summit of world economic leaders in Davos Switzerland at the end of January show some progress. The Financial Times had two reports about his comments. One was from Martin Wolf:...

Chinese Government and Obama are Playing Chicken
Howard Richman, 2/6/2010

In the game of chicken two cars barrel down a road headed toward each other. The game ends when one or the other veers off, or they crash. Well, right now, Obama and the Chinese government are playing chicken, and which one wins will determine the future of the American economy and his presidency.

On February 5, the Chinese government initiated the game when it announced plans...

Judith Stein: US government research funds should require that the developed products be produced here
Howard Richman, 2/5/2010

CUNY professor Judith Stein is the author of the forthcoming Yale University Press book, Pivotal Decade: How the United States Traded Factories for Finance in the Seventies. In a commentary in the February 4 Philsadephia Inquirer she compares Obama's policy today with that of the United States back then. Here's her basic argument:

Green jobs are surely needed. But green Democrats simply echo the Atari Democrats of the 1980s, who concluded that traditional manufacturing was disposable and high technology was the wave of the future. During this era, the young Barack Obama attempted - and failed - to find jobs for displaced steelworkers in Chicago.

She cites some interesting statistics about solar panel manufacturing:...

Kenneth R. Davis: Buffett Plan is "long overdue"
Howard Richman, 2/4/2010

On January 31 in the Huffington Post, Kenneth R. Davis urged Arianna Huffington to endorse the Buffett Plan for balancing trade, saying it was long overdue. Under that plan, exporters get Import Certificates (allowing the same amount of imports) that they sell to importers. As a result, the plan subsidizes exports and limits imports, balancing trade.

Davis' claims for the plan's good effects on the US economy were not exaggerated:

The effect of the Buffett Plan would be far greater and longer lasting than the short term fixes that are being debated, like infrastructure repair or one-time hiring tax credits. And the Plan is self-financing from fees for import certificates. There'd be no need for more government deficit spending. Business will expand, jobs grow and our trade deficits and national debt will be gradually eliminated -- all good news for the middle class.

His claims for the plan's effects on world trade were also accurate:...

Peter Morici's Currency Conversion Tax to End Mercantilism
Howard Richman, 2/3/2010

There are several proposals on the table which would end the destructive mercantilist attacks that are de-industrializing the U.S. economy. If one of these proposals were adopted by the U.S. government, China and the other mercantilists would have to buy American products with the money they earned from imports, instead of just using that money to buy American assets.

One of the most innovative of these proposals is the currency conversion tax proposed by U. of Maryland economist Peter Morici, former chief economist at the USTR. Here is how he described his proposal in Congressional testimony before the House Committee on Foreign Affairs on March 12, 2009:...

Ha-Joon Chang takes on Free Trade in his book The Bad Samaritans
Howard Richman, 1/26/2010

For an excellent interview with the author, see The Free Trade Heretic by David Sirota at inthesetimes.com. Partly, Chang is taking on the economics profession. Here's a selection from the interview. Here's Sirota's question:

Bad Samaritans claims that most trade “experts” ignore the history of trade policy in building up industrialized countries. Specifically, you assert that protection and tariffs — not free trade — have always been a cornerstone of any successful industrial policy. Why do you think these experts ignore this history?

And here is part of Chang's answer:

When 99 percent of economists believe in free trade, it is easy to pretend that the 1 percent does not exist or that they are incompetent. With their numerical advantage, free-trade economists can always assert that professional consensus is on their side. Of course, if the numerical majority was always right, the sun would still be going around the earth and the earth would still be flat.

Reminds me of what I wrote in my April 10 2009 posting The Age of Scientific Conformity.

Ralph Gomory: The time has come to take Warren Buffett's Import Certificates plan seriously
Howard Richman, 1/24/2010

Ralph Gomory called for balanced trade in today's Huffington Post. The Obama administration could still succeed if they would just start listening to him. Here's a selection:

We may very well need to tackle the trade issue in the direct and head on way that Warren Buffet suggested in his insightful Fortune article in 2003. In this article he described his Import Certificates plan. The Buffet plan is something that we can carry out without the agreement of other nations, and it is something that would actually balance trade. The time has come to take this plan seriously in place of the endless talk that only postpones the day of reckoning.

The entire commentary is worth reading. Here's the link: http://www.huffingtonpost.com/ralph-gomory/a-time-for-action-jobs-pr_b_434698.html

Google Has Its Rosa Parks Moment -- I'm published by Seeking Alpha today
Howard Richman, 1/18/2010

Here's how I begin:

On Martin Luther King’s birthday we should also remember Rosa Parks who started it all. She got on a public bus in Montgomery Alabama and refused to move to the back of the bus, where blacks were supposed to sit. Then Martin Luther King organized the bus boycott that changed history.

Similarly, American corporations have been forced to sit in the back of the bus in China. Google (GOOG) was being forced to censor democratic opinion in order to do business in China. But Google had its last straw when the Chinese government hacked its website in order to read the gmail e-mails of Chinese dissidents.

You can read my entire commentary at: http://seekingalpha.com/article/183036-google-has-its-rosa-parks-moment

Larry Ringler: Google's courage may turn the tide in our dealings with China
Howard Richman, 1/17/2010

American Economic Alert is carrying an interesting commentary by Larry Ringer from an Ohio newspaper, the Tribune Chronicle. Ringler predicts that Google's courage in standing up to the totalitarian government of China may lead to a changed attitude among American businesses in general. Here's a selection:

The tide may finally be turning in the United States' delicate dance with China.

Recent decisions to slap tariffs on tires and steel tubes was a promising first step by the government.

Most recently, the private sector is drawing its line in the sand, thanks to Internet search engine Google's threat to give up the lucrative China market in a dispute over censorship.

And here's a selection from the official Google blog posting that got everything started, following Google's discovery that the Chinese, probably the Chinese government, have been hacking Google's website in hopes of reading the gmail e-mails of Chinese dissidents:

These attacks and the surveillance they have uncovered--combined with the attempts over the past year to further limit free speech on the web--have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

The decision to review our business operations in China has been incredibly hard, and we know that it will have potentially far-reaching consequences. We want to make clear that this move was driven by our executives in the United States, without the knowledge or involvement of our employees in China who have worked incredibly hard to make Google.cn the success it is today. We are committed to working responsibly to resolve the very difficult issues raised.

Sometimes all it takes to change is history for the better is for someone, finally, to stand on principle. Rosa Parks did it when she refused to take a backseat on a bus in Montgomery Alabama. Google is doing so today.

Peter Navarro writes commentary on China's industrial espionage
Howard Richman, 1/16/2010

In a January 15 commentary in the San Francisco Chronicle, economist Peter Navarro discussed China's industrial espionage. Here is a selection:

China's recent cyberattacks against Google and as many as 33 other U.S. corporations open up a dangerous new industrial espionage front in Beijing's war on American business....

Chinese industrial espionage, along with other illegal means to acquire American business technology, is hardly new either. For example, an American manufacturer such as GM or Intel that produces in China must surrender some of its technology. Such forced technology transfer is clearly illegal under World Trade Organization rules, but U.S. executives meekly kowtow for a piece of the action.

Navarro urges that the United States government not allow such attacks upon American industry:

At the dawn of this new cold cyberwar, President Obama and Secretary of State Hillary Rodham Clinton must be clear: Any attack on America - from Pentagon hackings and industrial espionage to forced technology transfer and mercantilist weapons like currency manipulation - represents an act of aggression and will not be tolerated.

When will we elect leaders that will defend American industry from the attacks by foreign governments?

Doha Round stalls over US demand that India and China open their markets
Howard Richman, 1/12/2010

Currently the WTO lets developing countries, including China and India, pick "strategic sectors" and lets them charge 25% tariffs on imports in those sectors. China and India both picked vehicles as strategic sectors. As a result, American-made vehicles have been excluded from Asia's growing markets. Reuters India reports that the Obama administration is insisting that the Doha Round of the WTO talks make progress in this area:

One sticking point is a demand from the United States for developing countries such as India and China to abolish tariffs entirely in some industrial sectors. Such cuts are voluntary in the Doha negotiations.

The U.S. has said it cannot agree to a Doha deal unless big emerging economies do more to open their markets.

Meanwhile India's chief Doha Round trade negotiator D.K. Mittal told Reuters that India is not prepared to make any concessions in this area:

"The demand for sectorals coming from the U.S., that's an issue," Mittal said. "No country is willing to accept that, including India," he said, adding, "nobody is willing to give more to any country at this stage."

So far, I cannot find any public statements by Chinese officials on this issue one way or the other. They may be leaving it up to India to be the heavy in public.

Peter Morici: Free Trade is Failing America
Howard Richman, 1/10/2010

U. of Maryland economist had another excellent commentary on trade that was published January 5 by Seeking Alpha. He now estimates the amount that the Chinese RMB is overvalued at 25%:

Currency manipulation creates a 25 percent subsidy on China’s exports, and other Asian countries are impelled to follow similar policies, lest their exports lose competitiveness to Chinese products.

And he ties in our trade policy with our current economic woes and our need for stimulus after stimulus just to keep our economy growing:

Consequently, to keep the U.S. economy going, Americans must both borrow from foreigners and spend too much, as they did through 2008, or their government must amass huge budget deficits by borrowing from abroad, as it is now does thanks to stimulus spending and the TARP....

And he has harsh words for the Obama administration:

Campaigning for the Presidency, Barack Obama promised to do something about Chinese currency manipulation. Instead, like a good supplicant, he now thanks Chinese officials for buying U.S. Treasury securities....

It will be impossible for the United States to create the 9 million jobs needed to bring unemployment down to pre-recession levels without taking on China’s currency manipulation and other unfair trade practices.

For that Americans may need to wait for a better president—one with the courage to stand up to China.

The entire commentary is worth reading. You can find it at: http://seekingalpha.com/article/180911-why-free-trade-is-failing-america

Calla Wiemer misunderstands Chinese mercantilism in Wall Street Journal
Howard Richman, 1/8/2010

In tthe January 7 Wall Street Journal (Don't Revalue the Yuan Yet) Calla Wiemer argues that China should continue to peg the yuan to the dollar. Weimer is an associate professor of economics at Claremont McKenna College and a visiting scholar at UCLA's Center for Chinese Studies. She wrote:

Yet the exchange rate isn't a relevant factor in achieving a sustainable rebalancing in China's foreign trade. A surplus of exports over imports is simply the external manifestation of an excess of saving over domestic investment. Export revenues not spent on imports are used to acquire foreign assets, which represent Chinese saving invested abroad.

Ms. Wiemer may be an associate professor of economics and an expert on China, but she fails to understand Chinese economic policy. The high savings rate in China is the result of dollar mercantilism, not the cause. She could get an overview of dollar mercantilism in our book, Trading Away Our Future, or she could read Peking U. economics professor Heng-Fu Zou's 1997 paper "Dynamic Analysis of the Viner Model of Mercantilism" (discussed in Chapter 1 of our book).

Levy Economics Institute's analysis of Import Certificates to balance trade
Howard Richman, 1/6/2010

In a July 2008 working paper, three economists from the Levy Economics Institute of Bard College (Papadimitriou, Hannsgen, and Zezza) analyzed the costs and benefits of Warren Buffett’s Import Certificate (IC) plan, making quantitative estimates of the effects.

As far as benefits go, they pointed out that Buffett’s plan would cause an immediate macroeconomic boost to the economy, increase government tax collections (because of increased American income) and reduce the trade deficits to a sustainable level. On the costs side, they pointed out that the ICs could result in increased uncertainty and could produce trade retaliations.

Their discussion, throughout, was thoughtful and balanced. They made three important contributions to the Import Certificates discussion:

1. They pointed out that the ICs would be less expensive if not applied to fuel products, as during the first years of Senators Dorgan and Feingold’s Balanced Trade Restoration Act. The reason being that demand for fuel imports does not much respond to price.
2. They pointed out that if ICs were earned by service exports, not just goods exports, then there would likely be many faked exports in order to fraudulently obtain ICs.
3. They came up with a new version of the IC plan: Having the government auction the ICs and then use the funds generated to reduce payroll taxes.

Their cost argument about the unstable and uncertain future value of the ICs may have exaggerated the disruptiveness of this uncertainty. They did not seem to be aware that Buffett had suggested that expiration dates be placed upon the ICs in order to insure that the futures market for ICs would be liquid. Importers and exporters already deal with future uncertainty in foreign trade due to changing exchange rates and could deal with changing IC prices the same ways.

Their cost argument that other countries would retaliate to the ICs ignored our two major contributions to the Import Certificates debate in our 2008 book, Trading Away Our Future, which was published just a few months before their working paper:

1. We developed a targeted IC plan. Under our WTO-compliant alternative to Buffett's plan, the ICs would be auctioned by the U.S. government and be targeted to the mercantilist countries so that they would be country specific (i.e., an IC obtained by exporting to China would allow importing from China). If a mercantilist country were to respond by further restricting their imports from us, they would be further restricting our imports from them. Instead, they would be forced to take down their many tariff and non-tariff barriers to our imports so that they could export more to us. Buffett's plan could make use of country-specific ICs when needed by the U.S. Treasury to respond to retaliation. The trade deficit country wins any trade war if it has country-specific ICs in its arsenal.
2. We anticipated the world's response to Buffett's Plan. We foresaw that if the United States were to adopt Buffett's plan, most other trade deficit countries would soon follow suit, creating a new international system to replace the WTO that did not require any international supervision. Any trade surplus country that tried to restrict its imports would necessarily be restricting its own exports.

The Levy Economics Institute economists are in agreement with us that if the trade surplus countries do not respond by restricting their imports from the United States, then U.S. producers would reap a tremendous benefit. They wrote:

In the absence of retaliation, we estimate that exporting firms would cut their prices on foreign markets only moderately, as the demand they face is price inelastic. They would therefore reap a windfall in profits almost equal to the full value of the certificates they sold, minus any increase in the costs of the imported intermediate goods they use to produce exports. (p. 24)

They also noted that additional profits made from the new trade situation would be invested, resulting in increased employment and increased disposable income for American workers.

Thus, ICs increase profits for American producers and fixed investment in American production. Not only could this increased fixed investment jumpstart the American economy out of the current recession, but it would also create better tools and products for American workers, and thus increase long-term American growth and productivity.

The ICs would be temporary. Gradually the increased investment caused by the ICs would make American products more competitive, which would, in turn, eventually make the ICs less and less expensive. Eventually, the ICs would not be necessary to keep trade in balance. They could be discontinued, while kept available should mercantilism again raise its ugly head. The era of modern mercantilism would be over.

[Originally published on our old blog on March 29, 2009]

US wins WTO appeal on China's non-tariff barriers against US movies, music, and games
Howard Richman, 1/5/2010

The Chinese government keeps out almost all American consumer products through one barrier or another. For example, as I noted in a September 2009 Seeking Alpha commentary (China's Non-Tariff Barriers to US Games), they freely permit the piracy of American movies, music, and games, while delaying the issuance of permits to import the legitimate products. The U.S. has been disputing this barrier through a WTO complaint since April 2007. In a December 21 press release, US Trade Ambassador Ron Kirk announced that the WTO Appellate Body has agreed with the U.S. position. Here is a selection:

WASHINGTON - U.S. Trade Representative Ron Kirk announced today that the WTO Appellate Body has confirmed that China's restrictions on the importation and distribution of certain copyright-intensive products are inconsistent with China's WTO obligations. The products at issue include films for theatrical release, DVDs, music, books and journals.

"Today America got a big win. We are very pleased that the WTO has found against China's import and distribution restrictions on U.S. movies, music, DVDs and publications," Ambassador Kirk said. "The Appellate Body's findings are key to ensuring full market access in China for legitimate, high-quality entertainment products and the exporters and distributors of those products. U.S. companies and workers are at the cutting edge of these industries, and they deserve a full chance to compete under agreed WTO rules. We expect China to respond promptly to these findings and bring its measures into compliance."...

So what's next. The bottom of the press release notes:

The WTO Dispute Settlement Body is expected to adopt the Appellate Body report and the panel report within the next 30 days. Within 30 days following adoption, China must announce its intentions with respect to implementation of the WTO's rulings.

The Obama administration is doing its best to chip away at China's trade barriers. They are trying to show that free trade and the WTO can work.

Prof. Krugman and Chinese Mercantilism
Raymond Richman, 1/4/2010

In his op-ed in the NY Times (12-31-09) entitled Macroeconomic Effects of Chinese Mercantilism, Nobel economics prize-winner Paul Krugman charges China with practicing mercantilism Prof. Krugman is rather late in condemning China’s mercantilism. We called attention to it in our book Trading Away Our Future (January, 2008). Indeed, in the book, we quoted from a column of his that appeared in Slate Magazine in 1997.

Professional trade alarmist Alan Tonelson’(s) … claim is that as emerging economies grow – that is, produce and sell greatly increased quantities of goods and services – their spending will not grow by a comparable amount; equivalently, he is claiming that they will run massive trade surpluses. But when a country grows, its total income must, by definition, rise ... Maybe you don’t think that income will get paid out in higher wages, but it has to show up somewhere. And why should we imagine that people in emerging countries, unlike people in advanced nations, cannot find things to spend their money on?" (p. 70)

The Chinese people can find plenty of things to buy from us but their government as Japan’s government before it chooses not to permit it. Well, Tonelson was clearly right and Krugman wrong. Prof. Krugman, an international trade specialist, ought to have been aware that Japan had been pursuing the same mercantilist policy of expanding exports and restricting imports for five decades when he wrote those words.

Now he writes: “China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.”

But we disagree with much of the rest of his recent op-ed. He writes that China’s “accumulation of foreign reserves, many of which were invested in American bonds, was arguably doing us a favor by keeping interest rates low — although what we did with those low interest rates was mainly to inflate a housing bubble.” We disagree that his statement China’s investment in American bonds, like the Japanese investment before, was “arguably” of any benefit at all to the U.S. economy. U.S. money supply should be determined by the Fed, not by any foreign power that is unarguably attempting by that policy to cause us to import more from them. It did contribute to the housing bubble but employment gains in construction were offset by the displacement every year of hundreds of thousands of industrial workers and caused wage stagnation as those workers competed for lower-paying service jobs.

He writes: “Unlike the dollar, the euro or the yen, whose values fluctuate freely, China’s currency is pegged by official policy at about 6.8 yuan to the dollar. At this exchange rate, Chinese manufacturing has a large cost advantage over its rivals, leading to huge trade surpluses.” For example, as the dollar fell against the Euro and other countries’ currencies, the yuan, pegged to the dollar, fell against those currencies. As he sees it, China should let the yuan float. We agree, but it is doubtful that it would do much to reduce the trade deficit with China. Germany still has a sizable trade surplus with us even thought the dollar has fallen fifty percent against the Euro.

He argues that “right now the world is awash in cheap money. So if China were to start selling dollars, there’s no reason to think it would significantly raise U.S. interest rates. It would probably weaken the dollar against other currencies — but that would be good, not bad, for U.S. competitiveness and employment. So if the Chinese do dump dollars, we should send them a thank-you note.” The notion that a weakening dollar would stimulate U.S. exports and discourage U.S. imports is widely accepted by economists who ignore its political consequences.

Most of the world’s trade in commodities is conducted in U.S. dollars. It is appropriate that the currency of the world’s leading economic power be accepted as the world’s currency. But already as a result of the falling dollar, there are calls – especially by the BRIC countries and some UN agencies – for replacement of the dollar by another currency, the currency suggested most often being some version of IMF drawing rights. The way, in our opinion, to sustain the value of the dollar is to balance trade. There is no reason for the US dollar to fall against the Euro and other currencies when the U.S. trade deficit is the result of trade with China and the oil exporting countries.

In our book, we suggested that we restrict imports from China by the use of import licenses, a suggestion made by Warren Buffett. Personally, I favor a device that would change the relation between the yuan and the dollar without creating a costly new government bureaucracy. We can do this under World Trade Organization rules by levying a tariff on all imports from China. It has been suggested that the yuan is undervalued by 25 percent or more. The President currently may have the authority to impose such a tariff. In any case, it is easy to implement such a tariff and we already have in place the structure to collect tariffs. It’s real virtue is that it has the same effect as a fall in the value of the dollar because it makes all imports from China more expensive while keeping American goods as attractive as before. Another benefit is that it would add to federal tariff revenues which we could surely use.

Prof. Krugman deals with the claim that Chinese retaliation, such as dumping their hoard of American assets, would “wreak havoc” with the U.S. economy. We agree with him that we have little to lose while the Chinese have much more to lose. All countries gain from balanced trade as Ricardo showed two centuries ago. None benefit from an absence of trade. The current trade deficit with China is beneficial to China and has had disastrous consequences for American workers. In an addendum posted on his web site, Prof. Krugman estimates that our trade deficit with China has cost American industrial workers 1.4 million jobs. Our estimate is double that, 2.8 million, and our trade deficit with the rest of world an additional 3.0 million or more.

Prof. Krugman concludes: “The bottom line is that Chinese mercantilism is a growing problem, and the victims of that mercantilism have little to lose from a trade confrontation. So I’d urge China’s government to reconsider its stubbornness. Otherwise, the very mild protectionism it’s currently complaining about will be the start of something much bigger.” We disagree only to the extent that the decision is not China’s but ours.