Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Lawrence Summers heading toward brick wall in China visit
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 for a three day visit in an attempt to persuade China to start buying American products or at the very least to let its currency rise versus the dollar.
In anticipation of his meeting, the Chinese government is erecting a stone wall. 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....
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:
http://www.americanthinker.com/2010/02/obama_giving_us_rd_to_china.html
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 19th 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.
Archive
Sep 2010
- Summers heads to China to rescue U.S. recovery
- Obama Did Create 3 Million Jobs -- In China (we're published in this morning's American Thinker)
- Commerce Department refuses to investigate Chinese currency manipulations
- Unions Divided on China Policy
- Unions Divided on China Policy
July 2010
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January 2010
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- Summers heads to China to rescue U.S. recovery
- Commerce Department refuses to investigate Chinese currency manipulations
- Unions Divided on China Policy
- Unions Divided on China Policy
- Scott Paul: The Onshoring Trend is Phony
- 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."
- Barr McClellan: "Malaise has returned"
- Krugman: "We're in a world in which mercantilism works"
- Obama Fiddles while Economy Falters - We're published in the American Thinker this morning
- Dan Drezner gives Obama an "F" for his trade agenda
- We are in the persistent depression predicted by Keynes
- Economists still failing to understand the effects of mercantilism
- Trade Deficit Saps 2nd Quarter Growth
- Geithner's job is to finance federal government expansion
- Some criticisms of our Scaled Tariff proposal
- Congress busts the budget to create 90,000 manufacturing jobs
- The Scaled Tariff would Resuscitate the U.S. Economy
- Fed: Possibly 5 or 6 years before sustainable growth
- Michael Pettis: U.S. is "likely to be swamped by a tsunami of foreign capital"
- Trade deficit rises again in May
- Geithner's Three Currency Manipulation Reports
- Obama Touts his Failing Trade Policy
- The Currency Reform Bill Won't Work: What Should Replace It and Why
- Steven Pearlstein calls for direct action against mercantilism
- Obama's G-20 Summit Setback -- we're published in American Thinker this morning
- Seven Options for Tackling Trade with China
- China riggles off the hook
- Why is Washington's China rhetoric growing harsher?
- Congress plans ineffective action against Chinese mercantilism
- Is the Chinese government moving against Taiwanese and Japanese corporations?
- Yves Smith: "the US example show how a naive posture towards trade may not help its citizens"
- Bruce Bartlett: We should raise taxes to lower our trade deficits
- AFL-CIO's Trumka asks Obama for stronger action on China
- The global warmers' shell fish hoax
- One or more members will have to exit the euro zone to restore competitiveness
- Trade Deficit up again in March
- China uses industrial policy is to keep out US products
- Auctioning Import Certificates is consistent with WTO rules
- Pretend Free Trade vs. Balanced Trade -- The national debate kicked off on FoxNews yesterday
- China raises its tariff on some US nylon products to 96.5%
- Why we should tax interest earned by foreigners in the United States
- Congress passes foolish tax change that will increase US trade deficits
- China's temporary trade deficit largely due to stockpiling of commodities
- Geithner will Punt on China Currency
- Boston Globe spins nuclear summit as success
- Obama bows as Chinese President Hu stiffs him
- U.S. Trade Deficit up in February
- Smoot-Hawley did not cause the Great Depression
- Charleston Post Courier editorial advocates Buffett's Import Certificates to balance trade
- NPR explains Chinese currency manipulation
- Obama punts on Chinese currency manipulation
- USTR lists China's many barriers to American products
- Lies, Damn Lies, and Chinese Statistics
- U.S. Corporations not helping China avoid Krugman's tariff
- Sidney Sherman traces start of America's decline to giving away our manufacturing to Asia
- Volcker is realistic about China
- Carbon tax: Sarcozy backs off, Sen. Kerry pushes forward.
- Peter Morici: Our current China policy is "appeasement"
- China activates its Fifth Column
- Needed, a Cross-the-Board Tariff on Imports From China
- NY Times ignores China's R&D Rules
- Why Krugman's China Argument Matters
- Relative currency values are not static
- Obama's Trade Policy Agenda -- we're published in American Thinker this morning
- Krugman on China currency
- 130 Congressman sign letter to Treasury and Commerce Deptartments asking them to address Chinse currency manipulations
- Paul Krugman calls for 25% cross-the-board tariff on Chinese goods
- What is the real reason why the Obama administration won't do anything about China?
- Washington Post: There's nothing that we can do about Chinese mercantilism
- U.S. exports down in January
- GreenJobsGate
- British exports see biggest fall in three years
- Heritage Foundation's Terry Miller claims Obama is a mercantilist
- Trading Away Productivity - Tonelson and Kearns in March 5 NY Times
- Unemployment report shows stagnant economy in February
- Commerce Dept. sets miniscule tariff on Chinese glossy paper
- Obama: 'It's very hard to ship windows from China'
- Bipartisan group of fifteen senators call upon Commerce Department to investigate China's currency manipulations
- Pfizer moving R&D from Connecticut to China
- Obama giving US R&D to China - we're published in today's American Thinker
- A Review of W. Raymond Mills "Toward Managed Trade"
- IMF Reconsiders Capital Controls Opposition
- Chin'a not selling. China's Buying
- US Companies Required to move Research Centers to China
- Nicholas Lardy: Obama "trying “trying to head off critics in Congress who think the administration is lying down in front of the Chinese"
- Peter Morici: Open Trade is Failing America
- "Playing Chicken with China" - we're published in today's American Thinker
- ABC News on Green Stimulus Jobs Going to China
- Restore American Jobs and Do It Quickly
- No growth in US goods exports to China in 2009
- Obama's China strategy
- Summers says everything is fine in our China relationship
- China is Playing Chicken with Obama
- Judith Stein: US reliving the 70s when we gave away our steel industry
- Kenneth R. Davis: Buffett Plan would make the WTO irrelevant
- Peter Morici's Currency Conversion Tax to End Mercantilism
- Ha-Joon Chang takes on Free Trade in his book The Bad Samaritans
- Ralph Gomory: The time has come to take Warren Buffett's Import Certificates plan seriously
- Google Has Its Rosa Parks Moment -- I'm published by Seeking Alpha today
- Larry Ringler: Google's courage may turn the tide in our dealings with China
- Peter Navarro writes commentary on China's industrial espionage
- Doha Round stalls over US demand that India and China open their markets
- Peter Morici: Free Trade is Failing America
- Calla Wiemer misunderstands Chinese mercantilism in Wall Street Journal
- Levy Economics Institute's analysis of Import Certificates to balance trade
- US wins WTO appeal on China's non-tariff barriers against US movies, music, and games
- Prof. Krugman and Chinese Mercantilism
- China agrees to modify export subsidies
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