Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Caterpillar's New Chinese Factory ignites Voter Rage
This week, Caterpillar announced that it will build its new factory in China in order to have access to the Chinese market. Meanwhile, many of Caterpillar's American workers are laid off.
But Caterpillar doesn't have any choice, were Caterpillar to expand its American factories it would be able to protect its proprietary technologies, but it would have little access to China's rapidly growing market due to the Chinese government tariff, non-tariff, and currency-manipulation barriers. And U.S. markets are not growing, due to our government's toleration of Chinese tariff, non-tariff, and currency-manipulation barriers.
Tim Sullivan, CEO of American heavy-equipment manufacturer Bucyrus International, explained the Chinese market to Presidential candidate John McCain back in April 2008. Business columnist John Torinus witnessed the exchange:
Meanwhile, American voters are furious with Washington and with American corporations according to the latest Wall Street Journal/NBC News poll. Here's how WSJ reporter Janet Hook summarizes the results:...
Japan is Back
The failure of the United States to confront Chinese mercantilism leaves China's competitors with little choice but to follow suit or see their corporations' competitiveness suffer in the face of Chinese competition. A hard hitting commentary by ANATOLE KALETSKY in the New York Times offers an intriguing analysis. Kaletsky chronicles the decision by Japan to begin major interventions in foreign exchange markets in order to drive down the value of the Yen so as to protect the competition position of Japanese companies.
"The decision to break with free-market ideology and spend government money to control the yen’s value against the dollar was mainly driven by Japan’s relationship with China, not America. Japanese companies including Sony and Toyota that had demanded government action devaluing the yen were not concerned primarily with their competitiveness against America rivals. The motivation was a fear of being undercut by exporters in China, Korea, Singapore and Taiwan — all countries that aggressively manage their exchange rates."
The US model of free trade and free market economics is, Kaletsky argues debunked in the eyes of Asia....
House Committee Pulls Teeth out of China currency bill
On Friday September 24, the House Ways and Means Committee pulled the teeth out of the Currency Reform for Fair Trade Act (HR 2378) and then passed it out of committee. Rep. Timothy Ryan's (D, OH) bill would have required that the Obama administration (through the Commerce Department) place tariffs on goods produced by a currency-manipulating country when deciding industry-by-industry anti-dumping and countervailing duty suits. The bill, after passage of Committee Chairman Sander Levin's (D, MI) amendment makes such duties completely voluntary. Here's how the committee's report summarizes this change:
We Are Out of the Recession But Mired In a Depression
The NBER's Business Cycle Dating Committee, consisting of a dozen distinguished economists, announced on September 20 that the U.S. economy reached a trough in June 2009, making the 18-month recession that began in December 2007 the longest in the post-war period. Three economists have left the Obama administration. No, they did not leave the administration because the recession was over. The notion that the economy bottomed out with unemployment continuing to grow and millions leaving the labor force should be sufficient to make us realize that figuring out when the downturn ended was an exercise in futility. It has not ended and we have not recovered. The rise in GDP since the trough was achieved by billions of dollars of government spending which will largely end by the next quarter and we will have had no growth and no reduction in unemployment.
In a discussion that appeared in the Sep 20 -26 issue of Bloomberg Business Week, five well-known financial experts gave their ideas about “How to Fix the Economy. They included William Gross, who runs PIMCO , the world’s biggest bond fund, Peter Orszag until recently director of Obama’s Office of Management and Budget, Robert Shiller, professor of economics at Yale University, Charles Calomiris, Henry Kaufman Professor of Financial Institution at Columbia University, Henry Kaufman himself, former head of Salomon Brothers,
Peter Orszag agreed with Bill Gross, that recovery will take years. Henry Kaufman, thought it could be accomplished sooner if we raised household incomes so that they could meet their debt burdens or by doing something “about the size of that debt.” But “We don’t have the capacity or the willingness to do that.” ...
How to Win the Trade War with the Democrats -- we're published in American Thinker this morning!
We urge Republican candidates to switch from a unilateral free trade position to a balanced trade position
To read it, follow the following link: http://www.americanthinker.com/2010/09/how_to_win_the_trade_war_with.html
Prof. Gomory Urges a National Policy of Balanced Trade Not Free Trade
Prof. Ralph E. Gomory, currently Research Professor at New York University, former President of the Sloan Foundation, and former Senior Vice-President of IBM in charge of Science and Technology, in a seminal article entitled “Jobs, Trade, and Mercantilism – Part 1 – Facing Reality” (published in the Huffington Post on 9-22-10) begins by stating, “Our nations’s continuing massive trade deficits are destroying important sectors of American industry and eliminating desperately needed jobs, yet balancing trade is not even on our government’s agenda. This is happening because we are not facing reality, the reality that we are not living in a free trade world but that we are dealing with countries that practice mercantilism.” We recommend that everyone read it.
Prof. Gomory is the co-author with distinguished Professor William J. Baumol of a seminal work, Global Trade and Conflicting National Interest on the role of comparative advantage. In that book, the authors show that free trade is not always and automatically benign. They show that there can be inherent conflicts as well as mutual gain for nations engaged in global trade. Countries can pursue policies that beggar their neighbors. Or countries can pursue trade policies that are mutually beneficial. Our current trade with China falls in the former category....
Why Summers Resigned
My father predicted Larry Summers resignation as Obama's chief economic advisor after observing Summers' body language when he was interviewed by reporters after coming back from his trip to Beijjing earlier this month. Let's review the situation. Here's what I wrote on September 7:
Summers economic policy has failed and his last-ditch attempt to rescue it in China failed. So he is taking the dignified way out. The White House has a different story. Bloomberg reports:...
A Conservative Proposal for Economic Recovery That Won't Work
(this is actually a joint posting by Howard Richman and Raymond Richman)
With the U.S. federal budget spiraling out of control due to Keynesian policies that are not even making a dent in unemployment, America is hungry for fiscally responsible economics. Mostly, what we hear from conservatives is the supply-siders' recommendations of more tax cuts, like the ones that made the budget deficits much worse during the GWBush years. But there is a fiscally-conservative school of economics: the monetarist school founded by Milton Friedman, the dissertation advisor of one of us (Raymond).
Monetarism recommends balanced monetary growth and balanced budgets in order to attain stable economic growth and avoid inflation and big recessions. It keeps long-term growth in mind while taking short-term economic fluctuations in stride.
On September 16, several conservatives with huge Republican-establishment credentials, proposed a monetarist solution to the current malaise in an op ed that nearly took up a full page in the Wall Street Journal. George P. Shultz (former Treasury Sec’y), Michael J. Boskin (Chair Council of Economic Advisors under first Bush), John F. Cogan (former Dep Director of Mgt and budget under Reagan), Allan Meltzer (prof of econ at CMU and reknown expert on Federal Reserve history), and John F. Taylor (prof of econ at Stanford and undersec’y of Treas under GWBush), outlined their “Principles for Economic Survival.” In general, it was an excellent exposition of fiscally conservative policies for economic recovery. Unfortunately, it wouldn't work....
Dan Dimicco's Sept. 15 testimony on Chinese Currency to the House Ways and Means Committee
Here's his excellent testimony from the September 15 hearing of the House Ways and Means Committee on Chinese currency. I like so many of the points that he makes:
Incidentally when the Metal Miner blog reported his testimony, it also cited a similar commentary that I had recently written. See:...
Committee Hearing reveals that Currency Bill is Too Weak
On September 15, the House Ways and Means Committee held hearings about Chinese currency manipulations. The committee was remarkably united. One representative after another took shots at China’s trade manipulations.
They were almost all agreed that something had to be done, that President Obama’s policy was failing, that Secretary Geithner was not helping, and that China was not playing by the international rules. But they were not united about Rep. Tim Ryan’s bipartisan Currency Exchange Rate Reform Act (HR 2378), designed to end the trade manipulations that put American goods at a competitive disadvantage in U.S. and world markets.
If China were to really stop manipulating its currency, it would have to balance trade, which would result in more American exports to China as well as fewer American imports from China. But the opposition to Ryan’s bill claimed that the bill would hurt American exporters.
For example, Rep. Dave Camp (Republican from Michigan) perceptively pointed out that China is increasingly turning to socialism as a way to keep out American products. He said: “(W)e cannot lose sight of more fundamental problems with China's economy that affect our trade balance, including the increasingly blatant and disturbing increase in the economic dominance of state-owned enterprises and the proliferation of non-tariff barriers preventing U.S. companies from exporting to China." In short, he didn’t see the bill doing anything to counteract China’s increasing barriers to American products....
How to strengthen the currency exchange rate reform bills
The House Ways and Means Committee holds hearings today on China's Exchange Rate Policy. They are considering two bipartisan bills that would tackle Chinese currency manipulations, Rep. Ryan's Currency Reform for Fair Trade Act. (HR 2378) and Sen. Schumer's Currency Exchange Rate Oversight Reform Bill (S. 3134).
We submitted written testimony to the Committee and have published it on this website as our Working Paper #3. Here is the summary of our testimony:
S. 3134 and HR 2378 are excellent proposals. Just four amendments need to be made in these bills in order to make them more effective, in line with our scaled tariff proposal: (1) Change method of determining currency manipulators so that any country with over $100 billion of currency reserves and an overall trade surplus with the world is defined as a currency manipulating country, (2) Change method for calculating the countervailing duty as being half of the value of each currency manipulator’s exports to the United States after subtracting its imports from the United States, (3) Eliminate the need for piecemeal Commerce Department lawsuits by providing in the bill for a single Commerce Department suit involving all of the products of a given country so that the countervailing duty be an across the board tariff upon all of the products of that country, and (4) Provide that the rate of the countervailing duty be recalculated every quarter based upon the most recent trade data. With these four changes, S. 3134 and HR 2378 become functionally equivalent to the scaled tariff and would jumpstart our economy, restore our blue-collar middle class, and preserve our children’s economic future.
And here is the part of our testimony in which we analyze the two bills and suggest our changes:...
Tonelson and Kearns: House Ways and Means will consider filing a China currency complaint with WTO
Alan Tonelson and Kevin L. Kearns have an interesting commentary in The Hill today (WTO Myths Blocking China Currency) in which they report that the House Ways and Means Committee will consider punting the ball to the WTO during their hearings on Chinese currency manipulations tomorrow. Tonelson and Kearns write:
The paramountcy of politics undercuts a second big WTO myth befogging U.S. China policy: The view that Washington should tackle currency manipulation multilaterally, by filing a WTO suit, as the House Ways and Means Committee has promised to explore at its hearing. This option, however, ignores the unmistakable nature of the organization’s politics. Although the WTO’s 150-plus members don’t agree on much, they strongly agree that growing largely by wracking up big trade surpluses with the United States is a demonstrably successful economic strategy. Therefore, they have aimed to keep America’s markets much wider open to their goods than their own markets are to America’s.
If the House Ways and Means Committee members vote to punt the ball to the WTO instead of voting out a bill that would fight currency manipulation, they will be voting for unemployment, depression, giving away American industry, and giving away our children's future. We agree with Tonelson and Kearns recommendation. They argue:...
Tonelson and Kearns: Trading Away the Stimulus
Alan Tonelson and Kevin L. Kearns of the United States Business and Industry Council had an excellent op-ed (Trading Away the Stimulus) in the September 9 New York Times. They argued that the trade deficit has eaten up the stimulus:
For many people, the trade deficit seems unrelated to the nation’s continued economic crisis. But it is actually a central reason why American growth has lagged and President Obama’s stimulus hasn’t led to a robust recovery: since February 2009, the government has injected $512 billion into the American economy, but during roughly the same period, the trade deficit leaked about $602 billion out of it and into foreign markets.
And they suggest several remedies, starting with a provision like that in the two bipartisan bills currently being considered in the House and Senate, the Currency Reform for Fair Trade Act (HR 2378) intoduced by Rep. Timothy Ryan and the Currency Exchange Rate Oversight Reform Bill (S. 3134) introduced by Sen. Charles Schumer. Both would have the Commerce Department take currency manipulations into account when assessing anti-dumping and counter-veiling duty investigations. They write:...
U.S. Trade Deficit Still Growing
On Thursday, the Bureau of Economic Analysis released trade statistics which showed that the U.S. trade deficit fell in July. But the July data was along the same upward trend line as the February through May data.
The following chart shows the monthly U.S. trade deficits from 2009 (blue) and 2010 (red). This is the full trade deficit, including both goods and services, and has been calculated on a seasonally adjusted basis:
About half of our trade deficit is our goods trade deficit with China. It is intentionally produced by the Chinese government as part of its successful mercantilist strategy, designed to maximize exports and minimize imports. That strategy was explored by Peking University professor Heng-Fu Zou in his article, Dynamic Analysis of the Viner Model of Mercantilism which appeared in the 1997 volume of Journal of International Money and Finance, and then implemented by the Chinese government at the beginning of this decade. Seeing the Chinese success, many other governments have been implementing the same mercantilist strategy.
The Chinese government uses yuan to buy dollars in foreign exchange markets to prevent the yuan from rising and the dollar from falling to a trade-balancing level. Then it loans those dollars to Americans. At the same time, it takes various measures to keep out American imports (tariffs, purchasing restrictions, freely permitting piracy while delaying legitimate items, etc.). Here is our trade deficit in just goods (not services) with China, not seasonally adjusted:
Morici Proposes a Scaled Tariff Variant to Confront China
In a posting on the CNBC website, University of Maryland economist Peter Morici argued forcefully that inattention to the trade deficit is costing the Democrats this election.
"Without the second quarter jump in imports—led by consumer goods from China and boosted by an undervalued yuan and export subsidies President Obama neglects—GDP growth would be close to 5 percent, hundreds of thousands of Americans would be finding jobs, and Democrats...
Summers was given the royal treatment in China
Summers was not shunted to lower-level aids who were unable to make decisions, but met with Chinese President Hu Jintao and with Bernanke's counterpart Zhou Xiaochuan, the head of the People's Bank of China. The Chinese went out of their way to achieve an atmosphere of friendliness. Here's a selection from the Reauters' report of the meeting:...
Summers heads to China to rescue U.S. recovery
When Lawrence Summers read the latest unemployment and GDP reports, he probably arrived at the same conclusion that my father, son and I did (Obama Did Create 3 million Jobs -- In China) -- that the rising trade deficit was killing the U.S. economic recovery. So on Saturday, he left for China to persuade the Chinese government to loosen its currency manipulations and other trade manipulations which maximize Chinese exports to the United States while minimizing Chinese imports from the United States.
In anticipation of his meeting, the Chinese government is erecting a brick wall. They are claiming that they don't keep their people from buying U.S. products. They are claiming that if only we sold them the high tech gear that their military needs, trade would move toward balance. They are claiming that their manipulation of the yuan-dollar exchange rate is an internal Chinese issue. They don't plan to give in one iota. Here is a selection from the Associated Press report:...
Obama Did Create 3 Million Jobs -- In China (we're published in this morning's American Thinker)
We're published in this morning's American Thinker, just follow the following link:
Commerce Department refuses to investigate Chinese currency manipulations
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:
Here's the reply they got, as reported by the China People's Daily:...
Unions Divided on China Policy
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:
On the other side are the United Steel Workers, the AFL-CIO, and the Economic Policy Institute. Dreyfus writes:...
Journal of Economic Literature:
Atlantic Economic Journal: