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 Richmans' Trade and Taxes Blog

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

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

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

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

Fortunately, the government can take other, more effective steps to reduce the trade deficit. For starters, Congress and the president should allow American victims of currency manipulation — primarily industrial companies whose prices are kept artificially high when trade partners keep their currencies under-valued — to obtain compensatory tariffs against currency-subsidized imports.

They also propose other measures, including charging rebated Value-Added Taxes as an import duty:

Also essential is a border tax to counter foreign export rebates. In countries with value-added taxes, those levies are returned to producers when they export their goods — which allows them to lower their products’ prices in our market. In response, we can ensure fair competition in our home market by applying a tax equal to the rebate upon a product’s entry to the American market.

The House is holding hearings on Rep. Ryan's bill on September 15. Shortly after that, they are holding hearings at which Treasury Secretary Timothy Geithner will testify.

In the meantime, China appears to be strengthening the dollar price of the yuan for the last week. It is at a high at the moment, about 1% higher than where it was when China announced that it would be more flexibly priced in the future. I expect the yuan to climb another percent or two by the time Geithner testifies. It is not clear whether that will be enough to head off congressional action.

Comment by M, 9/14/2010:

I have a compound thought.  Neither Senator Schumer nor Representative Ryan are prepared (at this time) to do more than preen and posture about their desire to help the American Worker.

If we are going to politicize the economy,  let's first establish and empower a congressional committee to investigate unfair trade and currency manipulation.   Then, let the Department of Commerce work out the techniques needed to investigate and adjudicate anti-dumping claims.