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

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

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

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

At the G20 talks, Treasury Secretary Geithner failed to accomplish a grand bargain to wind down Asian trade surpluses and boost demand for what western economies make. Opposition from champion mercantilists Japan and Germany, who pioneered some of the very tactics China now exploits on a grander scale, caused the G20 to adopt only soft, modest goals and no remedies for deficit countries like the United States.

Meanwhile China’s yuan policy and trade barriers make the Fed nearly irrelevant but for crisis management—bailing out big banks and European governments that make fatal mistakes.

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

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

The stakes couldn't be higher for the Democratic Party and for the American people. As I noted, if the administration takes effective action to balance trade:

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

But I, like Morici, thought it likely that the administration will fail to act. I continued:

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

When the chapter on Teddy Roosevelt's successful foreign policy was written, it was entitled, "Speak Softly, but carry a Big Stick." When the chapter on Barack Obama's foreign policy is written, it may be entitled, "Speak Loudly, but carry No Stick."

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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