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 Richmans' Trade and Taxes Blog

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

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

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

After that meeting, President Obama said:

The positive, constructive, cooperative U.S.-China relationship is good for the United States. We just had a very good meeting with the business leaders from both our countries. They pointed out that China is one of the top markets for American exports. We’re now exporting more than $100 billion a year in goods and services to China, which supports more than half a million American jobs. In fact, our exports to China are growing nearly twice as fast as our exports to the rest of the world, making it a key part of my goal of doubling American exports and keeping America competitive in the 21st century.

The mystery: Why has President Obama eliminated imports from the basic equation of economics? That equation reads:

GDP = Consumption + Investment + Government Purchases + Exports - Imports

Obama's new version of this equation:

GDP = Consumption + Investment + Government Purchases + Exports

This new equation could be the doing of President Obama's new chief economic advisor, Gene Sperling. In his 2005 book,The Pro-Growth Progressive, Sperling advocated measures to help educate workers displaced by imports, but missed the fact that he might be preparing them for non-existent jobs. He wrote:

When I lobbied for passage of trade agreements, I often explained that when a trade opening helped one hundred companies each create or save ten jobs, no one noticed the cumulative thousand jobs. Yet when a single company laid off one thousand employees, it was often a heartbreaking news story that shook confidence and caused anxiety far beyond the laid-off workers and their families. (p. 48)

When trade is balanced, Sperling is correct. However, when jobs are lost to imbalanced trade, there are not sufficient exporting jobs to make up for the lost import-competing jobs. Our trade deficit with China is just such a relationship. Here's our worsening monthly merchandise deficit since Obama took office:

When the book on Obama's presidency is written, the story of this summit will not be about what happened; it will be about what did not happen. President Obama missed an opportunity to demand balanced trade, perhaps because his economic advisors failed to tell him that WTO rules would let him impose a scaled tariff that would do so, with or without China's cooperation.

Balanced trade would increase America's exports to China and at the same time decrease America's imports from China. The result: millions more productive and good-paying American jobs.