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Richmans' Trade and Taxes Blog
Geithner thinks his failed trade policy was a success
In November 2010, when it became clear that his recovery summer had failed, Lawrence Summers resigned as Director of President Obama's National Economic Council. In contrast, Treasury Secretary Timothy Geithner still hasn't figured out that he has failed.
In a speech at the Commonwealth Club of California on April 26, Geithner claimed that the Obama administration's trade policy has succeeded, despite the 25 months of falling net goods exports with China shown in the graph below:
Near the beginning of the speech, he said:
But the above paragraph contains three questionable claims:
If trade were balanced, the growth in exports cited by Geithner would indeed be a positive indicator. It would show that the United States was making greater use of its own comparative advantages to trade for what it produces less efficiently. But when trade is kept out-of-balance by currency-manipulating trading partners, our trading partners get our industry and investment while we get consumer baubles and debt.
Then later in the speech Geithner congratulated himself on the baby steps China had taken in the right direction, ignoring the fact that these steps had no noticeable effect upon the deteriorating net exports shown in the above graph.
Geithner's failure was totally predictable. All one needed do is read this starry-eyed statement from his Senate confirmation hearing at the beginning of 2009:
Instead of insisting upon balanced trade because it was in America's best interest, he told America's emerging market trading partners that he wanted to do what was best for them. Indeed he did. The Chinese government gained economic power, industry and economic growth at America's expense. It proved to the Chinese people that totalitarianism works and that American democracy does not.
The result has been an economic disaster of the highest order for the United States: (1) continuing loss of American economic power, (2) high unemployment rate that has continued and continued, and (3) a failed recovery in 2010 due to growing trade deficits. It was economic incompetence at its worst. On Thursday, Geithner tried to defend it. But it is indefensible.
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