Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Half way through - Obama's first 5-year plan is a failure
In March 1, 2010, Ambassador Ron Kirk, United States Trade Representative, disclosed “The President's 2010 Trade Policy Agenda,” the Obama administration's first 5-year plan. September 2012 was the half way point and the statistics are all in. How is Obama's plan doing at the half way point?
Obama's trade agenda announced that President Obama had set a goal “of doubling U.S. exports in the next five years” to create 2 million jobs. Half way through the goal, in September 2012, exports had risen by 25%, but imports had risen even faster. The number of manufacturing jobs had gone up by 481,000 to 11,958,000, but that was still 601,000 less than the number of manufacturing jobs when Obama took office.
So, why did Obama’s plan fail? The answer is simple, he didn’t do anything about Chinese mercantilism. He created a new bureaucracy called the Export Promotion Cabinet. It joined hundred of federal agencies designed to do-good but which end up doing-nothing. Just how are we going to increase our exports when the world’s fastest growing markets exclude our goods?
Alan Tonelsen of American Economic Alert paired a revealing set of quotes in a May 10, 2010, blog posting (Obama Administration's China Trade Brain-Locke):
Obama's trade agenda states that the Obama administration has succeeded in getting China to further open its market to “American wind energy products,” even though wind energy products were almost all flowing in the other direction. According to the Investigative Reporting Workshop, 80% of the first $1 billion of Obama’s Recovery Act’s stimulus money spent on wind energy went to foreign producers.
Terry Miller, criticizing Obama's trade agenda on the Heritage Foundation's website (Obama's Mercantilist Approach to Trade), argued that President Obama was a mercantilist since his trade agenda talked about balancing trade. Miller was making two fundamental mistakes: (1) he mistook talk for action, and (2) he equated self-defense with mercantilism. Here is the passage in which he mistakes talk for action:
And here's the passage in which he equated self-defense against mercantilism with mercantilism:
Miller was ignoring the fact that the United States had a huge trade deficit, not a trade surplus! Mercantilists try to achieve trade surpluses, not move trade toward balanced. We are the victim of beggar-thy-neighbor mercantilism, not the perpetuators.
But Miller did have one good point. President Obama was betting upon his administration’s ability to pick winners and losers. The Obama administration thought that the winners would be those companies producing wind turbines, solar panels, and electric cars. He was heavily promoting the chosen winners. His strategy might have worked, but China picked the same industries.
On November 21, 2011, U.S. Secretary of Commerce John Bryson told reporters at the U.S.-China Joint Commission on Commerce and Trade (JCCT) that China planned to expand its subsidies to what it considered to be the "strategic sectors," which included vehicles, alternative energy, biotechnology and advanced equipment manufacturing.
Under WTO rules, developing countries are allowed to declare certain sectors of their economy to be "strategic sectors" and are allowed to charge high tariffs (about 25%) on imports into these sectors. Many developing countries have designated their auto industries as strategic sectors under WTO-rules, but China's definition of "strategic sectors" keeps expanding.
As a result of both the U.S. government and the Chinese government financing solar producers, there was a massive glut of solar panels worldwide. The Obama administration desperately tried to protect its investment as one after another U.S. solar panel producer started to go bankrupt. Congressional Quarterly reported on May 17:
The larger problem was that the Obama administration’s investment choices were stupid. Solar energy is only cost effective if given massive government subsidies, and the governments in Europe and North America soon had to face up to the reality that their funds were limited. Meanwhile, some of the American companies that were surviving were moving their production to China.
Similarly, the Obama administration’s investment in electric cars came decades before electric cars would make sense. And, like the solar technologies, the electric car technologies were soon transferred to China, due to China's 25% tariff on American vehicles.
On September 16, 2011, the Wall Street Journal reported (Road Gets Bumpy for GM in China) that GM was trying to access the Chinese electric-car market without giving up its state-of-the-art electric-car technology. Here's a selection:
Just one week later, on September 22, the NY Times reported (GM to develop electric cars with Chinese automaker) that GM had caved to the Chinese government demand:
President Obama thought that he could beat China at its own game. He failed. The United States need not pick winners and losers to combat mercantilism. It need not convert itself from a free-market state to a crony-capitalist state. All it need do is require balanced trade.
So what can be expected from the rest of Obama's second term. Governor Palin, former Republican vice presidential candidate, summed it up in an exclusive interview with Breitbart that was published on January 26:
Governor Palin has long been an opponent of "crony capitalism," whether perpetuated by politicians of the Republican or Democratic stripe. During her brief testing of the waters for the 2012 Republican presidential nomination, she came out with the planks that would get America moving:
There is no need for America to adopt state-capitalism.
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