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Terrence P. Stewart calls for balanced trade in Senate testimony
Howard Richman, 2/4/2014

Terence P. Stewart of the Washington-based international law firm Stewart and Stewart called for balanced trade agreements in written testimony to the Senate Finance Committee. I have not yet read his testimony, but I did read his law firm's press release about it. 

The title of the press release cites a disturbing fact: "United States Transforms from a Nation with Balanced Trade to a Country that Imports Approximately 50 Percent More than it Exports." The press release elaborates:

“The reality is that the past 40 years have expanded trade but at the direct cost to Americans of millions of manufacturing jobs,” Stewart wrote. “Indeed, using U.S. Department of Commerce figures … the trade deficit in 2013 cost the United States over 3.75 million jobs in that year alone.”

The press release recommends the following provisions to balanced trade:

Stewart recommends that the U.S. demand tools and triggers which permit much more automatic enforcement mechanisms against U.S. trading partners that are not in compliance with international trade law obligations. Examples of critical issues that need to be addressed that are not presently effectively addressed include: currency manipulation and misalignment, discriminatory treatment for countries (principally the United States) that rely on direct taxes versus those relying on indirect taxes, and state-owned, state-invested, and state-directed companies and enterprises (including cartel behavior by governments).

To achieve a rebalancing of our trading relationships, Stewart explains that Congress has an opportunity to adopt changes to The Bipartisan Congressional Trade Priorities Act of 2014 to address the types of problems he has identified. The present bill introduced in both chambers of Congress, which begins to address some issues such as currency manipulation and state-owned enterprises, and provides some better Congressional oversight, as drafted does not go far enough and “needs to be modified to ensure a fair shake for American companies, workers and their communities,” says Stewart.

It urges that any agreement "demand tools and triggers which permit much more automatic enforcement mechanisms." Unfortunately, the actual tools and enforcement mechanisms that Stuart suggests would likely fail to achieve trade balance. He would target currency manipulations and discrimination against imports by state-owned enterprises. But neither option is enforceable:

  • Currency manipulations. Why should a government voluntarily report currency manipulations if it would face penalties by doing so?
  • State-owned enterprises. How do you force state-owned enterprises to stop discriminating against foreign products? 

It is impossible to stop governments from manipulating trade if they want to run trade surpluses. It's sort of like campaign finance reform. You can make rules, but campaign contributors will find their ways around them. Past agreements have failed because they have simply focused upon reducing tariffs, so governments, instead, manipulated currencies and put up non-tariff barriers.

In contrast to Stewart, we have proposed an effective way to balance trade (see Fast Track to a Bad Deal). Like Stewart, we demand an automatic trigger in any new trade agreement. In our proposal the trade-balancing Scaled Tariff would be triggered whenever the U.S. is running a trade deficit with a country that also has a trade surplus with the world.

Stewart and Stewart is a Washington-based international law firm with strong Republican connections. If Romney had been elected, he would probably have listened to their advice. They are addressing the right problem -- how to enact agreements that will lead to balanced trade. Unfortunately, they have not yet come up with an effective solution. We have.

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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]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]