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 Richmans' Trade and Taxes Blog

How to Balance Our Trade with China and Put Americans Back to Work
Raymond Richman, 1/20/2011

Chinese Pres. Hu Jintao made a coolie out of Pres. Obama during their two day meeting in Washington. Obama was obsequious and meekly pulled the rickshaw and made almost no criticism of Chinese mercantilist practices. Reading their remarks at their joint press conference on Jan. 20 left us with a feeling of déjà vu, words, promises, mutual sweetness and cordiality with nothing really changed. You would never guess from the meetings that the U.S. has over 14 million involuntarily unemployed, a majority of whom having lost their good-paying manufacturing jobs to companies in China, Japan, Germany, and other countries with whom we have been running trade deficits.

Adding insult to injury, American companies like Apple, Dell, HP, etc., etc., import their Chinese-made products to the United States. One estimate has it that there are ten employees of these companies employed abroad for every one employed in the U.S. It was reported that corporate leaders had a very enjoyable discussion with Hu Jinto. The U.S. has the power under international trade rules and the economic power to resolve all its trade problems quickly, but its leadership won’t do what needs to be done. The term WIMPS comes to mind.

Obama in his meeting with Jintao 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.

As every economics student knows, GDP is defined in all the American textbooks as the sum of C+I+G+X–M. Obama deliberately deceived the American people by emphasizing the jobs created by X (exports) without mentioning the job loss created by M (imports). He apparently did this to deceive the American people and the American press; Hu Jintao was well aware of the cost of the trade deficits to the U.S. economy and the contribution the China’s trade surpluses were making to its economic growth.

Neither Hu no Obama mentioned our imports from China, which are growing faster than our exports. We estimate that each American manufacturing worker produces almost $10,000 worth of product each month. Thus our 2.6 billion goods trade deficit in November represents approximately 2.6 million American jobs lost. And that deficit is growing, as shown on the graph below:


As for Pres. Hu Jintao,  he had this to say.: “The two sides support the G20 playing a bigger role in international economic and financial affairs. We agree to push forward reform of the international financial system and improve global economic governance. We champion free trade and oppose protectionism, and we hope the Doha Round of negotiations can make early and substantive progress.” We do not believe in “global economic dominance,” we believe in an independent United States of America. We are not dependent on the world order although China would like us to be. And Pres. Obama appears to agree with him.

Hu continues, “We will work with the United States and other countries to effectively address global challenges, such as meeting the climate challenge, terrorism, transnational crime, energy and resource security, food security, public health security and serious natural disasters, so as to forge a bright future for the world.” So Pres. Obama and he are in agreement on the need to meet “the climate challenge.” This augurs poorly for the world’s future. The world will spend trillions of dollars. Energy costs will skyrocket. Millions of jobs will be lost.

Neither Jintao or Obama made any mention of mercantilistic practices, China’s artificial barriers to imports and subsidies to exports,  about which the U.S. has complained for years. Hans Nichols from Bloomberg News asked the only relevant question. He asked Pres. Obama, “To what extent does China’s depressing of its currency affect your ability to grow jobs in this country and lower the unemployment rate?”

Pres. Obama’s response was:

Well, I think that it is important for us to look at the entire economic relationship, and the currency issue is one part of it. … We’ve got to save more in this country. What President Hu and myself and our delegations have discussed is how do we make sure that in fact our trading relationship is fair and a win-win situation as opposed to a win-lose situation. But the currency issue is a part of the problem. The RMB is undervalued. The Chinese government has intervened very forcefully in the currency markets. They’ve spent $200 billion just recently, and that’s an indication of the degree to which it’s still undervalued…So this is something that can be a win-win. President Hu is concerned understandably about how rapid this transition takes and the disruptions that may occur in its export sector. But I’m confident that it’s the right thing to do, and my hope and expectation is, is that President Hu’s resolve will lead to a fully market-based currency program that will allow more effective trade between our two countries.

In other words, we’ll talk about it.

No mention of the power we have under international trade rules to impose barriers to imports from China until our trade is in balance. Pres. Obama’s advisers are aware of the rules. We reported them in our book, Trading Away Our Future-How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it’s Too Late(Pittsburgh, Ideal Taxes, 2008). We described them in articles on our Internet site our proposals for imposing a “scaled tariff” not only against China, but also with the other countries with whom we have been experiencing chronic trade deficits. The scaled tariffs rise as the trade deficits widen and fall as the trade deficits decline. The scaled tariffs act like a revaluation of their currencies which Pres. Obama wants China to do voluntarily. How about prodding the Chinese with a scaled tariff? The scaled tariffs would make production in the U.S. profitable and put some of the millions of unemployed to work. It would yield huge revenues to begin with which would taper off as trade became better balanced. We could use those revenues to reduce our budget deficit.

We have more economic power than anyone in Washington realizes. Yet we refuse to exercise our power against China. Many Americans believe Obama to be an extreme leftist. And his personal history supports that view.  His kowtowing to Hu Jintao may be yet another indication of this ideological sympathy.

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Comment by Brian Riordan, 4/31/2011:

Every American needs to read Ian Fletcher's book, Free Trade Doesn't Work. Fletcher explains exactly what the flaws in free trade theory are and how other countries have used protectionism to grow their industries and exports at our expense. Fletcher proposes an across the board tariff of 25%--not just on China, but universally. Before anyone screams that protectionism doesn't work, real Fletcher's book and see why it has worked historically and is working now--for other countries.

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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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  • [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]