Obama Getting It Right on Trade Policy

http://www.reuters.com/article/newsOne/idUSPEK31622020080915?sp=true

This Reuters article reports more detail on the candidates’ economic policies – specifically their policies on trade with China – than I’ve seen so far.  There is no more crucial issue in this election than trade policy, especially our policy toward trade with China, where our trade deficit continues to grow and is approaching $300 billion per year, nearly half of our total trade deficit.

The following excerpts summarize the candidates’ positions.  First, Obama:

“Central to any rebalancing of our economic relationship must be change in currency practices,” Obama said in his policy paper.

“I will use all the diplomatic avenues available to seek a change in China’s currency practices,” he said.

Obama said China pegs its yuan currency at an “artificially low rate,” making its exports unfairly cheap.

He has backed legislation that would define currency manipulation as an illegal subsidy so that the United States could slap duties on more Chinese goods.

It’s the last paragraph above that sets Obama apart.  Consider McCain’s policy:

“(China’s) commitment to open markets must include enforcement of international trade rules, protecting intellectual property, lowering manufacturing tariffs and fulfillment of its commitment to move to a market-determined currency,” McCain said.

First of all, both candidates rely far too much on currency valuation.  It won’t work.  A good example is contained right within this same article:

The yuan has appreciated a further 18.47 percent since it was revalued by 2.1 percent to 8.11 per dollar in July 2005, and freed from a dollar peg to float within managed bands. Now one U.S. dollar buys about 6.85 yuan.

During this time frame in which China’s currency strengthened by almost 20%, the trade deficit has continued to soar, rising nearly 50%.  While China’s currency rises, they simply cut prices (in terms of the yuan) to maintain their dollar pricing in the U.S. market.  Decades of experience has also proven that other approaches which rely upon the trading partner (regardless of the country) to take action are equally ineffective.  “Enforcing trade rules.”  “Protecting intellectual property.”  “Enforcing labor standards and environmental standards.”  All of these approaches have been abysmal failures.  Only actions which place control in America’s hands have any chance whatsoever of succeeding.  Folks, this means tariffs. 

And, judging by that standard, only Obama has expressed a willingness to do it.  I’m concerned that he will waste time waiting to see the effects of currency valuation, but at least he’s got the tariffs in his tool bag. 

Our enormous trade deficit, approximately three quarters of a trillion dollars per year, is by far the most critical issue of our time.  It lies at the very heart of our escalating economic melt-down.  We should be supporting candidates who express a willingness to take positive action to restore a balance of trade.  Regardless of which candidate you support, it’s imperative that you challenge him or her to clearly state what proactive steps they will take to eliminate our trade deficit and put America back on a solid financial footing.

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7 Responses to Obama Getting It Right on Trade Policy

  1. […] Obama Getting It Right on Trade Policy Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. […]

  2. nextgen08 says:

    I used to live in Beijing and let me tell you why trade with China will never be fair.

    1) The artificially valued Yuan

    2) Unstoppable intellectual property rights infringement on any new invention in the U.S. keeps us from recouping any of our lost trade $$, and their government, while pretending to care, doesn’t

    3 Low cost of living in China means that their workers can work for far less than our workers and we will never be able to compete on a level playing field as far as pricing goes with out huge tarrifs

    4) I’m not sure about now, but when I lived there in 2002-2003 there was about 100% import tax on every imported good from the U.S., while other countries enjoyed lower import taxes

    5) Real Labor unions are decades away from happening in China both because of the Communist governments suspicion of large bodies of workers uniting, and because companies can still just fire everyone and fill the factories with new workers with no government intervention and the people are not allowed to even protest.

    6) Local party bosses have too much control over factories and the local economies to be effected by global pressures.

    Just my opinion. Unless the U.S. government gets serious about holding China accountable for these problems we will continue to see our dollars being unfairly siphoned from our National treasury.

    Great article. keep up the good work.

    Jerame Clough
    -Next Gen Politics

  3. Pete Murphy says:

    Nextgen, thanks for the perspective of someone who’s actually lived in China. The list you’ve offered above are all of the traditional reasons given for the trade deficit in China. However, even if all of the above issues were addressed, it would have almost no impact on our trade deficit. Consider Japan. With the exception of perhaps item 1 in your list, none of the others really apply to them. Yet, our trade deficit with them is as high as ever and, when expressed in per capita terms (divided by the population of their country) is 4-1/2 times worse than our trade deficit with China. As you’ll see when you read the book, the real root cause of this trade deficit with both Japan and China is their low per capita consumption caused by over-crowding. When we combine our economies, as we always do when we engage in free trade with anyone, we also combine our labor forces, and the work of manufacturing is spread more or less evenly across this combined labor force. However, the markets remain very uneven. While ours is healthy, theirs is badly stunted by overcrowding and low per capita consumption. The result is an automatic transfer of manufacturing activity to the more densely populated nation, and an automatic trade deficit for the less densely populated nation. Only tariffs offer any hope of correcting this imbalance in the markets.

  4. Harry Dingey says:

    To: Peter Murphy..

    You could never get elected to any responsible office in the USA. You are far to logical and make to much common sense.

    what we should do is Sit on our A-S-S and send every job in America off shore to China and then everyone will wonder why no one has any money to feed our children.

    Then we go we spend all of America’s wealth after we should go after all them Rich A-S-S holes who sent our jobs over seas and take all their money to feed our children.

    America can never get out of this MESS and turn things around till the Politicians wake up and go back to the way America trade policy was conducted for well over 216 years.

    No politician will ever stand up and say we made a mistake. That will never happen till America has reach the BOTTOM because BIG BUSINESS and INTERNATIONAL BANKERS have bought off all of our politicians.

    There is always the possibility that some MAJOR THING could happen like someone walks a Nuclear device into our country through our unprotected southern border.

    Them just maybe the American People will wake up and physically kick these people out of Office. But don’t hold your breath.

    I personally think America has started into a Humongous Slide because of Deregulation of everything and everyone in site and all this Global Free Trade Policy brought about American Politicians are in the POCKETS of all the super rich people of the world. SOOOO.. its down, down, down… till the American People have lost everything, then the Super Rich can step in and buy up everything for pennies on the dollar.

  5. Harry Dingey says:

    International Trade is a Ponzi scheme. “This is an unsustainable progression of a moving all the highest paying Jobs off shore to have $2/day Slave Labor in China produce products for Industrialized Countries of the World”.

    The REAL problem is that International Globalization of Trade is a Council on Foreign Relations (CFR) Ponzi scheme.

    Here is how it works:

    First you move all the highest paying jobs off shore to biggest labor market in the world.

    Of Course in China that means you can get your products produced by the slave labor cost of $2/day.

    Now you take all of these finished products and shipped then back to America, the largest and most expensive product market in the world. That way my International Company will make the largest profit possible on every item produced.

    You get the products produced by the Slave labor and then you bring back too America and sell the product for best price.

    But, then like all PONZI schemes there is this big problem of at some point in time you run out of people to sell your product too.

    You say.. Why do you say that?

    That is exactly where we are right now in this Ponzi scheme cycle. But, it seams I am the only person in the whole world completely understands it.

    All the Industrial Countries of the world elected to join the NAFTA or the WTO and they thought this was the most efficient way to produce products.

    Now we the people of all of the Industrial Countries are all going to be forced into bankruptcy and lose everything we have worked for all of our lives. That includes our Job, our home if mortgaged, our Pensions and everything else.

    This is going to be exactly like the Big Depression of the 1930s, except this Depression will be much, much worse.

    Because during the 1930s there was no credit cards and credit was few and far between. Now, it seems everything we own has been purchased on credit of some type. So, I guess now we will loss everything we own this time.

    To go back to what I have dubbed: “International Trade PONZIE SCHEME”.

    I want ask you just One Question.

    If all of the Industrial countries of the world moved all of the best paying jobs off shore to a SLAVE LABOR MARKET paying $2/day like they have done for the last 20 years.

    All of the Workers in the Industrial countries of the world will now be laid-off with no income and can not pay their bills.

    All of the workers in China the SLAVE LABOR CAPITAL of the world will be working for $2/day.

    HERE IS MY QUESTION:

    Please tell me: “who in the HELL will have enough money or Income to Purchase all of these SLAVE LABOR products”?

    Of Course the answer is “no one will have any money”.

    That is exactly where we are right now..

    The sad part about this is that all of this could have been avoided. Even the $875 Billion Dollars spent to Bailout Obama’s ole CFR buddies, the International Banksters and the Wall Street Gangsters.

    If American would drop out of NAFTA and the WTO right now things would automatically correct it self like it has always done for the last 216 years in America.

    • Pete Murphy says:

      Harry, I wish everyone was as concerned about our trade situation as you. However, I suspect you haven’t read my book. I strongly encourage you to do so, because you are repeating a common misunderstanding of the origin of our trade deficit by blaming it on low wages in places like China.

      Rather than repeat my explanation here, I encourage you to read my “Free Trade?” post.

      Thanks for stopping by!

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