Administration Working Quietly on Trade Deficit While Disavowing Protectionism?

We’ve been getting some mixed signals from the Obama administration so far regarding trade.  During his confirmation hearings, Geithner branded China a currency manipulator, to everyone’s delight except China.  Then he reassured the G7 that the U.S. was committed to avoiding a return to protectionism.  Then the “buy American” provision is included in the first pass of the stimulus package, only to be watered down with a clause about complying with our trade obligations after howls of protest from Canada and Europe.

More recently, during his visit to Canada, Obama reassured the Canadians about trade with the U.S. (as well he should), while discussing with president Harper ideas about revising NAFTA to include environmental and labor protections, which would seem to be aimed more at Mexico than Canada, which is where the real problem lies. 

What’s going on here?  Is the administration committed to reducing and eliminating the trade deficit, or isn’t it?  Without going into too much detail, during a meeting with a U.S. congressman this week (during which I presented him with a copy of Five Short Blasts), I got the impression that the administration, including the Federal Reserve, understands very well that the trade deficit is the single greatest threat to our economy.  Since there was no press present, the congressman may have felt more at ease in sharing things told him in confidence, so I won’t elaborate.  And I may be reading way too much into it, but I left with the impression that this issue is going to be addressed. 

Is it possible that the administration is maintaining a public posture of disavowing protectionism to prevent stirring up fear and anger in the global community while quietly implementing policy, in whatever form it might take, that will reverse our trade imbalance? 

Here’s another example.  Buried in this linked article about Paul Volcker’s comments at a luncheon with economists is this Volcker quote:

The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Volcker said.

When he speaks of “global imbalances” and the “lack of savings in the United States,” isn’t he really talking about the trade deficit without actually saying it?  The cause and effect relationship between the trade deficit and our lack of savings is widely understood.  And, in using the lack of savings as an example of global imbalances (by his use of the word “like”) he’s implying that there are others, and everyone knows that trade is the worst global imbalance of all. 

Time will tell.  If this is the approach, I think the administration will eventually discover that the trade deficit simply won’t respond to measures small enough to fly under the radar.  I predicted that the administration would take such an approach, essentially trying harder at the failed approaches of the past until, hopefully, it realizes that a more direct approach, like a return to tariffs, is the only way to get the job done. 

But, for now, I’m taking some comfort in signs that it at least the administration recognizes the problem.

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5 Responses to Administration Working Quietly on Trade Deficit While Disavowing Protectionism?

  1. Robert says:

    Pete,

    Hopefully Obama will take the right track in regards to our trade policies but it looks like he is still bound and determined to push for amnesty as reported in an article on world net daily:
    http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=89463

    NEW YORK – President Obama affirmed in an interview with a Spanish-language radio show that his administration is preparing to push for a new round of “comprehensive immigration reform.”

    I certainly hope this is not the case as it will certainly complicate any economic recovery plans for the U.S. and it shows he still does not have a clue when it comes to overpopulation.

    • Pete Murphy says:

      Yeah, this makes me nervous too, Robert. But I notice that the article doesn’t report Obama making any mention of amnesty; just “comprehensive immigration reform.” He also talked about “convening leadership” on the issue. I hope this includes the Republican perspective, which is dominated by those opposed to amnesty (although not all Republicans are). I, too, would like to see “comprehensive immigration reform,” but you know what shape my reform would take.

      Even if Obama doesn’t understand the economic problems associated with overpopulation, it’s hard to believe that someone committed to reducing our dependence on foreign oil and to reducing our CO2 emissions wouldn’t see that further population growth will only make those challenges that much more difficult (or, very likely, impossible).

      So far, since being elected, he hasn’t given any indication to Congress or the American people that he’s eager to tackle this subject. Right now he has much bigger fish to fry. Let’s see what happens.

  2. In 2003 I visited China and Tibet and went on a seven day trek between monasteries. The nomadic Tibetans along the pilgrimage trail were overpopulating the area with no population control enforced by China. Young men who a century ago would have been absorbed by monasteries had no work. These young men had cell phones and were consumers on the world market using gasoline for their tracter trailer vehicles.
    I view the properly administrated ethical Chinese policy of population control not only necessary but an act of global responsibility.
    I am going to read your book.

    • Pete Murphy says:

      Thanks for the comment, Diane. Very interesting story.

      As you’ll discover when you read the book, my approach to population management for the U.S. is much less coercive than the Chinese one-child policy. It begins with dramatic reductions in immigration. The birth rate issue is addressed primarily through economic incentives for people to choose to have fewer children.

      I received your order and it’ll ship out today. I hope you find it enlightening.

  3. […] the gravity of the trade deficit problem and are working on it behind the scenes.  (See  Administration Working Quietly on Trade Deficit While Disavowing Protectionism?)  So I was listening intently for any further evidence of this.  For the first half hour or so […]

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