Obama’s Address to Congress: Clues About Trade Policy

While others may have listened to the president’s speech to Congress last night with an ear for remarks about the stimulus package, mortgage assistance, plans to cut the deficit and some general economic cheerleading, I was listening for clues about what I consider our two most important long-term challenges:  eliminating the trade deficit and stabilizing our population, immigration being the most important aspect of the latter point.

A few days ago, I posted about some hints I was seeing and hearing that, while the administration is outwardly distancing itself from a protectionist approach to trade, they recognize 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 of the rehash of the economic stimulus plan and bank bail-outs and economic happy talk, I must admit I was growing impatient to hear anything new.  Then came this: 

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either. It is time for America to lead again.

He delivered that first paragraph with a look of disgust on his face.  It was a clear signal that he’d like to see products made domestically again.  OK, it wasn’t much, but he piqued my interest.  But the following, delivered later in the speech, really got my attention:

And to respond to an economic crisis that is global in scope, we are working with the nations of the G-20 to restore confidence in our financial system, avoid the possibility of escalating protectionism, and spur demand for American goods in markets across the globe. For the world depends on us to have a strong economy, just as our economy depends on the strength of the world’s.

To me, that’s a clear indication that the U.S. has sent the G20 a message that the U.S. can no longer prop up the global economy by sustaining a huge trade deficit, and that the G20 has agreed.  It sounds as though they’ve made a commitment to cut or eliminate the deficit by spurring demand for American goods in their own countries.  I’ll admit that I may be reading too much into this, but it seems to corroborate some other things I’ve heard.

Will the G20 hold up their end of the bargain by boosting American imports?  These nations have promised this before, but never before has the global economy been collapsed by the trade imbalance.  They don’t want to see it happen again.  But to believe it and commit to it is one thing.  My prediction is that they will fail and the trade deficit will persist, because the economies of badly overpopulated nations are incapable of increasing their consumption.  It will now be interesting to see how much patience the Obama administration has as the trade deficit persists month after month.  Although Obama has expressed a desire to “avoid the possibility” of a turn to protectionism, that’s not the same as an outright rejection of such an approach if others fail.

And finally there was this, just one more indication of his concern with the trade deficit:

… we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

And the speech was notable for what it didn’t include.  There was not a single mention of anything to do with immigration policy.  Not a peep.  The bad news is that we desperately need real immigration reform that includes dramatic cuts in legal immigration, but the fear was that Obama would do the opposite and even advocate for amnesty for illegal immigrants already here.  So far, there’s been no evidence of that and the lack of any immigration talk last night is further indication that he has no interest in boosting immigration.  As I’ve said before, how could anyone as smart as Obama believe that some of his highest priorities – cutting our dependence on foreign oil and reducing carbon emissions – won’t be made more difficult by importing more oil consumers and more carbon emitters?

One last item:  we can all expect the price of fuels to soar as a result of the following:

But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest fifteen billion dollars a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.

A “market-based cap” would be a plan to tax fuels, making them more expensive and making alternative energy sources more cost competitive.  This sounds like the plan I proposed in Obama’s Opportunity to Kill Three Birds with One Stone.  If it’s kept revenue-neutral by returning those taxes to the taxpayers in the form of reduced income taxes, then it’s nothing to fear.  And, as I proposed, if the fuel consumed by ships delivering imports is included (after all, someone should account for this huge consumption of fuel), then this too would go a long way toward making domestically-produced products more attractive.

If I’m right about all of this - that this administration is committed to eliminating the trade deficit - then there’s great cause for optimism.  We could see an economic renaissance in this country the likes of which we’ve never witnessed before. 

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6 Responses to Obama’s Address to Congress: Clues About Trade Policy

  1. Robert says:

    Pete,

    Interesting comments, now that you’ve pointed them out I am a little more hopeful although I would be a lot more optimistic if he would come out and state concerns about population growth here in the U.S. and that he was willing to do something about it. Again, the word population seems to be the taboo word of the century. Obama does come across as insightful and if so he cannot possibly miss the elephants in the room(both trade and immigration policies). Maybe we have cause for a little hope.

    • Pete Murphy says:

      I hope I don’t come across as sounding like a die-hard Democrat cheerleader for Obama, because I’m not. It’s just that he’s the only president we’ll have for a while and I’m looking for any signs of hope that he’ll make some right moves, whether or not they’re for the right reasons. If he cuts the trade deficit in some way, even if he doesn’t understand the role of population density, I’ll be happy. If he holds off on boosting immigration, not out of concern for overpopulation but because soaring unemployment, reducing oil imports and cutting carbon emissions make the timing bad, then at least he’s not making matters worse.

      It’ll be interesting to see how he reacts if the monthly trade deficit figures don’t improve.

  2. Clyde Bollinger says:

    I listened but I did not expect any revelation about the so-called stimulus package. I can not imagine a plan that prints money at the rate this abomination does to be beneficial. Combine the detrimental effects of printing money with the extreme pork barrel spending and it spells disaster. I was mildly surprised to hear the intent to eliminate the favorable tax treatment for job exporting corporations. High time.
    The energy plan is a farce. Bio-fuels may have promise at some point in the future, but what has been proposed so far is so energy intensive to produce that the net is a loss.
    This ‘carbon’ vendetta will make some crooks extremely rich but do nothing for the country.

    There is reliable science demonstrating that atmospheric carbon dioxide is a product of natural climate change and is not the demon it is made out to be by some. I see the cap and tax plan as a path to disaster.
    Obama has a real problem with the population management argument. One of the premises of his economic advisors is that more is better. They all argue that more people means a larger market.

    • Pete Murphy says:

      Well, you and I will just have to agree to disagree on the subject of climate change, but that’s not my field of expertise and not what I’m about here.

      Regarding your final paragraph about Obama’s economic advisors, that’s exactly the problem. Virtually every economist believes that population growth is an essential ingredient for a healthy economy. They never stop to consider the ramifications of population growth because none want to be labeled a “Malthusian” – a kiss of death for a career economist. It’s just unbelievable to me that they continue to cling to such a strategy, one that anyone else can see is ultimately impossible and doomed to failure. And they get other people to buy into it! In fact, I don’t see how universities can continue to teach a subject that has been so widely and forcefully discredited. I think the world would actually be a better place without any economists. Hmmm. An idea for the population management chapter of the next edition!

  3. Clyde Bollinger says:

    How can we rid the planet of economists? It would be good riddance for the most part. They all seem to be obsessed with protecting the “old guy” who postulated some theory in the 16th or 17th century without any attempt at relevance. I must be careful here and not be too harsh with guys who have theories, if you get my drift.
    I am completely convinced that we are experiencing climate change. It is constant. I also believe that man is a poluter and that we should be restrained, either voluntarily or by regulation. What I have a problem with is the notion that we can influence global climate change, either good or bad. No question we can and do foul our environment.
    I submit the following as an example of some of the science relating to co2.
    http://wattsupwiththat.com/2009/01/30/co2-temperatures-and-ice-ages/

    • Pete Murphy says:

      I was being facetious about economists, of course. As I wrote the comment, the old joke about lawyers crossed my mind: What do you call 1,000 lawyers at the bottom of the ocean? A good start! Substitute “economists” for lawyers and the joke works just as well. As for myself, I suppose my foray into the field with “Five Short Blasts” makes me one, too.

      But, on balance, the world would probably be better off without economists, even if that meant that my theory about population density and per capita consumption was never understood. The world would then be left with nothing but accountants and their balance sheets to deal with the economy. When someone observed that a trade deficit was draining our nation of its financial wealth, there would be no economist to reassure them of the ethereal benefits that are too complicated for mere mortals to understand. Or, when someone observes that never-ending population growth seems to be a bad thing, not to mention impossible, there’d be no economists to reassure them – using the same logic that says God is omnipotent enough to make a rock so big that even He can’t move it – that man is smart enough to overcome anything. Mankind would be left with nothing but the application of common sense.

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