Is “Robust Trade” Really in Our Best Interest?

http://www.reuters.com/article/politicsNews/idUSTRE56L1D020090722

U.S. Trade Representative, Ron Kirk, while attending a meeting of APEC (Asia-Pacific Economic Cooperation) nations, defended the “Buy American” provision in the U.S. economic stimulus plan.  There’s nothing really profound here, but some of his statements about trade and trade policy in general are worthy of comment since they provide a glimpse into the government’s basic attitudes toward trade. 

The United States wants a robust trade policy that is in the interest of its people and the “Buy American” campaign will not violate World Trade Organization commitments, Trade Representative Ron Kirk said on Wednesday.Kirk was speaking after Asia-Pacific Economic Cooperation (APEC) countries agreed in a two-day trade discussion in Singapore to shun protectionist measures, saying it would be a setback for the global economy.

“We would like a robust trade policy that is one that American people believe operates fairly in their favor as opposed to just the interest of one industry…as well as protecting the rights of workers that helps us to implement the president’s number one objective that is to put Americans back to work,” he said.

First of all, “robust trade” in general is not in the best interest of the American people.  Exports are.  Imports, on the other hand, are a detriment.  That’s why the U.S. and every other nation counts imports as a subtraction from their calculation of GDP (gross domestic product).  In fact, imports are a “double negative.”  That is, the import counts as a subtraction from  GDP and, if that import eliminates production in the U.S., then the GDP is further reduced by that amount.  For example, suppose that one additional auto worth $25,000 is imported into the U.S. in a given month.  That will subtract $25,000 from GDP.  Now, if that import results in a decline in auto production in the U.S. of one corresponding auto worth $25,000, then GDP declines by an additional $25,000. 

Conversely, each dollar of import into the U.S. is someone else’s export.  Exports add to GDP because it’s production that wouldn’t otherwise be consumed domestically.  “Robust trade” is meaningless for the American economy.  Robust exports would indeed by a boon to American workers, but robust imports are exactly the opposite.  The only thing that matters is the balance of trade.  “Robust trade” is a plus if it results in a surplus of trade; a negative if it results in a deficit.  If the U.S. exported two dollars’ worth of product while importing only one dollar’s worth, that would be a far better trade picture than if we exported one trillion dollars’ worth while importing two trillion dollars’ worth. 

Of course, there are some benefits associated with imports.  Imported oil is a source of energy that we can’t produce domestically.  But it’s still a negative for the U.S. from a fiscal perspective.  Imported manufactured goods may offer us greater choice and variety but, unless offset by exports of American-made products (to provide other nations with greater choice and variety), then those imports destroy jobs and are a fiscal drain, just like imported oil.

The word “trade” itself implies some mutually beneficial exchange of products.  To the extent that foreign trade results in a large deficit for the U.S., it really isn’t “trade” at all.  It’s deficit spending.  It’s selling off our assets for the purchase of commodities – ultimately leading to financial ruin if sustained over a long enough period of time.  There is nothing mutually beneficial about it.  The exporting country derives all the benefit while we bear the burden of lost jobs and treasure. 

When the U.S. runs a trade deficit, our loss is a gain for every other nation that contributes to that deficit, exporting to us more than they import.  So it should come as no surprise that most of the rest of the world is opposed to anything the U.S. might do to restore a balance of trade:

World Trade Organization Director-General Pascal Lamy, also at the meeting, said this month that governments were unfairly blocking trade in response to the global downturn, hurting wealthy economies most and raising concerns about stimulus measures in both rich and poor nations.

So let me get this straight.  Wealthy nations are edging toward measures designed to benefit their economies by slowing harmful imports, but the WTO would have us believe that such actions are actually hurting their economies?  It doesn’t seem likely that they would all adopt an approach tantamount to cutting off their noses to spite their faces, does it?  The fact is that every nation understands that imports are a drag on their economy.  They’re tolerated during good times but can and should be slowed when times are bad.  And the adoption of protectionist measures should always be considered when foreign trade becomes a net drag on the economy, as it does in the situation of a trade deficit.  For the U.S., that situation has now existed for thirty-three consecutive years, racking up a deficit of $9.4 trillion. 

Yet, inexplicably, the administration has sworn off any measure that has any real hope of restoring a balance of trade:

“I would tell you that the United States has taken very seriously the definition of our president that he expressed not only in London but recently affirmed that we will not engage in protectionist behavior,” Kirk said.

Then what hope is there of restoring a balance of trade?  And without restoring a balance, how can America’s trade policy possibly be “in the interest of its people?”  Doggedly sticking with failed trade agreements and global organizations dedicated to perpetuating trade imbalances isn’t in our best interest.  That’s not “change we can believe in.”  It’s the status quo.  A real leader would challenge such agreements and organizations to change, or he would withdraw from them in favor of building new organizations and writing new agreements that would truly be in our best interest.

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7 Responses to Is “Robust Trade” Really in Our Best Interest?

  1. mtnmike says:

    Pete,

    Good coverage of the subject as usual. What most seem to leave out of the scenario for a world rebound of robust trade are the resources needed to produce that rebound.

    The sword is sharp on both sides and attempting to bring the entire 3rd world up on plane to begin absorbing American made products which are currently non-existent is a macroeconomic problem that the talking heads are attempting to solve with a micro economic social solution.

    As Kenneth Boulding said, “There is no such thing as economics, only social science applied to economic problems.” And in that one sentence, Boulding captured the absolute truth.

  2. Mark A. Hall says:

    Did Ron Kirk say a “ROBUST TRADE POLICY” or a “ROB US TRADE POLICY”? Maybe something got lost in the translation……

    The president has misinterpreted his National Financial Advisors to be real National ECONOMIC Advisors……. WRONG!!!!!!!!!

    If we don’t act soon, our ONLY remaining recourse will be to set-up a vast array of TOURIST TRAP SOVENIER STANDS to take advantage of the growing influx of CHINESE tourists coming here to see and visit their newly acquired territory.

    Kind of puts a new twist on the term “Chinese-American”.

    Thanks, Mark

    • Mark A. Hall says:

      Sorry…

      “Souvenir” not “Sovenier”

      My retraining class didn’t include spelling. All we focused on was “Scanning & Bagging”.

  3. Randy says:

    Restoring sane trade policies will do nothing to correct the real problem: the upper parasitic class of lawyers, wall street “gurus”,media shills, etc.

    Making “stuff” will still be a low class occupation.

    • Pete Murphy says:

      Randy, you’re selling manufacturing short. It’s not a low-class occupation. Today’s manufacturing is heavily dependent on computer-controlled automation, statistical process control, and so on. Sure, some relatively unskilled labor may still be involved, but not much. Manufacturing creates a huge demand for engineers, high-tech service technicians, and professional people in accounting, finance, management and so on. Nations like Japan and Germany have built powerful, wealthy economies around manufacturing, just as we once did.

  4. Randy says:

    mtnmike,

    In the context of internetworked digital computers, the only “science” is ECONOMICS. There is nothing else of worth.

    Unless, you can of course develop a convincing simulation on digital computers of a new fantastic energy device that is worthy of significant investment.

    I think my point is that complex non-linear phenomenon that is of interest (biology, nuclear physics) is probably not even possible to simulate on digital computers even in principle.

    But hey its always possible to simulate the “real” economy on those same computers, nevermind that it bogus, because well its just a method of culling the herd. Look at Iran, their sheep populace is just itching to be part of the infinite fiat world.

    I think someone needs to inform Pete there is no more USA, it evaporated into the digital world of finance.

  5. digspirrs says:

    Where possible buy matrix camera on 12 million total pixels cheaply?
    There is in view of in , and quick delivery.

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