With joblessness continuing to escalate, Obama challenged his economic team on Monday to come up with a new economic growth model and turned his attention to trade and exports. Give him credit. Instead of swallowing the line that our trade deficit is an inevitable consequence of low wages in foreign countries and eschewing the usual pissing and moaning about exchange rates, he asked an incisive question:
U.S. PresidentBarack Obama warned on Monday that more U.S. job losses lay ahead despite a turnaround in the economy, and he called for a new “post bubble growth model” with greater focus on U.S. exports.
“If Germany, a wealthy, highly unionized industrial nation, can generate 40 percent of its economy as export-based, then it seems to me that there is something we’re missing that they are doing right, and we have got to figure that out,” he told a meeting of his Economic Recovery Advisory Board.
Indeed. Why can Germany generate so much of its gross domestic product (GDP) through manufacturing for export? The same question could be asked about Japan, Ireland, Denmark, Switzerland, Korea and a whole host of other nations, none of whom have significantly lower labor costs or better productivity than the U.S. Nevertheless, the U.S. has a huge trade deficit in manufactured products with all of them.
The answer is that all have two things in common. First of all, all of these nations are more densely populated than the U.S. Most are badly overpopulated, making them incapable of per capita consumption at a rate that enables them to absorb the productive capacity of their own labor forces, much less able to consume imports from a nation like the U.S.
The second thing that all have in common is a huge market where per capita consumption is high and where the government is too dumb to implement trade policy designed to assure a balance of trade – the United States.
The question that Obama should be asking is not “What is Germany doing right?” Rather, he should be asking “What are we doing wrong?” The answer lies in trade policy that fails to account for the effect of extreme population densities on per capita consumption and global trade imbalances.
Obama went on to question why we can’t have the kind of economy we once enjoyed, with strong manufacturing and exports, and emphasized that big trade deficits can no longer be sustained:
“Are there mechanisms that we can start putting in place where we see the kind of growth that used to characterize the U.S. economy — export-driven growth, manufacturing growth,” he demanded of the panel, which included business leaders as well as former Federal Reserve Chairman Paul Volcker.
He said past U.S. growth had been “debt-driven” and that was no longer feasible. With the United States running record budget deficits as it spends furiously to try to stimulate the economy, Obama said it is going to be vital to find innovative new ways to finance growth, and the old approach would not do.
“The kinds of current account deficits, trade deficits we were developing were not ones that would serve as a model for long-term economic prosperity,” Obama said.
It’s refreshing to hear a president who recognizes the role of trade in the demise of American manufacturing and the economy as a whole. He understands that it can’t go on but, predictably, his approach of chiding other nations to start buying more American products has yielded zero results. He’s frustrated and clueless, and his economic team is of no help since, to a man, they’re free trade cheerleaders. So he thinks it’s a matter of competing harder:
“Part of what we want is an aggressive trade policy that says we can compete, we’re not afraid of competing, we want to make sure we are competing in a fair way, and that other countries are not seeing the U.S. markets as simply the engine for their growth, without any reciprocity,” he said.
It’s not a question of being competitive. No nation on earth has more aggressively cut labor costs and improved productivity than the U.S., all to no effect. Any effort to identify some magical ingredient in Germany’s manufacturing or to mimic them is doomed to failure. Unlike Germany, we have no other country like the U.S. to serve as our patsy customer, as we do for Germany. Boosting exports is now something that’s within our control. The only way that exports can rise is if other nations start buying more American-made products. It’s not going to happen.
President Obama, here’s an idea: instead of trying concoct a global economy where Germany, China, Japan and Korea manufacture everything we use, while we manufacture everything for someone else, how about an economy where we all just manufacture our own stuff? Imagine the oil burned in transoceanic shipping that could be saved! Trade imbalances are eliminated and Americans are put back to work in high-paying manufacturing jobs. Problem solved! What will Chinese, German and Japanese labor forces do? That’s their problem. Put tariffs back in our trade policy tool bag and make it happen. Start being a president for Americans and do what’s right for American workers.