It seems I wasn’t the only one who found Obama’s pledge in the State-of-the-Union Address to double exports in five years to be unbelievable. Check out the above-linked CNBC article.
Since the Obama administration has not yet clearly articulated a trade policy or even sent several completed trade agreements to Congress, his pledge to double exports in five years was greeted with incredulity, even among Democratic trade policy experts.
Never mind health care, the stimulus plan, Afghanistan, or all of the other issues that have distracted his attention so far. Obama’s failure to articulate a trade policy or come up with a plan to address the trade deficit is, by far, his biggest failure. Contrary to his campaign promises, he’s done nothing to correct the imbalance with Mexico that arose from the North American Free Trade Agreement. Worse, he’s done nothing in response to tariffs that Mexico slapped on American goods the first time he tried to raise the issue. Nor has he done anything in response to persistent dumping by the Japanese. Nor has he done anything about China’s refusal to unpeg their currency from the dollar.
His stimulus plan has failed to revive the economy. Unemployment isn’t dropping. With credit rating agencies on the warpath about sovereign debt, another big stimulus isn’t an option. Reinflating the housing bubble isn’t an option. He seems to understand that revitalizing manufacturing is the only way to get the economy back on its feet.
So he’s faced with a choice: rein in imports so that manufacturing can focus on meeting the needs of domestic consumption, or manufacture products to be consumed by other nations. The first option is completely within his power and success would be guaranteed, but at the price of angering other exporting nations. The second option is something over which he has absolutely no control and there is virtually no chance of success, but at least China wouldn’t be P.O.’d at us.
So what does he choose? True to form, he’s opted for the appearance of doing something that angers no one, as opposed to real action that requires real leadership. By setting a goal of doubling exports in five years, he can fall back on the excuse that “we still have two years to go” when the next presidential election rolls around.
Boosting exports has been our trade policy ever since the signing of the Global Agreement on Tariffs and Trade in 1947. The idea is to open new markets. But it’s precisely this plan to open new markets and boost exports that has saddled us with an enormous trade deficit. How? Because trade negotiations always involve the U.S., in a gesture of good faith, offering to open up our market first. So in comes a fresh tide of imports.
Then, when the exports don’t materialize, we ask, “why aren’t you buying any of our cars?” The answer: “because our nation is too crowded for everyone to drive cars.” “Our commuters rely on mass transit.” Then we wonder why they don’t buy American-made lawn mowers until we realize that – oh, yeah, we forgot – they’re so crowded that they don’t have lawns. Then we wonder why they don’t buy American-made applicances until we realize that – oh, yeah, we forgot again – their homes are so tiny there’s barely room for a bed and a toilet.
Too late. The trade deal is done and now we’re stuck with an even bigger trade deficit. The solution? Move on to the next country, perhaps with an even bigger population, and hope that things turn out differently. We keep applying the same failed trade model while always expecting different results.
Since Obama so loudly and publicly proclaimed such a commitment, I’ll hold his feet to the fire. I’m going to chart our monthly progress on export growth, along with imports and the overall trade deficit, using January 2010 trade results as the starting point (which won’t be released until March). To meet this goal, exports must rise at a rate of 1.2% per month for the next five years, while any growth in imports must be held to about half that value in order to achieve a balance of trade. Oh, by the way, I’ll be tracking this in constant dollar terms, not letting him inflate his way toward meeting this goal.
Anyone care to place a bet on Obama meeting this goal? I wonder if the president himself would make that bet.
So stay tuned. It’ll be fun to watch how this unfolds.