Is “Robust Trade” Really in Our Best Interest?

July 23, 2009

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.

USTR-Nominee Kirk: Willing to Walk Away from Korea

March 11, 2009

In his nomination hearing before Congress on Monday, U.S. Trade Representative-nominee Ron Kirk, former mayor of Dallas and friend of Barack Obama, testified about his approach to trade.  Personally, I’m no fan of Kirk, a free-trader, and would be just as happy to see his nomination derailed by his tax problems, but I drew some comfort from what I read in this linked report from Reuters. 

Kirk testified that he has no “deal fever” and that the main focus of the administration would be on enforcement of existing deals and encouraging other nations to rely more on domestic demand and less on exports.  But the following really caught my eye:

He also echoed concerns Obama raised last year about the automotive and other manufacturing provisions of the South Korean agreement and said the deal had to be changed.

“The president has said, and I agree, the agreement as it is just simply isn’t fair and if we don’t get that right, we’ll be prepared to step away,” Kirk said, adding that the pact presents a big economic opportunity for the United States.

The whole approach of enforcing existing deals and pushing for workers’ rights and environmental standards is doomed to failure from the start.  This is the same approach we’ve taken for decades with disastrous results – a skyrocketing trade deficit that has collapsed our economy.  It’ll be interesting to see how patient Obama will be as monthly trade deficits mount in spite of such efforts. 

But the hard line that Kirk has indicated the administration is willing to take with Korea is encouraging.  Imagine the impact on the domestic auto industry if Korea is forced to either import as many autos as we buy from them or accept limitations on their exports.  Our trade relationship with Korea is so egregious that it’s tantamount to rape of the American economy and workers.  America derives absolutely no benefit from this trade relationship and we would be far better off walking away.

Obama’s Selection of Kirk for USTR Disappointing

December 19, 2008

Obama has announced his selection of Ron Kirk, a former mayor of Dallas and a supporter of NAFTA, as his U.S. Trade Representative – America’s head trade negotiator.  Earlier, he offered the job to Xavier Becerra, congressman from California, but it seems that Becerra declined, unwilling to give up his new leadership role in Congress. 

Based upon the information provided in this linked article, I find the selection of Kirk to be very disappointing.  Kirk will be just another in a long line of Trade Representatives who foolishly believes that he can open markets for American products in a way that benefits America. 

 President-elect Barack Obama will name former mayor Ron Kirk the post of U.S. trade representative on Friday, thrusting the pro-trade former Dallas mayor into a sensitive balancing act between unions and business interests.

John Murphy, vice president for international affairs at the U.S. Chamber of Commerce, lauded Mr. Kirk’s record of support for free trade and its benefits in Texas, though he isn’t known nationally.

“Trade has been one of the only bright spots for the U.S. economy, and the Obama team is going to need every tool in its tool box,” he said.

Anyone who believes that trade has been a bright spot for the U.S. is easily identifiable as a free trade cheerleader – someone who ballyhooes exports while sweeping imports under the rug – all in an effort to obscure the damage that’s been done by the enormous trade deficit.  That such a person would think highly of the Kirk nomination is a bad sign. 

If confirmed by the Senate, Mr. Kirk would probably spend much of his time overseas hammering out trade deals and persuading foreign leaders to drop trade barriers, curb movie piracy and open new markets for U.S. goods.

This is exactly the approach to trade that has yielded a $9.2 trillion trade deficit since 1975.  Trade barriers never, ever get dropped and “opening new markets” always begins with opening America’s market first.  And that’s as far as the trade deal ever gets.  Our trading partners aren’t fools and have suckered us into horrible deals for decades. 

More reason for concern:

As Dallas mayor from 1995 to 2001, Mr. Kirk touted free trade. In a series of overseas trips, he pitched the Dallas area as an ideal trading partner.

This is one Obama appointment that I hope isn’t confirmed:

The top Republican on the Senate panel that will confirm the next trade representative, Iowa Sen. Charles Grassley, questioned Mr. Kirk’s qualifications. Aides noted that while most of Mr. Obama’s Cabinet picks have deep experience in their fields, Mr. Kirk has little background on trade issues.

Kirk seems like an odd pick, since Becerra, Obama’s first choice, was more in line with Obama’s espoused concerns about the role of trade in the demise of our economy.  Obama had promised an overhaul of NAFTA.  Is he backing away from that commitment by nominating Kirk? 

Mr. Kirk’s chances for the job got a boost Tuesday when the top contender, Rep. Xavier Becerra of Los Angeles, said he would stay in Congress.

Mr. Obama reportedly offered the Californian the job two weeks ago. But Mr. Becerra recently won a House Democratic leadership post, and was apparently loath to give that up after concluding – as he told Los Angeles-based La Opinion –that trade “would not be priority No. 1, and perhaps, not even priority No. 2 or 3” for Mr. Obama.

This is all terribly disappointing.  Kirk looks like just one more free trade stooge who will leave trade negotiators in China, Japan, Korea and Germany rolling in the aisles with laughter when he leaves.