2009 July 16 Thursday
Obama Plans Feigned Toughness On Trade Partners

US presidents like to pretend toughness on other countries about trade and Obama is no exception.

WASHINGTON -- In a bid to revive support for free trade within the U.S., the Obama administration plans to press foreign nations to increase imports of U.S. agriculture and manufacturing -- but not to push so hard as to ignite a protectionist backlash.

"In order to save trade, we've got to deal more honestly with those who feel like [trade's] benefits haven't been manifested for them," U.S. Trade Representative Ron Kirk said in an interview Tuesday. "We've got to be serious about enforcement."

Okay, he misspoke. What he meant: "We've got to act serious about enforcement."

Bob Davis and Greg Hitt of the Wall Street Journal demonstrate a grasp of the history of US elite trade rhetoric:

To win over a public skeptical about trade, he is now following a course plotted by earlier Republican and Democratic administrations: appear to get tough with trade partners and show that trade deals can boost exports and jobs, then use that credibility to push for new trade deals.

We've had lots of new trade deals. Our trade deficit has gotten much larger. How about cutting down the size of the deficit before trying to get approval for new trade deals?

The excess indebtedness of US citizens has finally brought us to a point where the trade deficit has plummeted in spite of dumb US government policies.

The monthly trade gap, which peaked at $64.9 billion last July, plummeted nearly 10 percent in May to $26 billion, the Commerce Department reported Friday. After the monthly trade deficit increased relentlessly over 15 years, the recession has managed to cut it by 60 percent in less than a year.

Where there you go. All it took was the biggest downturn since the Great Depression. Now we just have to have a downturn bigger than the Great Depression and we could run a surplus.

If previous Republican and Democratic administrations had gotten substantially serious about getting tough with trade partners we would not now be in hock to the world. But of course we are (need some numbers on annual trade deficit, percentage of GDP, and total indebtedness here).

It would help if press coverage of the US trade deficit and growing indebtedness to the rest of the world grasped the essence of it. But no. This Bloomberg article demonstrates the widespread misinformation about the growing US indebtedness to the world.

July 16 (Bloomberg) -- China’s foreign-exchange reserves are surging again, helping the Obama administration sell unprecedented amounts of debt as it seeks to drag the world’s biggest economy out of a recession.

Stockpiles of currency rose by a record $178 billion in the second quarter to top $2 trillion for the first time, the People’s Bank of China said yesterday.

When the US sells debt abroad this pushes up the dollar against other currencies, decreasing foreign demand for US goods and services while boosting US demand for foreign goods and services. So both Americans and foreigners pay less to buy from America. This decreases demand for what US companies produce within the borders of the US.

Here's the core point: This low demand for products of the US economy leads the Obama Administration to borrow money from the Chinese to bolster demand that was undermined by the Chinese purchase of US debt. We are just digging the hole deeper. If we bought stuff from the Chinese and they used the dollars they received to buy stuff from us then we wouldn't need to borrow from them to bolster domestic demand.

Share |      By Randall Parker at 2009 July 16 07:57 PM  Economics Trade

Aki_Izayoi said at July 17, 2009 7:54 AM:

I remember reading from Jeff Rubin that a higher price of oil would shrink the trade deficit with China (although it would make Canada and Mexico attractive due to transportation cots). However, the composition of the trade deficit has changed drastically. As of 2008, a large portion of the deficit is in importing oil. There is a chart in that link that might be the info you want, Randall. Maybe alternative energy might change this.

You are correct that the elites support free trade; I suppose they are the ones that benefit from it as it reduces labor costs and gives them access to the global markets where they are able to exploit the cost differential. (If many countries have trade barriers, then the returns on capital from using this strategy would be lower because such goods might not generate high volume because their markets would be restricted. Trade barriers reduce the incentive for relocating abroad to benefit from lower corporate taxes too because such a move would not be beneficial when the goods from that country have a restricted market due to trade barriers.) I suppose they are altrustic people who want the world to enjoy the "gains from trade." (End sarcasm) I suppose the unrestricted flow of goods destroys the sovereignity of nations (by undermining the tax base for the welfare state and a general downward pressure on corporate taxes). Randall, do you have any information about right-wing political factions that are against free trade (for the reason of preserving the nation state); I suppose those factions are more likely to be European.

not anon or anonymous said at July 17, 2009 6:05 PM:

Or maybe if the government got out of the business of oppressing businesses for the good of the collective's homogeneity, this wouldn't be a problem. Instead, civil nuclear technology is decades behind what _India_ is buying and developing, and unions work toward a more perfect form of professional welfare (crowding out professionals with fascist legislation).

"If we bought stuff from the Chinese and they used the dollars they received to buy stuff from us then we wouldn't need to borrow from them to bolster domestic demand."

Or maybe if the nation weren't under the thumb of the most anti-technology, compulsory-collectivist, straight-out-of-the-Unabomber-manifesto regime in history, we would be private citizens competing just fine.

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