Pacts fail to reverse trade balance
The big drivers behind the persistent trade deficit are the insistence of China, especially, that U.S. companies locate factories there and even transfer technology in exchange for access to the market; currency manipulation; subsidies for exports and protected domestic sectors; stealth production s
Special to The Seattle Times
Now that Barack Obama has won the White House, he might not feel bound by some president’s dreamy pledge in 2010 to double American exports in five years. Oh, wait. That goal was set by Obama. He’ll be in office when it is met, or not.
Washington nearly doubled its exports between 2005 and 2011, but we are an outlier because of luck, geography and some wise policy. In Oregon, another Pacific Rim state, exports grew by about 48 percent. Ohio’s increased by 31 percent.
The problem isn’t that America can’t make goods and services and sell them abroad. The United States is the third-largest exporting country after China and Germany. Last year, merchandise trade totaled nearly $1.5 trillion.
But we consume many more imports. Thus, in September, we ran a trade deficit in goods and services of $41.5 billion. Last year’s annual deficit was $558 billion. More than half was with China.
As a result, inflation-adjusted American exports have been bouncing along at a negative $400 billion. That’s somewhat better than a negative $750 billion before the bubble collapsed.
After a century of trade surpluses, America turned to deficits nearly four decades ago. Every measure sold as a way to reduce the trade deficit, whether NAFTA or China’s ascension to the World Trade Organization, has only increased it.
Trade experts have downplayed the deficit. Mea culpa: I did much the same through the 1990s. For example, the dollars spent on imports had to come back here somehow, such as investment in American real estate or startups.
And with globalization, it wasn’t clear what was really made where: Should an Ohio-made Honda really be counted as an import, even though the sales were technically banked in Tokyo? Meanwhile, Americans received lower prices and a world of choice in products.
That was the theory.
But it turned out Ross Perot was partly right. The sucking sound of jobs and wages has been slow and steady, not giant.
By the 2000s, it was clear Americans were not necessarily net winners from the trade status quo. They might get cheap stuff from China at Wal-Mart, but their pay was stagnant and their jobs insecure or gone.
That’s the trade deficit, up close and personal.
Yes, Boeing gets special treatment with the U.S. government as its chief international salesman, a tremendous benefit to Washington state. But fewer and fewer parts of American airplanes are made in the USA. At some point, that’s really going to bite.
This heresy I write was likely not on the minds of attendees at last week’s conference of the Washington Council on International Trade. With 40 percent of jobs tied to trade, we’re a powerhouse and the questions surround how to do better.
And Obama will travel to the East Asia Summit in Cambodia this week, the first sitting U.S. president to attend, with expanding trade high on his agenda.
During his first term, he signed trade agreements with South Korea, Colombia and Panama. Now the administration is pushing a more ambitious deal, the Trans-Pacific Partnership, comprising nine nations.
But all this violates the economic Rule of Holes: When in a hole, stop digging.
True, Americans consume more than they can afford. But the big drivers behind the persistent trade deficit are the insistence of China, especially, that U.S. companies locate factories there and even transfer technology in exchange for access to the market; currency manipulation; subsidies for exports and protected domestic sectors; stealth production such as Indonesian labeling changes keeping out Washington apples, and local social customs.
These trade agreements do little to address such problems. Usually the result is a slight entry in the foreign market for favored American companies, but a huge uptick in that country’s exports here with our relatively free access and willing customers.
In addition, a World Economic Forum report rating countries in how their infrastructure and institutions support the global supply chain showed the United States at 23rd, down from 19th in 2010.
This put us behind Germany, Canada, Sweden and France, not just Japan and Singapore.
In other words, America is less prepared than it could be to take advantage of coming growth in developing countries.
Clyde Prestowitz, the Reagan administration trade negotiator who is the finest analyst of trade issues, also worries about Obama’s military “pivot” to the Pacific.
“The main fact is that while it's true that U.S. power is ebbing, it's not ebbing for lack of military presence or capability,” he wrote on his Foreign Affairs blog.
“It's ebbing because the U.S. trade deficit appears to be irreducible and U.S. industry continues to offshore not only production but also R&D and innovation while some of America's greatest educational institutions slash their budgets, even as those of China and most of the rest of Asia expand geometrically.”
Merely encouraging American exports and setting goals aren’t enough. The president must be willing to think differently about our dilemma, and go against much economic orthodoxy and many entrenched interests.
Otherwise, we’ll be having this same conversation five years from now, deeper in the hole.
You may reach Jon Talton at email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest