Why Did We Forget About Trade?

by Pejman Yousefzadeh on November 2, 2011

Kati Suominen joins me in singing the praises of free trade, and pointing out the tremendously palliative effects trade would have for the American economy:

If there is a silver bullet for U.S. recovery, it is exports. It was U.S. manufacture exports that paved the way to the 2.5 percent U.S. gross domestic product (GDP) growth in the most recent quarter; without exports, the U.S. economy  would have expanded by a negligible 0.2 percent instead of the estimated 2 percent in the first quarter. Exports generate jobs: A 10 percent increase in export sales produces a 7 percent increase in employment, according to labor economist Lori Kletzer — double the 3.5 percent that a 10 percent increase in domestic sales produce. And exports help cut America’s trade deficit, allaying protectionist calls for tariffs on foreign products.

In the coupled world economy, a vigorous America propels global growth. Reviving U.S. exports would also resolve a perilous paradox: The globalized world economy the United States has assiduously built in the past six decades is now viewed as a menace in America itself. Cheap imports are seen to have failed the American worker; globalization is blamed for blunting Washington’s fiscal and monetary levers. Such fears are jet fuel for growing American isolationism — when the absence of alternative leaders demands renewed American stewardship.

In a world where almost 80 percent of global consumption comes from outside U.S. borders and exports make up only 13 percent of U.S. GDP, far below the levels of such seasoned traders as Germany or Japan, American exports have room to expand. But expansion is easier said than done: Washington’s calls (particularly for China) to increase domestic consumption, tighten intellectual property protections, and cease currency manipulation are falling on deaf ears. Even the carrots and sticks that persuaded cantankerous Japanese policymakers in the 1980s — security guarantees and threats of sanctions — would not sway Beijing. And without enforcement mechanisms to make G-20 members swallow the medicine they prescribe themselves — macroeconomic and trade policies that would deliver a more balanced world economy — the U.S.-sponsored G-20 rebalancing agenda is toothless.

And then, the hammer is laid down:

Meanwhile, the Obama administration’s plans to promote exports consist of much talk but little action. The best President Obama has mustered toward his goal of doubling U.S. exports — the passage of trade deals negotiated by the Bush administration with Colombia, Panama, and South Korea — promises welcome yet limited export gains. And congressional Democrats’ call for tariffs against China in retaliation for its currency manipulation risks 1930s-style global trade wars.

Some day, we’ll look back and wonder why it is that the Obama Administration, and the Democratic party decided to help protectionists who have never been right about anything govern trade policy . . . claiming all the while that the Administration and the Democratic party are “reality-based.”

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