Monday, March 30, 2009
SCARY TACTICS
Growing up in the 1950s, I learned a lot about scare tactics. In those days, some people imagined a Commie under every bed, as the phrase went. Only in retrospect did I learn
of the many careers derailed and lives ruined from Hollywood to Foggy Bottom by such irresponsible hysteria. These days, it’s not Commies but protectionists – aka fair traders, trade skeptics, populists, nationalists, etc. – who are thought to be crowded into America’s sleeping quarters.
Almost daily, we get new warnings about the dangers of “protectionism.” The WTO, the World Bank, The Economist, The New York Times, The Washington Post, a host of ivory tower academics, and other apologists for the globalization model that helped bring us to the current ruinous conditions, all denounce protectionism wherever they see it – and they seem to see it everywhere.
The common, usually unstated, assumption in this hysteria is that anything that reduces import levels constitutes protectionism and therefore, especially in these troubled times, is to be shunned. In these tirades, illegal actions are indiscriminately lumped together with legal challenges to illegal measures. But, dumping is a beggar-thy-neighbor action; antidumping is by agreement the corrective measure. Subsidies can be trade distorting and injurious; when they are, countervailing duties are by agreement the corrective measure. Violation of any WTO rules surely is protectionist; seeking a remedy under established dispute settlement procedures just as surely is not. But the press and the experts they choose to cite, including the very guardians of the institutions charged with making the trading system work, use such a broad brush that it takes all of them to lift it.
Let’s slow down and think about this for a moment. Any thing that reduces imports is a danger to the trading system? A recession? A new and better product? Investment in expanded production capacity? Increased domestic savings? Obviously not.
Everyone knows that in the 1930s, when the law of the jungle prevailed in international trade, competitive protectionism deepened the depression. The system of trade laws and contractual obligations established since 1933 have reduced the scope for such ruinous behavior. Some, but only some, recognize that competitive currency devaluations were at least as significant an element in the beggar-thy-neighbor race among nations in the ‘30s. If you are opposed to trade-distorting practices – and I am -- you would work to end mercantilist currency policies, a particularly malicious form of protectionism. Persistently undervalued currencies not only create an artificial two-way trade advantage but leave the protectionist governments with a stash of hard currencies – free money, in effect – to use however they see fit. I don’t hear much talk from the average “free trader” about this practice. Yet, unlike trade protectionism, currency protectionism is beyond the reach of current rules and institutions.
So, as we head into the G-20 summit in London this week, let’s be impeccable with our word, clear in our reasoning, and discerning in our diagnoses. Let’s stop sowing distrust, killing dialog with name-calling, and diverting attention from real issues. This international economic system no longer works very well. It can only be remade by a concerted effort of statesmen of high intellect, uncommon inventiveness and profound good will. The constant drumbeat of fear based on false assumptions and hysterical misreading of events hinders, not enhances, their work.
Charles Blum
of the many careers derailed and lives ruined from Hollywood to Foggy Bottom by such irresponsible hysteria. These days, it’s not Commies but protectionists – aka fair traders, trade skeptics, populists, nationalists, etc. – who are thought to be crowded into America’s sleeping quarters.
Almost daily, we get new warnings about the dangers of “protectionism.” The WTO, the World Bank, The Economist, The New York Times, The Washington Post, a host of ivory tower academics, and other apologists for the globalization model that helped bring us to the current ruinous conditions, all denounce protectionism wherever they see it – and they seem to see it everywhere.
The common, usually unstated, assumption in this hysteria is that anything that reduces import levels constitutes protectionism and therefore, especially in these troubled times, is to be shunned. In these tirades, illegal actions are indiscriminately lumped together with legal challenges to illegal measures. But, dumping is a beggar-thy-neighbor action; antidumping is by agreement the corrective measure. Subsidies can be trade distorting and injurious; when they are, countervailing duties are by agreement the corrective measure. Violation of any WTO rules surely is protectionist; seeking a remedy under established dispute settlement procedures just as surely is not. But the press and the experts they choose to cite, including the very guardians of the institutions charged with making the trading system work, use such a broad brush that it takes all of them to lift it.
Let’s slow down and think about this for a moment. Any thing that reduces imports is a danger to the trading system? A recession? A new and better product? Investment in expanded production capacity? Increased domestic savings? Obviously not.
Everyone knows that in the 1930s, when the law of the jungle prevailed in international trade, competitive protectionism deepened the depression. The system of trade laws and contractual obligations established since 1933 have reduced the scope for such ruinous behavior. Some, but only some, recognize that competitive currency devaluations were at least as significant an element in the beggar-thy-neighbor race among nations in the ‘30s. If you are opposed to trade-distorting practices – and I am -- you would work to end mercantilist currency policies, a particularly malicious form of protectionism. Persistently undervalued currencies not only create an artificial two-way trade advantage but leave the protectionist governments with a stash of hard currencies – free money, in effect – to use however they see fit. I don’t hear much talk from the average “free trader” about this practice. Yet, unlike trade protectionism, currency protectionism is beyond the reach of current rules and institutions.
So, as we head into the G-20 summit in London this week, let’s be impeccable with our word, clear in our reasoning, and discerning in our diagnoses. Let’s stop sowing distrust, killing dialog with name-calling, and diverting attention from real issues. This international economic system no longer works very well. It can only be remade by a concerted effort of statesmen of high intellect, uncommon inventiveness and profound good will. The constant drumbeat of fear based on false assumptions and hysterical misreading of events hinders, not enhances, their work.
Charles Blum
Labels: Currency Manipulation, Free Trade, Protectionism, Trade
Monday, March 16, 2009
RR’s 3 R’s
There are a few preliminary signs that the Obama administration is preparing to take a fresh look at the trade policy that helped get us into the global mess we’re in. Thus far, nothing revolutionary has emerged, just a hopeful emphasis on enforcing our legal rights and a healthy skepticism about new agreements for agreements’ sake.
In addition, there are signs of fresh thinking being undertaken at the Office of the US Trade Representative, my old agency. This will take time, and I’d urge them to take the all the time needed to get it right.
For starters, though, it might be instructive to reexamine the rhetoric and record of Ronald Reagan. Though sometimes derided as simplistic, Reagan at his best was a principled pragmatist. Nowhere was that more in evidence than in his trade policy.
Reagan believed and publicly argued that “free trade must be fair.” In other words, free trade and fair trade were complementary, not polar opposites.
He made this clear in his radio address of August 2, 1986. (The transcript can be read at http://www.reagan.utexas.edu/archives/speeches/1986/080286a.htm.) In just a few minutes, Reagan laid out three characteristics of his trade policy that are still on point:
• Reciprocity: “Free and fair trade with free and fair traders” was his motto to get the best treatment in trade, a nation would have to give it to others. In fact, reciprocal market access was the essential feature of Cordell Hull’s reciprocal trade agreements that helped lift the world from the Great Depression and later formed a major foundation for the General Agreement on Tariffs and Trade negotiated in 1947. It’s plain wrong to consider reciprocity as a code word for protectionism. In fact, reciprocal trade undid the 1930 Smoot-Hawley tariffs and opened the way to sustained economic growth in the world.
• Respect for Rules: In another context, Reagan famously said “trust, but verify.” That’s why we must not only have trade rules but also be willing to enforce them. Reagan objected to countries that didn’t “play by the rules” and that got an “unfair advantage” by subsidizing their industries. On the other side of the coin, protectionism – transgression of the agreed rules – invited retaliation by aggrieved trading partners and was to be avoided.
• Results-Oriented: A free and fair trade policy was expected to produce fair and equitable results. A key to good results was “toughness.” Reagan said: “We’ve been tough with those nations who’ve been unfair in their trading practices, and that toughness has produced results.”
Reciprocity. Respect for Rules. Results-oriented. Sounds like the making a pretty good trade policy for the Obama administration, too.
Charles Blum
In addition, there are signs of fresh thinking being undertaken at the Office of the US Trade Representative, my old agency. This will take time, and I’d urge them to take the all the time needed to get it right.
For starters, though, it might be instructive to reexamine the rhetoric and record of Ronald Reagan. Though sometimes derided as simplistic, Reagan at his best was a principled pragmatist. Nowhere was that more in evidence than in his trade policy.
Reagan believed and publicly argued that “free trade must be fair.” In other words, free trade and fair trade were complementary, not polar opposites.
He made this clear in his radio address of August 2, 1986. (The transcript can be read at http://www.reagan.utexas.edu/archives/speeches/1986/080286a.htm.) In just a few minutes, Reagan laid out three characteristics of his trade policy that are still on point:
• Reciprocity: “Free and fair trade with free and fair traders” was his motto to get the best treatment in trade, a nation would have to give it to others. In fact, reciprocal market access was the essential feature of Cordell Hull’s reciprocal trade agreements that helped lift the world from the Great Depression and later formed a major foundation for the General Agreement on Tariffs and Trade negotiated in 1947. It’s plain wrong to consider reciprocity as a code word for protectionism. In fact, reciprocal trade undid the 1930 Smoot-Hawley tariffs and opened the way to sustained economic growth in the world.
• Respect for Rules: In another context, Reagan famously said “trust, but verify.” That’s why we must not only have trade rules but also be willing to enforce them. Reagan objected to countries that didn’t “play by the rules” and that got an “unfair advantage” by subsidizing their industries. On the other side of the coin, protectionism – transgression of the agreed rules – invited retaliation by aggrieved trading partners and was to be avoided.
• Results-Oriented: A free and fair trade policy was expected to produce fair and equitable results. A key to good results was “toughness.” Reagan said: “We’ve been tough with those nations who’ve been unfair in their trading practices, and that toughness has produced results.”
Reciprocity. Respect for Rules. Results-oriented. Sounds like the making a pretty good trade policy for the Obama administration, too.
Charles Blum
Labels: Free Trade, Trade
Wednesday, January 7, 2009
FREE TRADE FANTASIES
The January 5 Washington Post editorial, “Terms of Trade” Why the U.S. lost manufacturing jobs, and how it can replace them,” illustrates what’s wrong with the establishment’s rote cheerleading for “free trade.” The editorial is a commentary on a recent report by the Congressional Budget Office that had concluded that “much of the relative decline in U.S. manufacturing was due to imports.”
Hardly earth-shaking, but apparently too strong a dose of reality for The Post. The editorial tries to flip the CBO piece on its head by arguing that the “spur of global competition” had made the remaining American producers stronger, and the country as a whole richer by providing cheap imported goods. The editorial concludes darkly: “We hope that the Obama administration helps U.S. firms adapt. But we hope it also understands that no one can abolish economic reality – and that it would be futile to try.”
Haven’t we heard this all before? Of course. Can we settle the argument, of course not.
But we can set a few ground rules for a more informed and productive debate:
First, The Post and every one else should stop talking about “global competition,” “foreign competition,” “trade” and “free trade” as if they were interchangeable. Global competition is a reality; “free trade” exists only in text books. Much of today’s global trade is rigged by price-fixing in the form of undervalued currencies, the targeted development of hot-house industries propped up by subsidies and other benefits conferred by foreign governments, and excessive corporate power over both the marketplace and regulatory agencies. Competition makes one stronger, as The Post argues. Of course it does, provided the competition is fair. But unfair practices destroy competition, distort the free flow of trade, and undermine confidence in the trading system. No less committed a free trader as Ronald Reagan acknowledged these distinctions and based policy on them.
Second, The Post and others should make it a policy not to comment on our disastrous trade performance without calling for fundamental changes in the U.S. tax, energy, and health care policies. Our outmoded policies are not immutable “economic realities” nor are they the product of some grand march of historical forces, as The Post seems to think. They are choices that we, or more precisely our elected representatives, make. Reverse counterproductive policies, and you can expect a quite different set of results. I think I’d know an immutable economic reality if I saw one, but self-inflicted policy wounds simply don’t make the cut.
Third, The Post and others should stop mixing up the long-run productivity gains and concomitant job losses in manufacturing with the artificial advantages given to imports thanks to our own stupid domestic policies and our trading partners’ unfair practices. Productivity gains have been occurring for a long time, of course, and to our great benefit. Even The Post acknowledges that something changed in the current decade when “the loss of manufacturing jobs was especially sharp and sustained.” However, it shows remarkably little curiosity as to what might have caused this devastating destruction of good jobs and fails to deliver on its promise to tell us how to replace them.
Fourth, The post and others should use only real numbers to make their case. The much trumpeted “productivity” numbers of the US Department of Labor, for example, are based on a simple-minded calculation: divide the dollar value of the economy’s reported shipments by the number of hours worked. A moment’s reflection should enable anyone to realize that our so-called productivity gains are a mixture of real improvements in efficiency and off-shoring. The plant that off-shores all its components and now ships the same amount of shipments into the US market with half its former workforce cannot fairly be credited with a doubling of productivity. But that’s what DOL statistics report, and that’s what The Post and others rely to bolster their shaky arguments.
Finally, The Post and others should stop pontificating on the virtues of more “free trade” without discussing our rapidly mounting external debt. Trade deficits drive the debt problem. In fact, more than 35 years of trade deficits have wiped out our status as the world’s leading creditor, morphing us into the biggest debtor in history. The solution to that still worsening problem simply cannot be more of the same trade policy. And if we don’t begin to solve the problem soon, the Great Inflation that will accompany the widespread abandonment of the dollar will do it for us.
Hard-working Americans now and in the future deserve better public policies than we’ve had for decades of decline. Small wonder that so many have soured on international trade agreements and regard our government and our media as out of touch with reality. The next time The Post is tempted to lament the lack of support for the current trading system, it should point the finger of blame squarely into the mirror.
Charles Blum
Hardly earth-shaking, but apparently too strong a dose of reality for The Post. The editorial tries to flip the CBO piece on its head by arguing that the “spur of global competition” had made the remaining American producers stronger, and the country as a whole richer by providing cheap imported goods. The editorial concludes darkly: “We hope that the Obama administration helps U.S. firms adapt. But we hope it also understands that no one can abolish economic reality – and that it would be futile to try.”
Haven’t we heard this all before? Of course. Can we settle the argument, of course not.
But we can set a few ground rules for a more informed and productive debate:
First, The Post and every one else should stop talking about “global competition,” “foreign competition,” “trade” and “free trade” as if they were interchangeable. Global competition is a reality; “free trade” exists only in text books. Much of today’s global trade is rigged by price-fixing in the form of undervalued currencies, the targeted development of hot-house industries propped up by subsidies and other benefits conferred by foreign governments, and excessive corporate power over both the marketplace and regulatory agencies. Competition makes one stronger, as The Post argues. Of course it does, provided the competition is fair. But unfair practices destroy competition, distort the free flow of trade, and undermine confidence in the trading system. No less committed a free trader as Ronald Reagan acknowledged these distinctions and based policy on them.
Second, The Post and others should make it a policy not to comment on our disastrous trade performance without calling for fundamental changes in the U.S. tax, energy, and health care policies. Our outmoded policies are not immutable “economic realities” nor are they the product of some grand march of historical forces, as The Post seems to think. They are choices that we, or more precisely our elected representatives, make. Reverse counterproductive policies, and you can expect a quite different set of results. I think I’d know an immutable economic reality if I saw one, but self-inflicted policy wounds simply don’t make the cut.
Third, The Post and others should stop mixing up the long-run productivity gains and concomitant job losses in manufacturing with the artificial advantages given to imports thanks to our own stupid domestic policies and our trading partners’ unfair practices. Productivity gains have been occurring for a long time, of course, and to our great benefit. Even The Post acknowledges that something changed in the current decade when “the loss of manufacturing jobs was especially sharp and sustained.” However, it shows remarkably little curiosity as to what might have caused this devastating destruction of good jobs and fails to deliver on its promise to tell us how to replace them.
Fourth, The post and others should use only real numbers to make their case. The much trumpeted “productivity” numbers of the US Department of Labor, for example, are based on a simple-minded calculation: divide the dollar value of the economy’s reported shipments by the number of hours worked. A moment’s reflection should enable anyone to realize that our so-called productivity gains are a mixture of real improvements in efficiency and off-shoring. The plant that off-shores all its components and now ships the same amount of shipments into the US market with half its former workforce cannot fairly be credited with a doubling of productivity. But that’s what DOL statistics report, and that’s what The Post and others rely to bolster their shaky arguments.
Finally, The Post and others should stop pontificating on the virtues of more “free trade” without discussing our rapidly mounting external debt. Trade deficits drive the debt problem. In fact, more than 35 years of trade deficits have wiped out our status as the world’s leading creditor, morphing us into the biggest debtor in history. The solution to that still worsening problem simply cannot be more of the same trade policy. And if we don’t begin to solve the problem soon, the Great Inflation that will accompany the widespread abandonment of the dollar will do it for us.
Hard-working Americans now and in the future deserve better public policies than we’ve had for decades of decline. Small wonder that so many have soured on international trade agreements and regard our government and our media as out of touch with reality. The next time The Post is tempted to lament the lack of support for the current trading system, it should point the finger of blame squarely into the mirror.
Charles Blum
Labels: Debt, Free Trade, Productivity, Trade, U.S.Economy
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