China Syndrome: A Strong Trade Policy Levels the Field

China Syndrome: A Strong Trade Policy Levels the Field

Iva Hruzikova/The Fiscal Times

President Obama’s two-step with Indian youngsters last week was only one of his more awkward gestures of late. During his Asia tour, the president hopped aboard the free trade express — just as ridership is collapsing. To his credit, the president used his Asia trip to woo the U.S. business community, and the American public, by boosting trade. Though he failed to conclude a bilateral pact with South Korea, he brought home some $10 billion in orders for U.S.-made goods from India and left both countries with promises to broaden our economic engagement.

Americans are not impressed. Enthusiasm for trade is on the decline, as unemployment in the U.S. — and especially the loss of manufacturing jobs — mocks the opportunities trade pacts once promised. A poll conducted in September by NBC and The Wall Street Journal showed that 53 percent of the country now thinks that trade agreements have harmed the country, a sharp hike from 46 percent three years ago and only 30 percent in 1999. It isn’t just union members who (predictably) have soured on expanded trade; a Pew poll shows that 63 percent of Tea Party members are also negative on more open borders.

This reaction is understandable. Our country, at the moment, appears a loser in the globalization sweepstakes. While our budget deficit creates most of the economic angst in the country, our balance of payments is also recognized as an open sore, contributing to the pile-up of U.S. dollars and assets overseas that has weakened our influence and our economy. For many Americans “free trade” appears one-sided, as in we import everything through Wal-Mart and export only what suits our trading partners. That our inexperienced president seems so eager to befriend foreign nations, leads some to worry that we don’t cut a tough enough deal. A recent Rasmussen poll shows 63 percent of Americans think our government does not do enough to protect U.S. businesses against foreign competitors.

The impression that we get snookered at every turn is burnished by our lopsided relationship with China. President Obama has led the charge in portraying the Chinese as purposefully undervaluing their currency in order to sell more effectively in the U.S. and other consumer markets. He is certainly not alone. With Chinese growth continuing at a multiple of our own, and with our manufacturing companies moving production overseas to compete, it is easy to become disenchanted with “free trade,” especially when it appears to be anything but free.

Through 2009 we were still the world’s largest exporter. That’s
right — in 2009 our exports of goods and services amounted to $1.53 trillion.

Which is why President Obama has to brush up on those famous communications skills that got him elected, and that he appears to have checked at the entrance to 1600 Pennsylvania Avenue. He needs to remind Americans that we can compete globally, and that if we don’t, we will be left far behind. The fastest-growing markets for U.S. suppliers are overseas; Min Zhu, advisor to the IMF, recently projected that emerging markets will account for 60 percent of global GDP in six years. If we throw up trade barriers, we will not be able to access those consumers. In short, it’s time for some old-fashioned boosterism.

For instance, Americans need to be reminded that we successfully manufacture and export highly technical goods such as military hardware and machine tools, air planes, chemicals, pharmaceuticals, agricultural goods, entertainment products and software all over the world. In fact, through 2009 we were still the world’s largest exporter. That’s right — in 2009 our exports of goods and services amounted to $1.53 trillion, compared to Germany’s $1.36 trillion and China’s $1.33 trillion. Number four Japan, considered an export powerhouse, only shipped $710 billion overseas.

“The fall of America is overstated. It still has the
best companies. It still has the most innovation. It
still has flexibility in capital markets and in jobs.”

While we lag in exports of goods (we rank third), our exports of services pushes us to the front. This would include banking, where companies like Goldman Sachs, thanks to sizeable innovation and investment in technology, are successfully competing on the global stage. In a presentation yesterday Goldman Sachs noted that there are more   companies in China with a market capitalization above one billion dollars than there are in the U.S. and Europe combined.

Needless to say, total exports, at 12 percent, are a smaller percent of our economy than is the case for our major rivals. Some 47 percent of Germany’s GDP is represented by exports, and 37 percent of China’s. We have work to do.

Americans’ are so discouraged by the brilliant accomplishments of China in recent years — think high speed trains — and by the political impasse in our own country that they can’t imagine that we can succeed. The CEO of outsourcing firm Genpact said at a recent Wall Street Journal CEO forum: “The fall of America is overstated. It still has the best companies. It still has the most innovation. It still has flexibility in capital markets and in jobs.” How refreshing; that’s the tune our president should be singing.

The president might also want to reassure the country that our trading partners sometimes think that we get the better end of the deal. For instance, our retail chains, like Wal-Mart, are frustrated that they are not allowed into India, but to curb outsourcing we recently upped visa fees for high-tech workers — a move not popular in India. It’s encouraging to note that our trade with India, which has grown rapidly in recent years, is roughly balanced. 

President Obama has correctly targeted exports as a means of stimulating economic growth. He needs to make this happen. He cannot walk away from the South Korea trade pact, even if its conclusion will anger the UAW. This is an opportunity for him to work with, and not against, the country’s business community. Americans may have a dark view of trade today, but just a year ago sentiment was swinging in the opposite direction as the recession deepened. In other words, our minds are not made up on the value of open borders. We need to be convinced. Only the president can take on that challenge.