Tuesday, October 09, 2007

On the Debate -- Trade Follies

I enjoyed the debate today. I think the major Republican candidates acquitted themselves very well. Fred Thompson and Rudy Giuliani still seem to me to be the class of the field, although Mitt Romney came across to me as more impressive than he has before. Among the leading candidates, only John McCain hurt himself in my eyes -- and not because of any substantive mistake -- but because of his repeated problems in hearing questions from Maria Bartiromo. I understand the acoustics were tricky and all the candidates had problems hearing her, but it still reinforced his age to me.

On that point, Kathryn Jean Lopez has the line I wish I thought of:

I really wish John McCain didn't have that hearing problem! Maria B. looked like his granddaughter reading him the menu.
On the substance, I'll limit my comments to a policy area in which I have actually worked -- trade.

Governor Romney was pretty forcefully pro-trade -- which I like -- but I had to chuckle at his suggestion for greater involvement by businessmen in trade negotiations:
Well, I believe in trade, but I believe in opening up markets to American goods and services. And it's been calculated that the average family in America is $9,000 a year richer because we have the ability to sell products around the world.

And a lot of people in this country make their living making products that go around the world. But it's also true that the people who negotiate these agreements -- the people who sit down with the Chinese and sit down the Mexicans and others are people, by and large, who spent their life in politics.

And the politicians come together and try to understand how the economy works. I think I'm probably the only guy on the stage who spent most of his career in the business world. I understand how the economy works. I understand how if you make a certain adjustment in the agreement, it's going to have a huge impact on the United States.

And so if, for instance, we agree to sit down with China, I understand that if we don't get real careful and protect patents and designs and technology, that what we tend to sell the most of, those kinds of things -- intellectual property -- is going to get stolen by the Chinese or by others; that we have to recognize agreements have to be in our benefit, not just in their benefit.

And so as I look across the agreements we've made, I recognize we're going to have to do a better job. We're going to have to have people who understand how the business world works, how the economy works, and make sure that the playing field really is level by having people who know something about the economy and that understand the business world being part of that effort.
The point of trade negotiations is to expand trade -- to ensure that consumers and producers in the US and abroad can make the deals that they think are best for them, without undue taxation or government interference. By eliminating barriers to trade, we give consumers the best deal and encourage competition and efficiency.

But businesses don't want that. Businesses want to enhance profits --by maximizing their sales opportunities and by shutting out their competitors. Look at the lobbying of the US agricultural sector: the goal is to open foreign markets while 'protecting' our own. If American companies truly had their way in trade negotiations, the US market would be closed to foreign competitors whenever possible.

Romney's line sounds good -- and it's critical to have negotiators who understand the sectors they're negotiating. But it wouldn't be an especially good idea to have company people taking the lead in trade negotiations.

Duncan Hunter is -- as always -- highly critical of US trade agreements. He argues that the US has made bad deals, and he wants us to maintain the same tariff rates as our foreign trading partners. He blames China's exchange rate and bad trade deals for the loss of many high-paying jobs (transcript here):
But let me tell you, Chris, what is missing from this economy: 1.8 million jobs that have moved to communist China from the United States, including over 54,000 jobs from Michigan...

And I would say to my colleagues and Senator Thompson and the other senators, you all voted for "most favored nation" trading status for Communist China. That set the groundwork for 1.8 million high- paying manufacturing jobs moving offshore, going offshore, some of them never to return.

And what I would do is pass the Hunter-Ryan bill which would put countervailing duties on the Chinese when they cheat. They are cheating on trade right now. I'd bring those jobs back home to the United States and I would connect up the middle class of America with the Republican Party one more time...

And to all my colleagues who talk about the joy of free trade, that requires one thing: good business deals.

We've made the only business deal in the world with 132 other competitors where they get to have a rebate on their taxes and then put a block up of 15 to 20 percent tariff against our goods and we don't get to do the same thing.

That's why we have a trade deficit with countries that have higher labor rates than the United States.

So we're short on good businessmen, and I would junk those bad trade deals, bring them back to the table. And I'd practice mirror trade. If a country wants to put a 15 percent tariff against the United States, they're going to see that reflected back at them. If they want to take it down to 1 percent, we'll take it down to 1. But there's not going to be a one-way street any longer.
Trade skeptics always complain about jobs lost in the US. The US unemployment rate is 4.7 percent. If we had these jobs back, who would do them? Which jobs would we get rid of -- so that people could return to the factories where Duncan Hunter wants them to work?

And if some country wants to impose a 15 percent tariff on imports from the US -- effectively denying their consumers the right to purchase US goods at market prices -- why should the US deprive our consumers in the same way? Put another way, is the American economy stronger if products imported from China cost 30 percent more than today? Which Americans are returned to high-paying jobs here in the US?

A last point on Hunter's contentions: Hunter blames both bad trade deals and China for the problematic trade deficit. The National Association of Manufacturers has done yeoman work on the value of Free Trade Agreements. They note that the US trade deficit in manufactured goods is consistently lowest among the nations with which we have Free Trade Agreements.
“Geographically, our free trade partners and the EU continued to show the largest reductions in the manufactured goods trade deficit,” said Frank Vargo, the NAM’s vice president of international economic affairs. “Free trade agreements are a proven key to reducing the trade deficit and Congress has four agreements awaiting approval. It’s time for lawmakers to unlock these market opening agreements.”

In 2007, the deficit with U.S. free trade partners is 10 percent smaller than a year ago, while the deficit with the EU is 14 percent smaller. Overall this year, the January to July U.S. deficit in manufactured goods stood at an annual rate of $489 billion, compared to $505 billion for the same period of 2006.
According to the NAM, the trade balance with FTA partners has improved by $10 billion in the last two years, while it has deteriorated by $82 billion with the rest of the world. Experience suggests that if balance of trade is your concern, then the trade deals that we have are working well.

Also check out CQ.

Some debate highlights here. Count me among those who would rather hear from Fred Thompson -- who understands the free market -- than from Chris Matthews:

Link: sevenload.com

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