Thursday, July 29, 2010

A Deficit of Economic and Strategic Thinking (UPDATED)

Yesterday, the US House of Representatives passed by voice vote legislation that would establish a commission (yes, another one) to study the US trade deficit.  Anyone who reads this blog regularly will understand just how much this legislation makes me want to set my hair on fire (answer: a whole frickin' lot).  But Cato's Sallie James does a great job summarizing my - and all free traders' - frustrations, so I'll just let her do the complaining (lots of good links in the original blog post, so be sure to check it out):
A bunch of lawmakers — led by Reps. Defazio (D, OR), Slaughter (D, NY), Kaptur (D, OH) and Massa (D, NY) — recently introduced a bill (H.R. 1875) to establish an “Emergency Commission To End the Trade Deficit.” The House passed the bill by voice vote this afternoon.

After drawing Congress’ attention to a whole lot of scary-sounding data about the trade deficit (my colleague Dan Griswold explains why that metric is misleading as an indicator of national wellbeing), the national debt (which I agree is a problem) and the supposed death of manufacturing, the bill calls for a $2 million (for now) Commission, the purpose of which is to:
develop a trade policy plan to eliminate the United States merchandise trade deficit by January 1, 2019, and to develop a competitive trade policy for the 21st century. The plan shall include strategies necessary to achieve a balance of trade that fully reflects the competitiveness and productivity of the United States and also improves the standard of living of United States citizens. [my emphasis]
It is as though the standard of living for Americans over the past few decades of trade deficits had been falling, rather than rising. As though a balance of trade was an end in itself.

A lot of the Commission’s work would be “merely” reporting on various aspects of our trade relationship with the rest of the world. But I do not for one second think that these lawmakers will be happy to take the Commission’s report and forget about it. They’ll want to torture that data until it confesses what they want, and then they’ll want to take action based on that confession. My hunch isn’t totally baseless, either. Plenty of clues lie in section 4(5), for example, which asks the Commission for suggestions for:
(A) the development of bilateral and multilateral trade relationships based on market access reciprocity; [i.e., managed trade]
(B) the retention and expansion of the manufacturing, agricultural, and technology sectors in the United States; [sounds like a call for protection]
(C) the discouragement of the expatriation of United States plants, jobs, and production to countries that have achieved competitive advantages by permitting lower wages or lower health, safety, and environmental standards, or by imposing requirements with respect to investment, performance, or other obligations; [ditto]
(D) methods by which the United States can effectively compete in a global economy while improving the labor, social, and environmental standards of its trading partners, particularly developing countries; [protectionism disguised in a humanitarian costume]
(E) methods by which the United States can respond to substantial shifts or manipulation of currency exchange rates that distort trade relationships; [highly risky -- and probably ineffectual -- unilateral sanctions on, reading between the lines, China]
(F) methods for overcoming and offsetting trade barriers that are either not subject to or otherwise inadequately addressed by the World Trade Organization or other multilateral arrangements; [unilateral sanctions outside the rule of international law that -- for better or worse -- the U.S. initiated, sponsored and adopted]
(G) specific strategies for achieving improved trade balances with those countries with which the United States has significant, persistent sectoral or bilateral trade deficits, including Canada, the People’s Republic of China, Mexico, and Japan; [see (A) above]
(H) methods for the United States to respond to the particular needs and circumstances of developing and developed countries in a manner that is mutually beneficial; [who knows what is lurking behind this statement] and
(I) changes that may be required to current trade agreements and organizations to allow the United States to pursue and nurture economic growth for its manufacturing, agriculture, and other production sectors in a manner that ensures improved compensation and quality of life for United States citizens. [sounds so pleasant and inoffensive, doesn't it? Make no mistake, though: There's a whole lotta infant industry protectionism lurking there. The use of the word "nurturing," for example, is a flashing red light] (all emphases and bracketed comments mine)
If this bill passes the Senate and is signed into law (a big if, admittedly), that is the final death knell for any pending trade agreements, since the bill also calls for a moratorium on free trade agreements until the Commission’s report is issued and hearings held.

The freedom of individuals to trade across borders has rarely been held in so much contempt.
Indeed.  Now, as a quick aside (and the only bright spot in this news), Reuters reports that the aforementioned trade agreement moratorium was dropped in the final version of the bill, so there's a little silver lining.  But the rest of the bill, sadly, remains intact.  Fortunately, the chances of the Senate passing this nonsense are hovering right between slim and none because, unlike the the lower chamber, only one-third of the Senate is up for re-election in November.  (Yes, I'm cynical, but I'm also right.)

Nevertheless, that this horrid piece of nonsensical legislation passed by voice vote (i.e., without any debate or controversy) in the House is a pretty clear sign of where the political debate over free trade in general, and the trade deficit in particular, stands right now.  In short: it's in the crapper.  And because the facts on the trade deficit overwhelmingly support free traders, this sad reality begs the obvious question: how on earth can legislation this stupid pass the House so easily?

Well, beyond the fact that it's an election year and stupid things happen in an election year, the (other) obvious answer is (as I've said repeatedly): poll after poll demonstrates that a slim majority of the American people don't support truly free trade and don't know the basic facts about the trade deficit, and until this changes, you're always going to find a few hundred less-than-principled House members (from both parties) who will vote "aye" on whatever piece of anti-trade garbage put in front of them.  Thus, if free traders are ever to win this debate, the job of those few principled politicians is to get out there and spread the gospel - to attack the protectionist, mercantilist myths spewed by the bad guys and to demonstrate why they're wrong and why they're misleading the American public.

And it's on this latter point where things really get depressing.  You see, in response to the House vote, two of the "good guys" - Reps. Dave Camp (R-MI) and Kevin Brady (R-TX) - released the following statements (emphasis mine):
CAMP: “I will support this legislation today because it is an attempt to help U.S. manufacturers. But let’s be clear – another commission, especially one that is wrongly premised on the notion that we should apologize for or even avoid trade – is hardly what private sector job creators need…We have years of real world results to understand that the best way to increase American exports and reduce the trade deficit is to open more foreign markets. The United States has trade agreements with 17 countries, and in 2009 we had a trade surplus in manufactured products of over $26 billion with these countries. So far in 2010, we have a trade surplus in manufactured products of $9.4 billion with these countries. The three pending trade agreements would continue this success. According to the independent, non-partisan U.S. International Trade Commission, these three agreements could increase U.S. exports by at least $13 billion. This substantial increase in U.S. exports is possible because these agreements level the playing field for American workers.

BRADY: “It’s important to tackle America’s trade deficit the right way, and everyone understands another government commission is no substitute for new customers for American workers, farmers and manufacturers”, said Congressman Brady. “The best way to shrink the trade deficit while strengthening America’s economy is to reduce America’s dependence on foreign oil and open the world to more U.S. products and services. If they are serious, Democrats and the White House can start by taking up and passing the pending trade agreements with South Korea, Panama and Colombia.”
I hate to disparage two elected officials with a good history of resisting US protectionism, but as the bolded passages make clear, Reps. Camp and Brady are advocating mercantilism, not free trade.  In the process, they expressly accept the (wrong) premise that the trade deficit is a horrible problem to be solved and a harbinger of American economic demise.  And, as I've noted repeatedly, when pro-trade folks rely on mercantilist arguments (instead of ones that embrace exports and imports) to refute anti-trade positions or defend US FTAs, they will always - always - lose the debate because the protectionists will immediately point to the current trade deficit as concrete evidence that, by the pro-traders own metric, the United  States is "losing" at trade and thus drastic protectionism is warranted.  This is exactly the trap into which Camp and Brady mindlessly fall, and I wouldn't be surprised at all if some trite protectionist immediately fired off a statement refuting the Congressmen's well-intentioned (I assume) press release with a few simple stats about the expanding US trade deficit under "NAFTA-style" trade agreements that are very similar to the pending FTAs that Camp and Brady advocate.  Blech.

And, look, I know that Camp and Brady too are facing re-election in November, and those aforementioned polls on trade probably weigh heavily on their (or their congressional staff's) thoughts about taking this issue head-on.  But, seriously, folks, if you're going to respond like this, just don't say anything at all because this stuff is not helping the cause.  At all.

As recent history has repeatedly taught us, until the "good guys" decide to adopt a smart political strategy that embraces economic reality and calls out the opposition for the smarmy, incorrect politicians that they are, public opinion on trade will never change.  It'll continue to stink, and we'll thus continue to see stupid anti-trade legislation breeze through the House every two years.

I'd say it's time for a new approach, wouldn't you?

UPDATE: Ms. James has found a few more changes in the bill (including the title), and has therefore posted a follow-up blog entry here.  In short: the deck chairs have been rearranged, but the ship's still aiming for the iceberg.

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