Federal budget clashes represent one major front in the struggle to spur a sustainable American economic recovery — but only one. Also vital is getting U.S. trade policy right.
That’s why President Barack Obama must scrap his business-as-usual approach to this often overlooked issue, and push to strengthen pending trade deals with Colombia, Korea and Panama negotiated by his predecessor.
Indeed, trade policy can be an especially important U.S. recovery option. Unlike most alternatives, it can spur private sector growth and employment without worsening budget deficits or consumer indebtedness. But accomplishing these goals requires policies that improve the U.S. trade balance, which has been massively in deficit for decades.
Unfortunately, the Obama-Bush trade agenda is bound to worsen America’s trade balance, thus reducing growth and hiring on balance, and adding to still-dangerous levels of national debt. For the new agreements repeat in toto the blunders that have turned U.S. trade policy into an engine of deficit and debt creation, and therefore of output and job loss.
The Korea agreement continues America’s longstanding tradition of expanding commerce with economies structurally different enough to preclude mutually beneficial trade. Worse, like many predecessors, this deal proposes to eliminate troublesome foreign practices with expertly written clauses in treaty texts.
What Washington keeps ignoring is that economies like Korea’s — and the German and Japanese systems that have frustrated Americans for decades — are best seen as national systems of protection. Their fundamental purpose is maximizing national wealth by protecting home markets and by helping their companies penetrate foreign markets with all manner of subsidies.
Moreover, competitors like Korea feature political and legal systems dramatically different from America’s, too. In particular, they reject using Anglo-American-style rule of law, with its emphasis on black-letter, publicly accessible statutes and transparent, non-political rule-making and regulation.
Instead, their economies are based on informal relationships between national commercial interests and powerful, largely unaccountable bureaucrats. Policies are formulated and administered largely behind closed doors. And rules are published and enforced selectively at best, to keep outsiders flummoxed.
Paper agreements by these countries therefore can’t reasonably be seen as serious commitments to change — especially when their systems of protection have achieved such spectacular successes. No wonder the more America trades with these export-obsessed, import-phobic economies, the higher U.S. deficits rise.
The Colombia and Panama deals typify Washington’s other big trade policy mistake. Since the NAFTA negotiations of the early 1990s, America repeatedly has sought economic integration with countries too small, or too poor, or too indebted, or some combination of these characteristics, to possibly become big net importers.
At the same time, these countries have often become major exporters to America thanks to super-cheap but highly trainable workers, lax regulatory regimes, and governments willing to pay to attract business.
Through production and jobs outsourcing by U.S. and other multinational companies, Mexico, China and others like them have made impressive economic progress. Yet because domestic incomes have remained so meager, their production and exporting power and export orientation will long dwarf their consumption and importing power.
Agreements with these developing economies have enabled America’s Big Corporate sector to reduce its global cost base and boost profits — by guaranteeing access to the lucrative U.S. market from low-cost export platforms.
And the multinationals hope to turn Colombia and Panama into new outsourcing options. Yet for the American economy as a whole, trade expansion with emerging exporters has been another sure-fire formula for bigger U.S. deficits and their growth-retarding effects.
For two decades, the fake prosperity created by internet, stock market, credit and housing bubbles masked the economic costs of deficit-boosting trade strategies. But the bubbles’ bursting has exposed agreements like the Colombia, Korea and Panama deals as unaffordable, and turned a fundamentally new approach to trade into a national imperative.
• Tonelson is a research fellow with the U.S. Business and Industry Council and the author of “The Race to the Bottom.”