Free Trade: A Call to Action

We focus on business and rarely tread into politics. However, given the current sentiment in Washington D.C. and global economic realities, we must speak out on international trade policy. I am terrified with the current anti-protectionist attitude among U.S. lawmakers and their openly hostile attitude to opening new international markets for the free movement of people, capital and goods. The “bash China” sentiment is de rigueur and particularly worrisome. Several candidates in this mid-term election are talking about their opponents who “exported jobs to China” and “shuttered factories in Michigan.” On the contrary, the U.S. is no longer producing goods that foreigners demand at competitive prices.
Let’s review the facts:

• U.S. total imports increased 2.1% in August to $200 billion; exports were flat, creating a record setting trade deficit of $46 billion, an 8.8% increase
• Imports from China increased 6.1% to $28 billion; our exports to China decreased to a paltry $7 billion (U.S. manufacturers have lobbied lawmakers to do something about China’s undervalued currency, which makes Chinese exports cheap, and the House delivered by passing legislation that would slap punitive tariffs on countries with “undervalued currencies.” Since when is a gaggle of mainly rural, non-economist Representatives experts on foreign currencies?).
• The U.S. trade deficit with Mexico hit an all-time high of $6 billion.
• Capital goods exports from the U.S. decreased $1.5 billion, which means we are not exporting airplanes, cars and tractors. At least U.S. food, beverage and agricultural exporters increased sales by $1.2 billion – they must be doing something right.

“Trade is going toward Asia” and away from the U.S., said Janet Leister, Managing Director of Washington State’s Department of Agriculture, Marketing Program. The trade flows are going to Asia from Europe as well as intra-Asia. Major trading nations are less dependent on the U.S. This is occurring in a declining US dollar environment, which is sinking to new lows against a basket of global currencies. The dollar is now at a 15-year low against the Japanese Yen, a 28-year low against the Australian dollar, as well as European currencies such as the UK pound, Euro and Swiss franc. While a declining US dollar may assist U.S. exporters, it reduces Americans’ standards of living, deters capital inflows and foreign investment, and results in higher U.S. consumer prices.
U.S. unemployment claims increased in early October (what happened to all those jobs promised by the massive $812 billion Stimulus Plan?). The reason for the lack of employment is that businesses are not hiring in this era of uncertainty. If U.S. exporters had a clear pro-trade message from Washington (that is, if the current Administration were to sign the free trade agreements now on Obama’s desk with Korea, Columbia and Panama, and cease the protectionist rhetoric), then they may consider hiring more employees.
What concerns me the most is that this anti-trade, protectionist sentiment is hurting rather than helping the U.S. China will not accept U.S. punitive tariffs without retaliation. Look what happened when the Japanese detained a Chinese trawler in Japanese waters – China cut off Japan’s supply of rare earth materials, which is used in many high-technology and military products. Such retaliation will hurt us, and the Chinese are using their economic clout increasingly vociferously. In The Economist magazine’s October 14, 2010 cover story, “Currency Wars,” they “argue strongly against unleashing a trade fight with the Beijing regime.”
We do not want to repeat the mistakes Japan has made over the last two decades. Since the early ‘90’s Japan has had enormous budget deficits and an easy money policy (sound familiar?). Yet for an entire generation Japan has been mired in a low growth environment with a downward spiral of prices, known as deflation. The U.S. now is also struggling with a debt and property bubble. The U.S. may be in for “Japanification,” in which consumer demand evaporates, asset values continue to decline, and a once proud and confident country loses its global status, relevance, and mojo.
Please vote tomorrow with facts and awareness – your children’s future prosperity depends on it.