President Obama’s views on trade will prevent economic recovery during his second term.  He could have used the State of the Union Address to establish a national strategy to eliminate the U.S. trade deficit to create jobs and economic growth while increasing production of food and goods in the U.S.  But instead, he vowed to pursue more of the trade agreements that have hampered our ability to fix the trade deficit.

He said:

To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.

Take another look at this phrase, in which nothing is true:  ”To boost American exports, support American jobs, and level the playing field in the growing markets of Asia…”.

First, Obama and the Office of the U.S. Trade Representative don’t understand that “net exports” are the goal, not gross exports.  Germany and China get this.  Obama does not.  We have indeed increased exports, but imports grew more so ultimately we give up more domestic market share than we gain in foreign markets.  This is the source of our net job losses from trade.

The red area in this trade deficit chart shows the economic hole our government created by allowing trade deficits instead of pursuing balanced trade.

In 2011, our trade deficit subtracted 4% from overall GDP. This is the government estimate, from the Bureau of Economic Affairs.

 So, you can understand why I pull my hair when government officials say “boost exports.”

Second, Obama also said he wants to “support American jobs” through pursuing these trade agreements without a balanced trade strategy.  Odd phrasing.  They used to say “create jobs”, which was incorrect because net imports destroy jobs.  But “support”?  That allows the President and USTR to peg trade agreements to pre-existing jobs in companies that have at least a nominal amount of exports, or who sell to another company that has at least a nominal amount of exports.  So it is misleading (1) because the core issue is net job creation; and (2) the “support” terminology allows the false implication that those jobs would go away without the pieces of paper that say “trade agreement” on the front page.

Third, Obama wants to “level the playing field with Asia”.  If he really wanted to level the playing field, he would address currency manipulation now.  He would address foreign border adjustable taxes (value added taxes) that subsidize foreign exports and tax our shipments abroad.  He would neutralize state-controlled enterprises that are arms of foreign countries, massively subsidized to gain U.S. market share through predatory pricing.

If he wanted to “level the playing field with Asia”, Obama and the USTR would not bind our hands by negotiating agreements that reduced our ability to craft a balanced trade policy.

It is up to us in the trade reform movement to counter the President and the USTR on this front.  There simply wasn’t anything correct in what he said last night about trade.