The following article by Jackie Calmes appeared in The New York Times here.

WASHINGTON — The White House announced on Tuesday that Panama had satisfied a final condition for a free-trade pact with the United States, smoothing the way for President Obama to seek Congressional approval for three trade agreements inherited from the Bush administration and now central to his own job-creation agenda.

“We view this agreement as creating a more level playing field for U.S. exporters and also for U.S. investors,” Miriam Sapiro, the deputy United States trade representative, said in a conference call with reporters.

Michael Froman, Mr. Obama’s deputy national security adviser for international economics, said the White House had begun discussions with Congressional leaders to schedule action soon on the agreement with Panama and those with Colombia and South Korea. While Republicans were receptive and business groups applauded the development, Mr. Obama faces opposition from his Democratic Party and its union allies.

The last hurdle for the Panama deal was cleared on Monday when the two countries agreed to exchange tax information; the United States has complained in the past that Panama was a haven for income-tax evasion.

The end to the Panama negotiations followed the administration’s tentative agreement earlier this month with Colombia, after that country made concessions on labor rights and protections, and its deal late last year with South Korea after it made concessions on trade in beef and autos.

Republican leaders had said the Obama administration needed to propose legislation adopting all three trade agreements before they would consider any of them. Senate Republicans are also blocking confirmation of nominees for commerce secretary or trade-related posts until then.

Representative Dave Camp, a Republican of Michigan who is chairman of the House Ways and Means Committee, which handles trade legislation, said in a statement that the Obama administration should send Congress the paperwork for legislation on the trade agreements in time for action by July 1.

“U.S. job creators and workers are every day put at a disadvantage to foreign competitors from countries that have already concluded trade agreements without us,” Mr. Camp said. “The more we delay, the more we lose.”

As on most trade legislation, the Republicans enjoy maximum leverage because Mr. Obama will not be able to rely on Democrats’ support in Congress. This week the head of the A.F.L.-C.I.O., Richard Trumka, warned that the union would include the three trade votes on its influential “scorecard” of members of Congress, subtracting points for free-trade votes.

Mr. Obama, as a candidate for president, opposed all three Bush-era trade accords and Congress, then controlled by Democrats, refused to approve them. Since then, however, his administration has negotiated side agreements with all three countries to satisfy Mr. Obama’s criticisms, especially on labor rights. He also has made the trade pacts a priority as he seeks to improve relations with business and to reach his goal of doubling exports by 2014 to create jobs in export industries like agriculture, manufacturing and financial services.

But the Colombia deal holds a final wrinkle for pushing ahead on the three trade agreements, administration officials acknowledged. Colombia agreed to an “action plan” for protecting labor unionists from the violence and abuse many have suffered. The action plan sets a timetable for compliance, though Mr. Froman said the administration would not insist that Colombia reach every goal before it sends legislation to Congress.

According to the White House, the deal with Panama, whose economy is one of the fastest growing in Latin America, will eliminate many tariffs on American agricultural, consumer and industrial goods at a time when trade rivals like Canada and the European Union nations are making inroads in the region.

It also would open opportunities for heavy equipment manufacturers on $15 billion in Panamanian infrastructure projects, including an expansion of the Panama Canal. A representative of Caterpillar joined the White House call with reporters, taking the chance to thank the administration officials and tell them the news was “playing well in Peoria” — where Caterpillar is based.

FOR IMMEDIATE RELEASE
CONTACT: JOE MEGYESY
February 24, 2010
(202) 744-0288

Coffman Demands Changes in China’s Trade Policy
Calls Restrictions on Rare Earth Exports Unfair

(WASHINGTON) — Today U.S. Rep. Mike Coffman (R-CO) publicly released a draft letter demanding U.S. Trade Ambassador Ron Kirk file a complaint with the World Trade Organization against China over unfair trade practices regarding export restrictions on rare earth oxides and metals.  The draft letter was sent to every member of Congress soliciting their support for a U.S. led WTO complaint against China.

“Rare earths are the key to technological innovation and the growth of green energy jobs.  They are also critical to U.S. national security.  Currently, the world is nearly 100 percent reliant on Chinese exports for these vital materials.  But China has been reducing its export quotas every year since 2006, and has announced a further 11 percent reduction for 2011,” Coffman wrote in his letter.

Coffman drafted his letter after reading a news report on a recent WTO preliminary ruling which concludes, according to an article printed in the Wall Street Journal on February 18, that it is illegal for China to impose trade restrictions on various raw materials. The WTO report was a response to a complaint filed in 2009 by the U.S., Mexico, and the European Union against China’s export restrictions on raw materials vital for making steel and aluminum. In his letter, Coffman stated the WTO should take the same action against China regarding its trade policy on the 17 minerals known as rare earth elements.

“A disruption in supply could jeopardize national security, hinder our long term efforts to achieve domestic energy security, and damage our world-leading high tech industries.  While our nation must act to correct our domestic rare earth supply chain problem, we must also recognize that the lack of a level playing field for trade policy is harmful,” Coffman stated in his letter.

See below to read the text or click here for a PDF.

February XX, 2011

Office of the United States Trade Representative
600 17th Street NW
Washington, DC 20508

In light of the preliminary report by the World Trade Organization (WTO) concluding that China does not have a legal right to impose export restrictions on various raw materials, we are asking that you move forward on the separate, but clearly related, situation regarding Chinese exports of rare earth oxides and minerals.

Rare earths are the key to technological innovation and the growth of green energy jobs. They are also critical to U.S. national security.  Currently, the world is nearly 100% reliant on Chinese exports for these vital materials. However, China has been reducing its export quotas every year since 2006, and has announced a further 11 percent reduction for 2011. This reduction of exports by Chinese officials is intended to feed their growing domestic market – a market in many cases instituted to exploit this very same supply restriction, and then consciously maintained by it.  Wide-spread reports indicate China is using the restrictions of exports as leverage to force high-tech companies to relocate to China.  Even more brazenly, last September and October China engaged in a de facto embargo against Japan and, apparently, U.S. importers in an attempt to seek retribution for other matters.

These export quota and embargoes are contrary to China’s membership obligations in the WTO. The preliminary report on the 2009 complaint filed by the United States, Mexico, and the European Union indicates that the reasoning behind Chinese trade policy is as unacceptable to the WTO as it is to us.

A disruption in supply of rare earths could jeopardize national security, hinder our long term efforts to achieve domestic energy security, and damage our world-leading high tech industries.  While our nation must act to correct our domestic rare earth supply chain problem, we must also recognize that the lack of a level playing field for trade policy is harmful. Accordingly, it is in our best interest to vigorously pursue our options before the World Trade Organization related to Chinese rare earth trade policy.

We look forward to hearing from you on this, and stand ready to assist you in any way.

Sincerely,

Mike Coffman
Member of Congress

The following article was written by Ian Fletcher, Research Fellow at the U.S. Business and Industry Council and author of  “Free Trade Doesn’t Work: What Should Replace It and Why”. It appeared in the Huffington Post here.

I noted in a previous post how the level of America’s industrial output cannot possibly be healthy if it causes us to run a trade deficit with other nations. So yes, we really do have a sickly manufacturing sector on our hands.

This has provoked a flurry of complaints about how trade deficits don’t really matter.

This is a familiar line, especially from libertarian economists like Dan Griswold of the Cato Institute, who referred to the trade deficit as an “accounting abstraction” in his recent book defending free trade.

For a start, this is a silly way to characterize anything with a dollar sign in front of it, simply because all numbers in economics are, in some sense, accounting abstractions. Numbers are an abstract measure of things in the real world, including wealth, and the trade deficit is no different. By that standard, being a millionaire is an “accounting abstraction.” So is being insolvent. A number on a ledger is not a loaf of bread, a car, or a bar of gold.

More fundamentally, the idea that the deficit is just an abstraction is identical to the seductive idea that trade deficits somehow don’t represent real money. We measure the deficit in dollars, but somehow these aren’t “real” dollars, not dollars that anyone ever had to earn, or pay back, or could spend. They’re a kind of magic money, as unreal as the values of bubble-inflated securities before the financial crash. They’re postmodern, unreal, virtual, free.

So let’s get back to first principles and carefully review why America’s trade deficit represents real money and is therefore a real problem.

To understand trade deficits, just think through the logic below, step-by-step:

Step 1) Nations engage in trade. So Americans sell people in other nations goods and buy goods in return. (“Goods” in this context means not just physical objects but also services.)

Step 2) One cannot get goods for free. So when Americans buy goods from foreigners, we have to give them something in return.

Step 3) There are only three things we can give in return.

3a) Goods we produce today.
3b) Goods we produced yesterday.
3c) Goods we will produce tomorrow.

This list is exhaustive. If a fourth alternative exists, then we must be trading with Santa Claus, because we are getting goods for nothing. Here’s what 3a) -3c) above mean concretely:

3a) is when we sell foreigners jet airplanes.
3b) is when we sell foreigners American office buildings.
3c) is when we go into debt to foreigners.

3b) and 3c) happen when America runs a trade deficit. Because we are not covering the value of our imports with 3a) the value of our exports, we must make up the difference by either 3b) selling assets or 3c) assuming debt.

If either is happening, America is either gradually being sold off to foreigners or gradually sinking into debt to them. Xenophobia is not necessary for this to be a bad thing, only bookkeeping: Americans are poorer simply because we own less and owe more. Our net worth is lower.

This situation is also unsustainable. We have only so many existing assets we can sell off, and we can afford to service only so much debt. By contrast, we can produce goods indefinitely. So deficit trade, if it goes on year after year, must eventually be curtailed — which will mean reducing our consumption.

Even worse, deficit trade also destroys jobs right now. In 3a), when we export jets, this means we must employ people to produce them, and we can afford to because selling the jets brings in money to pay their salaries. But in 3b), those office buildings have already been built (possibly decades ago), so no jobs today are created by selling them. And in 3c), no jobs are created today because the goods are promised for the future. While jobs will be created then to produce these goods, the wages of these future jobs will be paid by us, not by foreigners. Because the foreigners already gave us their goods, back when we bought from them on credit, they won’t owe us anything later. So we will be required, in effect, to work without being paid.

The above facts are all precisely what we should expect, simply on the basis of common sense, as there is no something-for-nothing in this world. And that is what the idea that trade deficits don’t matter ultimately amounts to. There do exist, however, ways of shifting consumption forwards and backwards in time, which can certainly create the illusion of something for nothing for a while. This illusion is dangerous precisely because the complexities of modern finance, and the profitability of playing along with the illusion while it lasts, both tend to disguise the reality.

Most of these complexities amount to ways of claiming that the wonders of modern finance enable us either to borrow or sell assets indefinitely. But as long as one bears the above reasoning firmly in mind, it should be obvious why none of these schemes can possibly work, even without unraveling their details. These financial fairy tales usually boil down to the fact that a financial bubble, by inflating asset prices seemingly without limit, can for a period of time make it seem as if a nation has an infinite supply of assets appearing magically out of thin air. (Or a finite supply of assets whose value keeps going up and up.) These assets can then be sold to foreigners. And because debt can be secured against these assets, debt works the same way.

But, of course, as America learned in the recent financial crisis, you can’t cheat reality forever. There is no free lunch (one of the few points on which I agree with Milton Friedman), and yes, trade deficits are real money. And I’m happy to bet 1,000 units of accounting abstraction with anyone who believes otherwise.

The following article appeared in Policy Pennings by Daryll E. Ray and Harwood D. Schaffer. Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). Harwood D. Schaffer is a Research Assistant Professor at APAC.

As we write this column, March 2011 corn futures closed at $6.87/bu., wheat at $8.53.bu., soybeans at $14.33/bu., rice at $15.80/cwt., and cotton at $1.67/lb. Compared to February 2006 those prices are stratospheric. What we are seeing is a second wave of a general price increase for commodities that began in late 2006 and saw its first peak in 2008 followed by a retrenchment.

In this column, as elsewhere, parallels have been drawn to the situation in the early 1970s when prices began to rise as the result the Soviet Union entering the international grain market after a crop failure. The subsequent increase in prices produced a wave of optimism in the farm community.

The positive outlook was bolstered when the US Secretary of Agriculture told farmers to plant fencerow to fencerow. In 1974, the World Food Conference was held in Rome at a time when over 800 million people around the world were undernourished. The conference delegates established a goal of eliminating hunger within a decade. Farmers were being told that demand for food would exceed production for the next quarter century so the statement by the Secretary seemed reasonable. It appeared that farm prices had reached a new plateau.

Unfortunately for farmers, commodity prices weren’t the only things that went up. Input prices went up as well—fuel, fertilizer, and farm equipment. When farm prices began to retreat, they were quickly at levels below the cost of production, farmers were desperate; and the late 70s spawned the American Agriculture Movement, farmers marching down Pennsylvania Avenue in 1978, and a massive tractorcade in February 1979.

An agricultural price peak, both in the 70s and 2006-2011 is not the only parallel that can be drawn between the two periods. As soon as agricultural commodity prices began to remain high into 2008, we began to hear that prices had established a new plateau, similar to what we saw in the 1970s.

Another parallel is the expectation that demand will exceed supply for the foreseeable future. First, this expectation was tied to ethanol and the production of biofuels. Then, the expectation of the increasing need for US grain exports to produce the meat that is being demanded by a growing middle class in developing countries began to be circulated once again—well that is an expectation that refuses to die, it just keeps getting moved into the future. Yet, the US is expected to export only about 2 billion bushels of corn this crop year, which is well below the 2.4 billion bushels exported in 2007 and in 1989—yes 1989.

And concern is being expressed over whether or not agricultural production can grow quickly enough to feed the 3 billion increase in population that is projected to occur by 2050.

Those talking about a new price plateau use increased production costs, increased middle class demand from developing countries, and the projected population increase as factors that will support continued higher crop and livestock price levels. The parallels to the 1970s are indeed striking, a time when production costs were increasing and the expectation was that demand would outstrip production for the foreseeable future.

As we saw in the 1998-2001 period, the connection between production costs and price are tenuous at best.

Also, “we” tend to focus on future demand growth considerations but also tend to, unconsciously perhaps, give much less consideration to supply growth potential. Since the 1970s, corn yields in the US have increased by 60 percent and until farmers spurred the development of the ethanol industry, production outstripped demand.

We know that there are now over 300 million additional acres in Brazil that can be brought into production. That is more area than the US devotes to major crop production. Seven-dollar corn, $14 soybeans, and buck-and-a-half cotton will draw some of these acres, and acres in other countries, into production in the near future. Both China and Brazil are ramping up investments in yield-advancing research and production practices.

In the 1970s, neither production costs nor demand growth were enough to sustain prices. It is this final possible parallel that scares us. Farmers have no direct means and in the short-run, limited indirect ability, to pass production costs on to purchasers of grains and other crop commodities. Crop agriculture will not see a 4 billion bushel growth in the use of corn for ethanol production like in the preceding half-decade. That leaves exports. But over the last three decades grain export expectations has been a pot of gold at the end of an ever-distant rainbow. Maybe this time.

To us it is clear that the odds are not in crop-agriculture’s favor. While in the 1970s Congress increased the price floors under major crops when prices fell below ballooning production costs, provisions in recent farm programs are not designed to do that. There is nothing to stop a freefall of crop prices. Today’s version of the price declines that drew the tractorcade in the late 1970s could easily occur again.

So what would happen this time if prices tumble to well below the cost of production? Congress can do nothing and thereby watch land prices drop by one-half  and potentially bankrupt even some of the most efficient crop producers or it could subsidize grain users and bankrupt farmers in other countries by providing emergency payments to US crop farmers to help offset their low prices.

Not a very appealing choice. And it is not a choice that other industries face since firms in other industries can and do adjust output to demand conditions. The hundreds of thousands of US crop farmers do not have that luxury.

The following is the transcript of an interview by Steve Inskeep of NPR with Andrew Liveris, CEO of Dow Chemical and author of the book “Make It in America.” He’s among the CEOs who met last week with the visiting president of China. You can find it online here.

Manufacturing Is Vital Component To U.S. Economy
Published: January 25, 2011
TRANSCRIPT:

STEVE INSKEEP, host:

The website Real Clear Politics shows movement in opinion polls. For the first time in months, President Obama’s approval rating is above 50 percent. That comes just in time for tonight’s State of the Union speech. The lawmakers he plans to address have higher ratings, too - though still very low, at 24 percent. And many people in the room tonight will know they need to create jobs in order to keep their own. Over the weekend, the president previewed his speech.

President BARACK OBAMA: My number one focus is going to be making sure that we are competitive, that we are growing and we are creating jobs, not just now but well into the future. And that’s what is going to be the main topic of the State of the Union.

INSKEEP: That subject is also on the mind of a leading executive, Andrew Liveris, CEO of Dow Chemical and author of the book “Make It in America.” He’s among the CEOs who met last week with the visiting president of China.

When it comes to manufacturing, what is China getting right that the United States is not?

Mr. ANDREW LIVERIS (CEO, Dow Chemical): Well, you know, what the Chinese do -and not just the Chinese; other countries that I reference in the book, such as Germany - is they have a holistic approach to manufacturing. It’s a strategy. Basically, they say manufacturing is a very vital part of my economy. It employs my people; it pays them great wages. So they have a country strategy. They approach it as a country.

Now, those of us who are free marketeers would say, well, gee, you know, that’s government interference. Well, I don’t see that as government interference. I see that as the public sector establishing the rules of the road such that the private sector knows what those rules are and therefore, we can compete.

INSKEEP: Well, what do you think about the idea that the United States can still be the place where ideas are produced, where corporate headquarters are located, and even if an American company outsources some of their manufacturing or a lot of their manufacturing, there are still a lot of jobs being created in the United States by that economic activity?

Mr. LIVERIS: Well, you know, at the end of the day, I think we have proof points that say that if you put all your eggs in one basket, and if you’re just the idea owner, that you will eventually not generate the ideas that matter in terms of valuating your community, in terms of having the higher-paid jobs.

INSKEEP: What’s an example of that?

Mr. LIVERIS: Well, if you outsource electronics to countries that have initially cheap labor then obviously, they’ll start making those devices. But then on top of that, they’ll learn how to make the next one - better. And then they’ll build the universities around that industry that actually generate the human capital. Then ultimately, what happens is the companies who’ve maybe initially outsourced start to build facilities there, and they start to build R&D centers alongside and ultimately, you’ll outsource the creativity.

INSKEEP: When a lot of Americans think about manufacturing and manufacturing jobs overseas, it seems like a very simple question of cheaper labor. There are people overseas who will work for $3 a day - maybe even a dollar a day, in some cases -and work for wages that Americans would never dream of matching. It’d be a disaster if Americans matched those wages. And is it more complicated than that?

Mr. LIVERIS: Way more complicated. I mean, outsourcing based on wages has really become the storyline of manufacturing, and I think that’s wrong. It is more complicated than that. Take Dow as an example. We built this R&D center in China. We now have 500 Chinese scientists working there, and they earn incredibly good money.

Industries that are high-technology - clean energy, solar, photovoltaics - that conversation, and why that is all moving overseas, is not about labor costs.

INSKEEP: Well, now, that’s interesting because here you are, you’re the CEO of a multinational corporation, you’re a big supporter of American manufacturing -you’ve just written a book about boosting American manufacturing - but you mentioned that Dow Chemical has opened an R&D center in China. How do you, as a CEO, decide which of your operations to keep in the United States, and which to move abroad?

Mr. LIVERIS: Basically, the rules of the road per country. In essence, do I have in country X, do I understand their tax policies? Do I understand their energy policies? What are they doing to me in terms of regulatory policy? We look at all items on the cost line, all items on the incentive line, and make decisions on that basis.

INSKEEP: OK. What are some lines there where the United States apparently doesn’t do very well, since you have moved some operations overseas?

Mr. LIVERIS: Well, I not only have high taxes, I have uncertain taxes. Right now, I have more regulations coming at me that are not fact-based, not science-based, not data-based. I actually don’t even know what my costs are going to be in the next five years. And so I’m sitting back waiting for regulatory reform, and the government, of course, is now engaged on that - health care and the uncertainty around the health-care bill, and what’s going to end up happening there. Energy policy - we’ve got lots of uncertainty in the energy policy regimen. I mean, I can keep going, but that’s half a dozen.

INSKEEP: Well, you keep using the word uncertainty. It sounds like you almost don’t care what the rules are as long as you know what they are and what they’re going to be five years from now.

Mr. LIVERIS: The choice - bad policy versus uncertain policy - is a tough choice. I don’t think we have to go there.

INSKEEP: Is there some way in which, actually, you want an activist government, then?

Mr. LIVERIS: Yeah, activist in the sense that they are proactive, yes. I think we have a crisis in this country around manufacturing. I believe we need to have an activist - to use your word - government that engages proactively with business to create that framework, a public-private partnership. If there’s anything in the book that, you know, hasn’t been stated before, it’s that.

You need the private sector to have an input; you need the public sector to have an input; and it needs to be brought together at a national level.

INSKEEP: Is there a little bit of a contradiction here? Because you’re saying that your taxes are too high; you’d like corporate taxes to be lower. But at the same time, you want a government that is being more proactive, as you say, to provide better education, to provide better services, to upgrade society, to provide tax credits where necessary.

Mr. LIVERIS: Well, you know, this is where the collision occurs, which is: Do you have to spend more to invest more? I don’t think so. I think it’s not a zero sum game. I think, you know, you bring in certainty around tax regimens, like make the R&D tax credit permanent. I could start spending more on R&D dollars here, which therefore creates more tax revenues for the government, that allows them to go spend it on the items that we just talked about, such as education.

It’s a virtuous circle, and I think that virtuous circle needs to be completed.

INSKEEP: Interesting dilemma here, though - was raised in the Financial Times in a quote from one of your fellow CEOs, the CEO of the company that makes Massey Ferguson products. He basically says one thing that everyone seems to be missing here is that if an American company wants to expand its sales abroad -in Brazil, say - they’re likely to build a factory in Brazil. They’re going to put it close to the market for any number of economic and political reasons. It’s not going to increase U.S. exports, necessarily.

Mr. LIVERIS: Well, our experience at Dow - you know, we’re - we manufacture in 37 countries; we sell in 150 - is that you can actually have the synergy of building a market by exporting from the United States. But here’s the thing: The United States is still the largest economy in the world. The United States still has scale. The United States still has a powerful university system. So really, what I’ve got is, I’m putting satellite spokes around the world from my central hub. Over time, we stand the risk that the hub will move. The larger hub, potentially, will become China.

We can’t lose this country having a manufacturing-based hub. Sure, we’ll build factories around the world, but the hub needs to stay here.

INSKEEP: You’re saying we at least still need to be making a lot of things here, and making things - at least for the domestic market - at a greater rate than we do.

Mr. LIVERIS: And increasing the exports from it as a result. And then you get to the next idea and the next idea, and you keep making it here - and the next idea. And it continues a cascade where the United States continues to show the world why the last 50, 70 years was not a fluke.

INSKEEP: Andrew Liveris is the author of “Make It in America,” and he’s the CEO of Dow. Thanks very much.

Mr. LIVERIS: Steve, thank you. Pleasure talking to you.

The following article by Robert E. Scott appeared online here at the Economic Policy Institute’s website.

President Obama talked about doubling exports in the State of the Union Address last night as a strategy to create jobs. It’s a great sound bite, but woefully incomplete economics. While exports support American jobs, imports displace them; when imports grow faster than exports, our trade deficit expands and American jobs are lost. Between 2001 and 2007 (both business cycle peaks), we lost 3.4 million U.S. manufacturing jobs, and the fact that the trade deficit as a share of GDP rose by roughly one-third is a key reason why. Lately, when the president has talked about jobs and trade, he mentions the jobs associated with exports but ignores those lost due to growing imports. It’s like watching baseball, but only counting runs scored by the home team—lots of fun, but it won’t tell you anything about who is ahead.

Last week, President Obama talked a lot about expanding exports to China. But he rarely mentioned imports or the trade deficit. We heard a lot about unfair trade and job losses during Obama’s primary campaign, but those words disappeared from his speeches after the election. One reason may be that President Obama has surrounded himself with advisors from multinational companies, who have more to gain from outsourcing than from domestic job creation. For example, just this week, the president appointed GE Chief Executive Officer Jeffrey Immelt to head his new Council on Jobs and Competitiveness.

Our exports to China did increase rapidly last year—by about $23 billion—and this did support job creation. But imports increased about three times as fast—by $71 billion—which cost the United States many more jobs than exports supported. On balance, the growth in our trade deficit with China cost the United States at least a half million jobs in 2010. We have huge trade deficits with China because of massive currency manipulation and many other unfair trade practices. Currency manipulation acts like a subsidy on all of China’s exports to the United States, and in essence puts a tax on U.S. exports to China and every country in the world where we compete with China. The United States could recover at least a million jobs by forcing China to revalue its currency now.

We will have a record trade deficit of nearly $275 billion with China in 2010. President Obama failed to acknowledge in his State of the Union address that trade with China cost us a half million jobs in 2010; the U.S. China trade deficit is growing rapidly and job displacement will worsen in the future unless something is done to end China’s currency manipulation and other unfair trade policies.

The Obama administration’s trade policies are failing because corporate executives are designing them. Many key staff members have close ties to multinational corporations and Wall Street, such as new White House Chief of Staff Bill Daley (former executive of JPMorgan Chase), former Treasury official Gene Sperling, recently appointed head of the National Economic Council in the White House (formerly worked for Goldman Sachs); and recently departed National Economic Council director Lawrence Summers, who received $5.2 million from a Wall Street hedge fund between stints in the Clinton and Obama administrations. Summers, Sperling, and Treasury Secretary Timothy Geithner (also from Wall Street) played key roles in opposing efforts within the Obama administration to impose tariffs on Chinese goods if the Chinese government continued to manipulate their currency.

Multinational corporations are responsible for outsourcing millions of U.S. jobs. What’s good for their corporate profits (and executive pay) often conflicts with the national interest of the United States to maximize job creation and production in this country.

China’s policies don’t only benefit China; U.S.-based multinational companies sometimes profit enormously from China’s unfair trade and industrial policies and currency manipulation. China spent $199 billion last quarter alone buying foreign currency reserves (primarily treasury bills) in order to keep its currency artificially low. They now hold $2.85 trillion in foreign currency reserves. The best estimates suggest that the Chinese yuan (RMB) is at least 30-40% undervalued. That amounts to a subsidy of 30-40% on all the goods imported from China by GE and other multinational companies. These companies would lose billions in profits if China revalued the RMB and made these goods more expensive, so they are actively opposing efforts to compel China to revalue.

Multinational corporations don’t need government assistance—they are sitting on $2 trillion in cash that they are investing in financial securities, rather than real capital that would create new jobs. They have all the cash they need to invest in R&D and to expand their factories. They can also afford to file trade cases to protect their fair trade and patent rights, which can cost millions of dollars for a single case. Instead, however, while they hoard their cash at home, they are investing abroad.

China is giving hundreds of billions in subsidies to multinational corporations to move factories from the United States and other countries and locate them in China. For example, Evergreen Solar announced last week that it will close its solar cell factory in Massachusetts, which opened in 2008 with $43 million in state subsidies. Chinese banks offered Evergreen financing for two-thirds of the cost of its new plant at rates “as low as 4.8%” with no principal payments or interest payments due until the end of the loan in 2015. Even cheap labor is beside the point. United States clean energy loan guarantees can’t compete with the Chinese loan subsidies.

This is another reason why multinational companies will oppose (overtly or covertly) efforts to enforce fair trade laws by the Obama administration. Americans who work for a living should be outraged that the president has appointed an executive of a firm that has offshored tens of thousands of jobs to serve as one of his key advisors.

GE’s Immelt, the president’s newest CEO advisor, says that he wants to create jobs in the United States. But as Scott Paul of the Alliance for American Manufacturing showed last week, Immelt and GE have been leading the charge of the outsourcers. He notes that GE has “slashed their American workforce to fewer than 150,000, [and] dramatically expanded its global presence, now employing over 300,000 workers worldwide.”

The president visited Immelt at a GE plant in Schenectady, New York, last week where they celebrated $45 billion in new trade deals with China, like the joint venture GE just signed with China AVIC, an avionics firm that supplies components to both civilian and military jet makers in China. GE claims that the deal will create jobs in the United States, but they are giving away the keys to their kingdom by transferring key avionics technology to China AVIC. GE put $200 million and its technology in the deal, and the Chinese partner is putting up $700 million. GE is effectively selling its treasure for beads and trinkets.

This is supposed to be a 50-year deal, but the way these deals usually work, the Chinese partner will appropriate GE’s technology and then kick them out in a few years. It is conceivable that within 10 years China AVIC will be a global leader in avionics, and GE will be out of the business. China’s indigenous innovation policies force foreign companies who want to do business in China to transfer technology to Chinese firms, according to the National Association of Manufacturers. The deal may boost short-term profits and Jeffrey Immelt’s bonuses, but thousands of American jobs will disappear. Who in our government is representing those workers?

The deal will supposedly be limited strictly to domestic avionics, but some fear it will give their military aircraft access to cutting edge U.S. technology. Two weeks ago, when Defense Secretary Gates visited China, their military conducted the first test flight of a new stealth fighter. China is clearly trying hard to catch up fast.

Small- and medium-sized manufacturers create most of the jobs in the United States—not the giant corporations. Unlike the big companies, small- and medium-sized firms cannot get access to enough capital to finance working capital or expansion needs. President Obama should have appointed someone like Laurie S. Moncrieff, President of, Adaptive Manufacturing Services and Schmald Tool & Die, Inc., a dynamic business leader who speaks for small- and medium-sized firms. (Moncrieff appeared at an EPI currency forum last March.) She would make an outstanding Chair for the new White House Council on Jobs and Competitiveness.

In his State of the Union Address, the president proposed new investments in infrastructure and measures designed to boost competitiveness. We do need to invest hundreds of billions of public and private dollars each year for the next few years to rebuild our aging infrastructure and lay the foundations for new clean energy industries and for conservation. And those investments can support millions of new jobs. But their effectiveness will just be blunted if we shy away from fixing our trade problems with China and other countries that use unfair trade policies to take away jobs and production from U.S. workers and domestic companies.

Without effective trade policies, too much of the boost to U.S. jobs that can be gained from our rebuilt highways and railroads will leak away in the form of rising imports.

When the President talks about trade, he needs to address both imports and exports. He needs to tell us how he plans to end currency manipulation this year, and his plans for ending unfair trade. Eliminating the U.S. non-oil trade deficit would support over five million U.S. jobs, generate hundreds of billions of dollars in new tax revenues, and reduce spending on unemployment and other social services over the next few years. It’s time to end illegal currency manipulation and unfair trade practices, and to do that the president needs a new crop of advisors who care more about American job creation than outsourcing and multinational corporate profits.

Fair Currency Coalition FACT OF THE WEEK, December 8, 2010

Loophole in Korean FTA Underscores Urgent Need for Currency Legislation

The Obama administration has finally reached agreement with the Korean government on revisions to the U.S.-Korean Free Trade Agreement (KORUS).  Some will welcome this for foreign policy reasons.  Some, particularly in the auto industry, will celebrate improved – but still drastically limited – access to the Korean market.  Others, including Senate Finance Committee Chairman Max Baucus, are reportedly “furious” that the deal fails to deliver for American cattlemen.

Whatever the merits, the KORUS agreement falls well short of genuine “free trade,” and not just because the cattlemen got hornswoggled.  More fundamentally, even the best of our “free trade” agreements are seriously flawed because none of them closes a huge loophole:  currency misalignment.

In the case of Korea, tariffs on imports of American manufactured goods average 6.6 percent (more than double the US duties on a trade-weighted basis).  At the same time, Korea’s currency, the won, is trading at 1135 to the dollar.  The Peterson Institute of International Economics calculated the fundamental equilibrium rate for the won at 1066/$ in May, its latest analysis of the rate for each major currency if all of them were in equilibrium.  The difference (1135 – 1066 = 69, or almost 6.5 percent) is a measure of the undervaluation of the won.  Thus, although the undervalued won is as big an obstacle to American exports as Korea’s tariffs are today, the KORUS deals with only customs duties and ignores currency issues entirely.

There is nothing in the KORUS agreement to prevent Seoul from deciding to nudge its currency farther downward to compensate for the progressive elimination of tariffs under the KORUS agreement. It would take only another 70 or so won per dollar to nullify the impact of the eventual elimination of tariffs on manufactured goods.  Such an adjustment would move the won to about 1200 to the dollar.  It’s been a lot weaker than that; in fact as recently as March 2009, the rate was 1500/$.

In addition to the analysis from the Peterson Institute, even more compelling evidence exists that Korea would meet the tests for a fundamentally misaligned currency.  Korea’s reserves currently amount to $293 billion, seventh largest in the world.  Compared to China’s $2.9 trillion, that sounds small.  On a per capita basis, however, China has less than $2,500 in official reserves while Korea’s 48 million inhabitants are backed by more than $6,000 each.

Finally, it’s worth noting that the Ford Motor Co., the beneficiary of the last-minute wrangling over improved access to the Korean auto market, recognizes the connection.  In a question and answer session with the National Governors Association on February 22, 2010, Ford CEO Alan Mulally said, “This currency manipulation is just a killer. I mean, we all know exactly what … countries around the world are doing. They’re targeting manufacturing. They undervalue their currency so they can make things, and we can’t. Right?”  He then ended with a plea for free trade agreements that give American producers real access “with no distortion on the currency.”

At best, Mr. Mulally is getting only half his wish.  Next year, the Congress is likely to consider the KORUS agreement.  But the White House has yet to take any meaningful action on currency misalignment.  Instead, the Department of Commerce surrendered its one legitimate policy tool – the application of countervailing duties to counteract injurious currency subsidies – in a series of decisions over the past four years.

It’s high time for Congress to reassert its constitutional authority over foreign commerce and to reverse Commerce’s reckless unilateral disarmament.  By passing effective currency legislation, Congress can prevent our “free trade” partners from taking back with one hand what they negotiate away with the other.

Currency misalignment is the arch-enemy of free trade.  If the Senate truly supports free trade, it should act and pass H.R. 2378, the Currency Reform for Fair Trade Act, now.

Media Inquiries: Lloyd Wood: 202.452.0866: [email protected]

Other inquiries: Charles Blum: 202.904.2475: [email protected]

The following article by Sewell Chan appeared in the New York Times here.

WASHINGTON — The revised free-trade agreement with South Korea announced on Friday by the Obama administration has gotten acclaim from corporate leaders and Congressional Republicans.

But the pact is likely to result in little if any net job creation in the short run, according to the government’s own analysis.

Praising the deal reached by his trade negotiators, President Obama said on Monday that the accord would “boost our annual exports to South Korea by $11 billion” and “support at least 70,000 American jobs.”

The Obama administration has been careful to use the verb “support,” not “create.”

In fact, the effect of the agreement on aggregate output and employment in the United States “would likely be negligible,” according to a federal study, largely because the United States economy is so much larger than that of South Korea. Indeed, the study found, the country’s overall trade deficit with the rest of the world is likely to grow slightly as a result of the agreement.

But the deal is likely to be beneficial to particular industries, including the Detroit automakers and manufacturers of industrial and electronic equipment and high-technology products like pharmaceuticals and medical devices, according to that study.

American manufacturers of textiles and clothing could be hurt, however, as relatively high American tariffs on those products are reduced.

The study was conducted in 2007 by the United States International Trade Commission, an independent agency that analyzed the effect of imports on the American economy, after the Bush administration negotiated the original agreement with South Korea.

That agreement languished in Congress, where approval by both houses is required for a free-trade agreement to take effect. In June, President Obama agreed to reopen negotiations on reviving the stalled accord.

After a round of talks in Seoul failed to produce a deal last month, the United States trade representative, Ron Kirk, and his Korean counterpart, Kim Jong-hoon, met last week for an intense round of negotiations.

According to White House officials, the main sticking point concerned Korean barriers to American auto imports. Support for automakers has been a central motif of the Obama administration, which bailed out General Motors and Chrysler last year.

The White House consulted with the Ford Motor Company, the United Automobile Workers, and two House members from Michigan who will play a pivotal role in getting the agreement through Congress: Representative Sander M. Levin, the Democratic chairman of the House Ways and Means Committee, and Representative Dave Camp, the senior Republican on the panel, who will become chairman next month.

Alan R. Mulally, chief executive of Ford, met with Timothy F. Geithner, the Treasury secretary, and Lawrence H. Summers, the director of the National Economic Council. Mr. Mulally abandoned his opposition to the accord after the Koreans agreed to give the Americans more time to phase out their 2.5 percent tariff on imports of Korean cars.

The focus on autos came with a price: the United States did not make headway on lifting South Korea’s ban on imports of American beef from cattle older than 30 months, a ban that was the result of an outbreak of mad-cow disease in 2003.

The Americans also agreed to a small concession on pork. The 2007 agreement called for eliminating Korean tariffs on most imports of pork products effective 2014; that has now been pushed back to 2016.

“To get a final agreement, we needed to give a little, we needed to take one for the team,” said Sam Carney, president of the National Pork Producers Council. “This is still a good deal for us.”

While the immediate job impact could be minimal, American corporations seeking to grow their export markets have been avid supporters of the agreement. Wal-Mart, AT&T, General Electric, Intel, Dow Corning, Boeing, JPMorgan Chase and Citigroup all lauded the new deal, as did associations representing sectors like consumer electronics, movies and entertainment, poultry and egg producers and life insurers.

The pact is the largest trade accord since the North American Free Trade Agreement, which the United States signed in 1993.

“It will contribute significantly to achieving my goal of doubling U.S. exports over the next five years,” Mr. Obama said on Saturday. “In fact, it’s estimated that today’s deal alone will increase American economic output by more than our last nine free trade agreements combined.”

The 2007 study, which was updated earlier this year, projected that American merchandise exports to Korea would increase by about $10.1 billion to $11.9 billion, while merchandise imports from Korea would rise by about $6.4 billion to $6.9 billion.

John Brinkley, a spokesman for the South Korean Embassy here, said, “The job creation potential is actually higher than 70,000” adding that the 2007 study did not account for potential growth in the agricultural and service sectors.

In general, Korean tariffs are higher than American ones. But most Koreans are supporting the agreement, in part because they do not wish to depend too heavily on China, now their largest trading partner, according to Troy Stangarone of the Korea Economic Institute, a policy organization in Washington.

Ultimately, the deal’s greatest significance may lie in the signal it sends that the Obama administration is finally willing to move forward on trade deals.

Edward Alden and Scott A. Snyder, senior fellows at the Council on Foreign Relations, said the new agreement was “certainly better for U.S. commercial interests” than the 2007 accord. However, they wrote in a report this week, “by waiting so long to re-engage with Korea on substantive negotiations, the Obama administration sent a signal to the rest of the world that advancing trade was not a high priority.”

Peter Baker contributed reporting.

The following article from the Canadian Pork Council appeared at Ellinghuysen.com here.

GENEVA, SWITZERLAND-(Marketwire - Dec. 2, 2010) - The WTO Dispute Settlement Panel examining Canadian and Mexican complaints against U.S. Country of Origin Labelling (COOL) requirements as they affect exports of hogs and cattle wrapped up its second series of meetings today.

Canada complained that the inflexible and protectionist nature of the U.S. Rules compounded by interference in implementation has seriously impacted Canadian exports of feeder and slaughter hogs to the direct benefit of U.S. competitors.

Canadian hogs producers were represented by Martin Rice, Executive Director of the Canadian Pork Council; Andrew Dickson, General Manager of Manitoba Pork; and Patrick O’Neil, Ontario Pork’s Trade Strategist. They were supported by CPC International Trade Counsel, Peter Clark.

“Unfortunately, actions taken in both the United States Congress and the administration eliminated the flexibility in the final rule that would have made it less protectionist” Mr. Rice explained.

Mr. Dickson noted “on balance, the third country intervenors supported the proposition that COOL was not WTO consistent.” He explained, “Live exports are essential to the health of the Canadian hog industry. For Manitoba, they are essential. I am encouraged by the Canadian team’s performance. We expect a speedy favourable finding and that we can get the border back to normal soon.”

Mr. O’Neil was pleased with the week and the strong performance of the Canadian government team. “We wanted to make a contribution and we were able to,” he explained. “This was a very facts-based case and it has been a very satisfying experience developing the facts base with the Government lawyers and Agriculture and Agri-Food Canada experts to develop a comprehensive and persuasive case.”

Peter Clark explained, “The formal meetings are over – and Canada’s summation was concise but complete and compelling. The government/industry team now needs to answer numerous very detailed and very difficult questions from the panel.”

“We should have a decision by summer,” he noted. “This dispute has broad implications – the E.U. is developing a new very extensive regime. It could seriously erode market access benefits under CETA (Comprehensive Economic and Trade Agreement). If the panel does not clearly condemn the protectionist abuses of the U.S. COOL measures, Country of Origin Labelling could become one of the new non-tariff measures of choice.”

“The Canadian Pork Council and its members, together with the Government of Canada and the Canadian Cattlemen’s Association, have been struggling with COOL since its inception in the 2002 Farm Bill”, said Jurgen Preugschas, CPC President, “and we are pleased to see signs of real progress in having our concerns recognized and addressed.”

For more information, please contact
Canadian Pork Council
Gary Stordy
Public Relations Manger
613-236-9239 Ext. 277
or
Grey, Clark, Shih and Associates, Limited
Peter Clark
613-799-7745
[email protected]

The following is a piece by Charles Blum of IAS Group and director of CPA’s government relations.

These are discouraging days for anyone seriously concerned about the future of our country.  In the aftermath of last month’s electoral upheaval, both parties seem hell-bent on misinterpreting the message from the people – those that voted and the many that didn’t.  The fact is that most Americans failed to support either party – and with good reason.

On the one side, we hear the mind-numbing mantra of “American exceptionalism.”  We are so special a people, this view seems to presume, that we can continue to mismanage our economy, neglect our needs, and ignore our foreign competitors without suffering the consequences.  All we must do is ensure no tax increases — especially on those most able to pay — and to starve the federal beast.  Exceptionalism is the ideology of the privileged, but its appeal traps many more citizens in the 51^st state, the State of Denial, far from the realities of a global economy and the rise of state capitalism.

On the other, we are offered, according to Elliott Spitzer, “mush.”  Democrats have no coherent message and thus fall back on “mushy” calls for more economic stimulus and patching the gaping holes in the social safety net.  But where are the good jobs to come from?  Green technology?  Well, come with me to visit China sometime and I’ll show you what a commitment to green technology looks like and what kind of resources it entails.  The only competitions in which mush is useful are Iditarod and the race to the bottom.  It’s no way to win elections nor to motivate a nation.

Don’t get me wrong.  I love this country and thank God every day that when they left Germany my father and my grandfather decided to come here, not South America.  I believe in the greatness of our country and was privileged to represent it for 17 years as a diplomat and a trade negotiator.  I believe, as one of my Korean friends told me in the middle of an all-night haggling session in Geneva that “America is great because America is good.”

Just for those reasons, I sympathize with the objectives of living within our means, ensuring a sound dollar, and maintaining an open and fair trading system.  At the same time, I recognize the need for any civilized society to educate the young, retrain the older, provide decent housing and health care for all, care for the needy, and ensure an investment climate that generates good paying jobs for all those willing to work.

But as a country we have to escape this debate over “exceptional mush.”  Our problems are greater than this petty partisan debate presumes.  They are more difficult and more urgent, but we hardly speak of them.

Perhaps we can learn a lesson or two while watching this weekend’s football action.  We already know that the better team does not always win.  It’s possible for a less talented team to beat a more talented one, for an injury-riddled line up to best a healthy one, for a team on a losing streak to whip the hottest team in the league.  That’s why we bother to watch.

It might be good to contemplate how the unexpected can happen.  Sometimes it’s a lucky bounce of the ball, a mental blunder, or a bad call from the ref.  Most times, however, it’s preparation.  Football coaching staffs work almost 24/7 to devise elaborate game plans to capitalize on their team’s strengths, exploit the other team’s weaknesses, and produce victories even when not blessed by the odds makers.

On a national level, the steps to a winning game plan are pretty clear:

• Establish a winning vision of a productive, wealth creating, financially self-reliant country.
• Agree on overarching strategic objectives to save, invest, and produce in this country and balance our trade and current accounts.
• Stop foreign currency subsidies.
• Reform our tax system to rely more on consumption taxes that reward savings,  domestic production, and exports and less on income taxation.
• Expense investment in new plant and equipment to unlock the trillions of dollars of cash that large corporations are sitting on and to promote the expansion of domestic energy production without undue political interference with market forces.
• Support innovation and its application in this country.
• Establish a national bank for infrastructure and energy conversion to provide reliable, long-term financing to meet our needs in transportation, communication and energy distribution.
• Revise our trade policy to reflect the Reagan formula of reciprocity:  “free and fair trade with free and fair traders.”

There are many details to be hammered out legislatively and by regulation, of course.  But the starting point is a vision.  My friend Pat Mulloy likes to quote the book of  Proverbs:  “Without a vision, the people are lost.”  Without a vision, the American people are losing.  It’s time to work as diligently, as creatively and as urgently as an NFL staff to get a new game plan for America.  The whole word is watching.