Posts Tagged ‘Trade Policy’

The bipartisan, dysfunctional US economic policy

February 15, 2020

The USA has had a bipartisan economic policy for 20 or 30 years now.  It’s what some people call “neoliberalism.”

The basic idea is that prosperity depends on rich people investing in the economy, so that the key to prosperity is to allow rich people to accumulate money.

It is reducing upper-bracket tax rates, reducing government regulation and reducing government spending except on the military and police.

It is allowing manufacturing companies to become competitive by shifting production to low-wage countries, holding prices down by allowing cheap imports, and shrinking the social safety net to encourage people to take low-wage jobs.

It is giving financial institutions free rein to make risky investments, because free markets are important, and bailing them out when they fail, because large-scale financial failure would destabilize the economy.

It is not enforcing the antitrust laws because business consolidation supposedly promotes economic efficiency.

It is now than then enacting some benefit for working people, but never anything that threatens the incomes of the wealthy or the power of big corporations.

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The North American Free Trade Agreement is an example of neoliberal bipartisanship.  The idea for NAFTA originated in the Ronald Reagan administration, the George H.W. Bush administration negotiated it, but it took the Bill Clinton administration to get it approved.

NAFTA shifted the balance of power against organized labor.  Employers could credibly threaten to pick up and relocate in Mexico if workers didn’t give them what they wanted.

Another joker in NAFTA was the investor-state dispute resolution provision.  It gave foreign companies the right to ask for damages if a local, state or national government passed some law or regulation that reduced their profits.  The theory was that this was a trade barrier, the same as a tariff.  Investor-state disputes are decided not by courts, but by arbitrators.

The investor-state dispute resolution provision was a main reason why Congress declined to endorse President Obama’s proposed Trans-Pacific Partnership Agreement.  President Trump deserves credit for dropping the TPP.

The new U.S.-Canada-Mexico Agreement contains an investor-state dispute resolution provision.  However, unlike NAFTA,  it also contains labor and environmental standards and not just protections for companies.  If these turn out to be meaningful, President Trump and the present Congress will deserve a certain amount of credit.

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Bill Clinton was a good friend of the banking industry.  Early in his administration, Congress passed the Siegle-Neal Act, which eliminated restrictions on interstate banking.  Bank mergers followed in rapid succession.

He twice reappointed Alan Greenspan, advocate of banking deregulation, as chairman of the Federal Reserve Board.  He proposed and got repeal of the Glass-Steagall Act, which separated commercial banks, whose deposits were insured by the federal government, from investment banks, whose deposits could be risked in potentially high-profit investments.

His administration explicitly forbid regulation of derivatives, which are investments not backed by any tangible asset—essentially a form of gambling on the economy.  All these decisions set the stage for the Great Recession of 2007-2009.

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Can Trump make U.S. industry great again?

December 1, 2016

Donald Trump in his campaign promised to reverse the decline of American manufacturing.

Can he do it?  I’m willing to be pleasantly surprised, but I don’t think so.

President-elect Trump’s proposed economic policies are the same as what most Republicans and many Democrats have been advocating for 30 years or more—lower taxes, less regulation, fewer public services.

None of these things has stopped the increase in U.S. trade deficits or the increase in economic insecurity of American workers.

Trump did speak against the Trans-Pacific Partnership agreement, promised to renegotiate other trade agreements and threatened to impose punishing tariffs on China and Mexico in retaliation for their unfair trade policies.

I myself am in favor of rejecting the TPP and renegotiating trade treaties.  This would be a step forward.  But it would take more than this to rebuild the hollowed-out U.S. manufacturing economy.

China, Japan, South Korea and most nations with flourishing industrial economies use trade policy as a means of strengthening their economies.

Their leaders, like Alexander Hamilton in the early days of the United States, seek to build up their nations’ “infant industries” under those industries are strong enough to stand on their own feet.

When foreign companies seek to sell these nations their products, their governments demand that the foreign companies not only set up factories in their countries, but that they employ native workers and transfer their industrial know-how to the host countries.  The USA does nothing like this.

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The march of globalization

October 7, 2016

trade-goldmansachchart-barry-rithholtz

This chart, produced by Goldman Sachs and reproduced by FT Alphaville and Barry Ritholtz, shows how world trade has grown in the past half-century.

In 1960, a quarter of world output was for export.  Now it is well over half.

There is a benefit in being able to buy things that are produced in distant lands.  There also is a risk in depending on long and vulnerable supply chains for what you need.  We the people and our governments need to think about what balance to strike.

What is Hillary Clinton’s trade policy?

March 4, 2016
HIllary Clinton

HIllary Clinton

Unlike with Donald Trump and Bernie Sanders, it is hard to figure out Hillary Clinton’s positions on trade treaties.

They are clearly and consistently opposed to all the major trade treaties from the North American Free Trade Agreement onward, including the proposed Trans Pacific Partnership Agreement.

Clinton has been all over the map on this issue, supporting some trade treaties and opposing others.  The TPP agreement was signed while she was Secretary of State.  She supported it at the time, but now has doubts.  Some observers, however, wonder whether that is her true opinion, or whether pressure from the Sanders’ campaign has pushed her to the left.

If you put that topic to one side, I have to say that her foreign trade proposals are more detailed and thoughtful than either Trump’s or Sanders’.  She at least recognizes that the key is for the United States to rebuild its manufacturing strength rather than trying to force other nations to change their own economic policies.

Here are key Clinton proposals:

  • Reform the tax system so that American businesses can’t evade U.S. taxes by “inversion”—an accounting scheme where profits are assigned to overseas subsidiaries in tax havens.
  • Provide tax incentives for manufacturing companies to locate and remain in the United States, especially in high-unemployment areas.
  • Invest in infrastructure and in research and development to build up U.S. productivity.
  • “Aggressively combat” violations of trade treaties by foreign governments.
  • Set a “high bar” for future trade treaties.

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Would Donald Trump’s trade policy work?

March 3, 2016

Donald Trump’s trade policy might be better than what the United States has now.  The problem with Donald Trump’s trade policy is that it is based on trying to force China and other countries to comply with U.S. demands rather than improving American economic performance.

Ultimately the future of the United States rests on what we Americans do, not on what the Chinese do or do not do.

Donald Trump

Donald Trump

He is right about one important thing.  Washington’s trade policies have not served Americans well.

In some ways, current reflect the priorities of Richard Nixon and Henry Kissinger, who thought the trade policies that favored nations such as Japan or Saudi Arabia were a price worth paying to keep them as loyal allies during the Cold War.

In other ways, they reflect the neo-liberal philosophy that emerged during the administrations of Ronald Reagan and Bill Clinton, which was that the route to prosperity was to serve the interests of large corporations.

International agreements such as the North American Free Trade Agreement and the proposed Trans-Pacific Partnership Agreement guaranteed the rights of corporations to move money and goods freely, but restricted the rights of governments to legislate on behalf of workers, consumers and the environment.

Such agreements have contributed to the erosion of American jobs, wages and national economic strength.

Donald Trump’s solution, as stated on his web site, is as follows:

  • Declare China a currency manipulator and demand that China allow its currency to rise to its natural rate.  Trump said its current rate is between 15 percent and 40 percent too low.  A rise in the exchange rate for the Chinese yuan would, all other things being equal, raise the prices of Chinese-made products in the U.S. and other countries.
  • Demand that China obey international standards for copyright and patent protection.  This would mean greater revenues for U.S.-based and other non-Chinese media, drug and information technology companies.
  • Demand that China stop subsidizing its export industries by such means as free or cheap rent, utilities, tax breaks and raw materials, low-interest loans and special tax breaks.
  • “Challenge” China to comply with 21st century labor and environmental standards
  • Lower or eliminate the U.S. government budget deficit so that we wouldn’t have to depend on the Chinese and other foreigners to buy government bonds.
  • Reduce the top corporate tax rate from 35 to 15 percent, and eliminate inheritance taxes and capital gains taxe
  • Build up American military forces in the South China Sea.

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