Enforcing Flawed Trade Deals

http://www.reuters.com/article/idUSTRE6131YM20100204

No sooner do I announce plans to scale back on posting articles when along comes something I can’t resist.  The above-linked Reuters article reports on an announcement by Commerce Secretary Gary Locke of plans to boost enforcement of trade deals in an effort to achieve Obama’s promised doubling of exports in five years.   There are a couple of key points that need to be made here. 

First of all, I have spent virtually my whole adult life listening to presidents, Commerce secretaries and U.S. Trade Representatives vowing to get tough on trade deal enforcement.  This effort will turn out no differently.  If anything, exporting nations are relieved to have the focus drawn away from the import side of the equation.

Secondly, the following passage from the article can’t pass without comment:

“While the U.S. is a major exporter, we are underperforming,” Locke said in the excerpts given to reporters. “U.S. exports as a percentage of GDP are still well below nearly all of our major economic competitors.”

The competitors Locke speaks of are primarily China, Japan and Germany.  Back in early November, Obama challenged his economic team with the question, “If Germany can build an economy on exports, why can’t we?”  (See Obama on Trade: “If Germany can do it, why can’t we?”.)  America is not “underperforming.”  It’s not about “competing.”  The problem is that the field of economics doesn’t yet recognize or understand the role of population density disparities in driving global trade imbalances.  Boosting our exports means that nations like China, Japan and Germany have to boost their imports – their domestic consumption.  If they were capable of such domestic consumption, they wouldn’t have the need to export so much in the first place, nor would they have the excess production capacity to do so. 

I don’t doubt the president’s sincerity.  Every president for the past 30 years has understood the need to restore a balance of trade.  But Obama is the first post-global economic collapse president and, as such, the first to have an added sense of urgency brought on by a realization of the ultimate consequences of sustained trade imbalances.  Unfortunately, he’s fallen back on the same worn out approach of enforcing trade deals when it’s the deals themselves, lacking population density-leveling mechanicsms,  that are the problem. 

But this time, time is not on his side.  The era of sweeping trade imbalances and their consequences under the rug has ended.  The U.S. is economically boxed in on all sides by high unemployment, global demands to rein in our budget deficit and a Federal Reserve with an empty tool box.  So the only question is how soon the president will run out of patience with the export-focused approach and turn his attention to imports.

[Via http://petemurphy.wordpress.com]