Locke, Obama Trade Plan Won’t Work – Economist Morici

 

An Obama Administration plan to create 2 million jobs and dramatically increase exports is well-intentioned but is unfeasible, according to one of the nation’s leading economists, Dr. Peter Morici.

 “The Administration is correct to target China and India but these initiatives don’t address the reasons U.S. businesses don’t sell enough in those countries,” says the economist in referring to China’s currency manipulations and other trade-protectionist practices.

Dr. Morici speaks from experience. He was the chief economist at the U.S. International Trade Commission in the Clinton Administration and currently teaches business at the University of Maryland.

Commerce Secretary Gary Locke will implement the administration’s five-year plan to double exports and create jobs.

It also seeks to accomplish these goals:

1. Promote free trade
2. Provide more credit for small to medium sized business
3. Enforcement international trade laws

“The Commerce Department initiative merely consists of redoubling existing efforts and not addressing the fundamental issues – the undervalued Chinese yuan and high tariffs, and other regulatory barriers that block U.S. exports in much of Asia,” argues Dr. Morici.

“Of course, these initiatives are helpful and could increase net exports by several billion dollars; however, those will not double exports, which now total $1.7 trillion or appreciably reduce a trade deficit of $440 billion caused by $2.1 trillion in imports,” adds the economist. “The trade deficit is likely to grow in 2010 and drag on the economic recovery.”

There are no published cost estimates but it is a multi-billion dollar plan.

It would increase “…Export-Import Bank funding for small businesses from $4 to $6 billion; boosting Commerce Department personnel that assist exporters at U.S. embassies and consulates in China and India; and strengthening enforcement of trade laws and agreements,” Dr. Morici indicates.

“China is the larger and faster growing market, and maintains an undervalued currency that makes Chinese products artificially cheap, whether at the Wal-Mart or competing with U.S. exports in China,” he explains. “It imposes huge tariffs and administrative barriers to U.S. exports. Conditions are not much better in India.”

Dr. Morici says the U.S. imports $330 billion in goods from China but only sells $88 billion in products to the Asian power.

“Without a revaluation in the yuan large enough to end China’s persistent purchases of U.S. dollars, the bilateral deficit is simply not coming down,” he asserts. “Without strong U.S. action to offset China’s currency market intervention, which exceeds $400 billion a year, China simply is not going to change its currency and trade policies, and the U.S. unemployment will stay close to 10 percent or higher.”

I’ve quoted Dr. Morici over the years and sometimes his views conflict with my free-market philosophy. However, he’s right in that something needs to be done to persuade China.

As a management consultant, I recall Mr. Locke, as Washington’s governor from 1996 to 2004, was innovative and practical. He was the nation’s first Chinese-American governor.

As a Biz Coach columnist, I’ve praised him because he implemented two valuable policies that ostensibly are not used today – he wanted consulting projects to be accountable with benchmarks for returns on investment and he implemented priorities in government budgeting instead of just taxing and spending.

So, if anyone in the Obama Administration is astute enough to assess the problems, he’s the one. Let’s pray he’s successful in strategy and implementation.

America is heavily in debt to China. That threatens our national security, and our individual economic and political freedoms. Unless, the Obama Administration is successful in trade, someday soon America’s official currency will be the yuan.

From the Coach’s Corner, have you developed and implemented New Year’s resolutions?

Here’s a link to some thought-inducing leadership questions: Ten Smart Leadership Questions for 2010.