Will the Locke, Obama Trade Plan Work?
Updated Sept. 17, 2010
There are new developments to boost U.S. exports, which would enhance the nation’s economy. The Obama Administration has re-launched its plan to create 2 million jobs and dramatically increase exports – more than seven months after it was announced in February of this year.
In addition, Congress has held hearings on the manipulation of the Chinese currency, yuan. The same week Commerce Secretary Gary Locke visited Seattle to pitch the trade plan, Chinese officials vowed to increase trade with Washington state during a trade mission by Washington Gov. Chris Gregoire.
But will these developments solve the nation’s trade deficit? The trade plan is well-intentioned but is unfeasible, according to one of the nation’s most-widely quoted economists, Dr. Peter Morici. Ironically, the Obama Administration trade push follows some recent heavy criticism from the economist. (Note: This Web site regularly publishes his Op Ed commentaries.)
“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.
Mr. Locke has implemented the administration’s five-year plan to double exports and create jobs.
It also seeks to accomplish these goals:
- Promote free trade
- Provide more credit for small to medium sized business
- Enforcement of 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.
Moreover, what seems to have been lost in the discussion about the Obama Administration’s trade plan is a fundamental concern: Relatively little is manufactured in the U.S. any more. Consumer products are made abroad. Even Boeing jet parts are made elsewhere.
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.
Resource links:
Top Economist: Obama Bank Tax Is a Con
It’s a challenge to put it politely – one of the nation’s leading economists says the bank tax promoted by President Obama is a sham.
“President Obama is at it again-pandering to rich and powerful political supporters, while portraying himself the guardian of the exchequer and champion of the little guy,” asserted Dr. Peter Morici in a commentary. “The president says his proposed tax on the capital of the largest banks and financial institutions is intended to recoup the TARP money that has not or will not be repaid.”
Dr. Morici believes it amounts to a public relations gimmick to confuse voters in two ways:
“First, the banks the president would tax are repaying their TARP money with interest to the Treasury,” he explained. “Though not all of the TARP money given to the banks has yet to come back, the government will get it all back with a significant profit because the government was paid such generous interest under the terms of the TARP.
“Second, the president misused the TARP money by investing in GM and Chrysler, and GMAC, and that is where the government will lose money,” he added.
Noted authority
If you do an online search of his name, you’ll see Dr. Morici is a widely quoted business professor at the University of Maryland and former chief economist at the U.S. International Trade Commission in the Clinton Administration.
“If President Obama were to tax anything to recoup lost TARP funds, it should be cars,” he said. “However, that would anger the UAW, staunch supporters of the president and Democrats running for Congress.”
What I enjoy about this economist is that he understands the numbers, explains the impact of events and does it candidly.
“The bank tax is in response to public outrage over the $150 billion in bonuses paid in 2010 on 2009 bank earnings,” Dr. Morici contended. “The tax would only raise $9 billion in 2010 – a pittance compared to the bonuses.”
He points out the Wall Street bonuses were supposedly earned when the firms were bailed out by loans with interest rates at “near-zero.”
“The bankers are screaming about a death wound when the tax is merely a paper cut,” he said.
“The tax is a bad idea,” the economist maintained. “It won’t fix the banks, who continue trading complex derivatives, energy futures and repackaging old mortgage-backed securities instead of making new loans to worthy homeowners and businesses.”
Disingenuous developments
Here’s the first of two more disturbing and disingenuous developments:
“The president’s tax would let the bankers, who contribute mightily to campaigns of congressional Democrats and President Obama, keep their bonuses after they nearly wrecked the global economy with irresponsible risk taking on the public’s tab,” said Dr. Morici. “This is horrible public policy and demagoguery.”
Secondly:
“The proposed bank tax is meaninglessly small, serves no purpose toward reforming the banks, and is merely an attempt by the president to appear on the side of the auto industry and against the banks, when he is really on the side of union organizers and the bankers,” he wrote. “As with the union exemption from the Cadillac tax in the proposed health care reform compromise, the president is putting his political debts ahead of public purpose.”
Dr. Morici indicated the president would be well-advised to push for a 50 percent tax on bonuses exceeding a quarter of a million dollars, as is the case with British Prime Minister Gordon Brown.
“Instead, the president lets the bankers keep their money, and sends Democrats calling for contributions,” he concluded. “It’s all very insidious.”
From the Coach’s Corner, for more of his insights: Peter Morici’s Curriculum Vitae.
