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:
New Strategies for International Trade
Many exporters on the West Coast tend to do business with Asian countries. But are they missing opportunities in the European Union?
Probably. And, as in all aspects of business to maximize profits, it’s important to pick the right trading partners in the EU. That’s a reminder from Seena Sharp, a competitive intelligence expert, speaker and author, www.sharpmarket.com.
Ms. Sharp authored the noteworthy book: “Competitive Intelligence Advantage: How to Minimize Risk, Avoid Surprises, and Grow Your Business in a Changing World.” (The publisher is John S. Wiley & Sons, Inc., www.wiley.com.)
Competitive intelligence leads to smarter business decisions and reduced risks. That means more profits.
“The 24 million consumers in Denmark, Norway, Sweden, and Finland are quicker to accept new products than are their western European counterparts,” Ms. Sharp said. “In a study of 137 products, new product ‘time-to-take-off’ is shorter by roughly 50 percent in Nordic countries, with Danes emerging as the fastest adopters.”
Even though some U.S. companies have been successful domestically, they mistakenly believe the same strategies are applicable in Europe.
“Doing business in Europe is very different and you need a European partner – for introductions, which is very important for the way they do business,” she said. “For example, they still put a lot of stock in face-to-face meetings.”
Ms. Sharp says picking the right countries, of course, depends on quality research: “It depends on the product or service, type of customer (wholesale or retail), and distribution channels.”
As you might expect, mistakes are costly: “I don’t mean to sound self-serving, but when companies don’t do their homework, it shows,” she said. “They learn on the job and it’s often not pretty – loss of millions of dollars, frustration in dealing with the unknown, redoing their efforts and then spending more money on the second try.”
Hence, she recommends baby steps in capitalizing on EU opportunities.
“Success in the Scandinavian countries can help you expand to other markets throughout Europe,” she added. “Even well traveled Americans tend to forget that Europeans routinely visit other countries – just to shop.”
In the wake of geopolitical events prompting turbulent times in our competitive, globalized economy, Sharp’s reminder about building trust and developing partnerships would seem more important than ever.
For example, Nordic countries were caught off guard after Iran cut off $280 million in trade with Denmark because of alleged indifference to publication of cartoon caricatures of the Prophet Mohammed.
Danish companies have lost millions of dollars each day in Saudi Arabia, Syria and Lebanon, and 20 other Muslim countries. EU lawmakers promised solidarity with Denmark in diplomacy and trade.
The Muslim rancor perplexed EU countries. Considering their relative size to the U.S., two of the Nordic countries, Norway and Sweden, have been more generous in foreign aid, and it appears they are quietly more active in outsourcing and international trade.
If you’ve done your research you know that the terms, Scandinavian and Nordic, aren’t synonymous in Northern Europe because they’re not interchangeable terms. Despite the unity of five EU countries – Denmark, Finland, Iceland, Norway and Sweden – they’re somewhat nationalistic and are proud of their distinct differences.
Therefore, Ms. Sharp’s points about exploring Scandinavian opportunities appear timely. (I’m familiar with her outstanding work as we’re both members of Consultants West, www.consultantswest.com. That’s a roundtable of consultants that meets regularly in Los Angeles.)
For more information on EU trading, visit: http://ec.europa.eu/trade/
From the Coach’s Corner, on a different subject, security and identity theft remain huge issues.
To take the government’s identity-theft quiz: www.onguardonline.gov/quiz/.
For tips on preventing identity theft, visit: www.consumer.gov/idtheft/.
Has China Prompted U.S. Tech Innovation and Funding?
Hopefully, recent developments are much like the U.S. space program thwarted Sputnik threats in the 1950s
While China depends heavily on commodity imports to fuel its economy, the country has developed a strategic advantage in technology with serious implications for U.S. security. And as Google has learned, China has cybersecurity issues.
China has surpassed the U.S. as a provider of technology information and products. China has also cornered the market in minerals known as “rare earths,” which are needed for production of technology products, such as computer disk drives and missile guidance systems.
Aside from dominance in the rare-earth sector worth about $1 billion, such developments have serious implications for the U.S. in commercial and military development. The minerals include cerium, dysprosium, lanthanum, and neodymium. China has invested in its rare-earths mines. But it now has gained control of processing technology and has underwritten the largest system of rare-earth research and development in the world.
Helping to fuel its growth, many U.S. companies have moved sophisticated facilities for manufacturing and research and development to China. The companies include Cisco Systems, Microsoft, Motorola and Nokia. That was 10 years after two Chinese companies, with the help of U.S. partners, reportedly bought an Indiana company, Magnequench. Magnequench was responsible for 85 percent of minerals used in the production of “smart bombs” for the U.S. armed forces.
That meant the U.S. military no longer has such a domestic manufacturer using rare earth technology.
In addition, you might remember the China-Unocal controversy in which the oil company was eventually acquired by Chevron. It’s now theorized that the state-run Cnooc also coveted Unocal because its subsidiary, Molycorp, owns the only rare earth mine in the U.S., but it isn’t operational for economic and environmental reasons.
China’s Partners
China has made global friends by initiating other global information-technology inroads:
It inked an agreement with Kenya to provide low cost wireless e-mail and telephone services. Kenya is in an 800-million person continent where such technology has been unfathomable in many areas.
A Chinese company also built a major telecommunications facility in Angola. Surprisingly, the Chinese company will forego revenue opportunities to service Angola’s new telecommunications system.
China is also making inroads in radar and remote sensing technology in the use of microwaves for high-resolution aerial pictures. Scientists can now take aerial photos that have greater clarity even under difficult inclement conditions, day or night, even to photograph underground objects. The new system is called Synthetic Aperture Radar, or SAR.
The applications for aircraft and satellites are enormous – from agriculture to defense.
China has developed another global ally in economics and politics – Spain. Ostensibly, hoping for economic favor, José Luis Rodríguez Zapatero – the socialist Prime Minister of Spain – lobbied to remove the U.N. arms embargo of China.
Senor Zapatero was also instrumental in the sale of 20 Airbus A330 jets to Air China. Spain, Germany, France and the UK help underwrite Airbus. The jets were worth $3.1 billion.
The socialist is reportedly a devotee of the late Chinese Premier Mao Tse-tung, who was a founding member of the Chinese Communist Party in 1921.
Possibly prompted by such developments involving China, a bipartisan series of bills were introduced in the U.S. Senate to step up spending for domestic scientific education and research. Co-sponsors are also citing competition from India.
A package of legislation known by the acronym PACE, or Protect America’s Competitive Edge, was prompted by 20 recommendations by the National Academy of Sciences in 2006. The organization called for job creation and innovation.
PACE doubled funding for research, provided scholarships to entice new math and science teachers, and extended the credit for research and development. It would alter the visa process to encourage foreign students to remain in the U.S. after they complete their educations.
The minimum price tag for the first year: $9.5 billion. It received support, for example, from the Institute of Electrical and Electrical Engineers – U.S.A. The public-policy group was formed in 1973 and has 235,000 members.
PACE captured headlines abroad. A headline in The Indian Express read: “U.S. tech bill: Boost our team but retain foreign talent.”
Competition from China and India and the resulting Senate bill and a wave of patriotism are reminiscent of a major event nearly 50 years ago during the Eisenhower presidency. Those were simpler times when manual typewriters were widely used, many Americans used a party-line telephone with their neighbors, and there was no Super Bowl.
Suddenly, the Soviet Union launched Sputnik I into space in the fall of 1957. Just weeks later, Sputnik II was launched carrying a dog. That was powerful stuff just before America was to celebrate Thanksgiving. Americans were caught off-guard and they went on alert.
Those two colossal events were the catalysts that prompted the U.S. to massively promote science and technology.
It marked the launch of the space age and the space race between the U.S. and Soviet Union, which deepened the perceived threat to Americans at the height of the Cold War. I was very young, but I remember the bold headlines and elementary-classroom safety drills, as Americans were fearful of the implication that Soviet nuclear-armed missiles would be capable of demolishing the U.S.
The difference between then and now is that relatively few Americans today seem to notice the threat to this nation from abroad in science and technology.
While the PACE Act never passed, and with the nagging federal deficit, deeper problems persist. High school dropout rates are enormous. Even with the current resurgence in MBA school enrollments, it’s still troubling that only about 25 percent of young Americans are interested in obtaining an undergraduate degree.
In 1956, President Eisenhower was sufficiently liked by a majority of voters who enabled him to easily ride to re-election on an “I like Ike” theme. He couldn’t acknowledge that the U.S. already had significant knowledge about the Soviet military and space buildup, as a result of the CIA’s reconnaissance U-2 spy plane built by Lockheed. But the Soviet threat was widely acknowledged in this country and it was easy to rally Americans.
That’s not the case now.
While a significant number of Americans are wringing their hands about job outsourcing, many parents aren’t stressing education to their children. They aren’t connecting the dots between quality jobs and education.
PACE would have been a good start but it won’t solve the underlying cultural issue – nonchalant American attitudes toward education. PACE will need a well-orchestrated, bipartisan promotional effort to motivate parents and children about the benefits of higher education. We can’t afford not to get it done.
From the Coach’s Corner, how would you like more Wi-Fi choices when you’re on the road? There’s a Web site that will help you locate a Wi-Fi location before you even leave your home in the morning. It isn’t a complete listing, but it does list 110,000 hotspot locations in 26 nations. Many are free.
You’ll need to enter the city or zip code where you’ll be traveling at this Web site: http://www.technewsworld.com/hotspot-locator/. (Caution: Even if your system is encrypted, you risk the security of sensitive data by using such hotspots.)
