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TRADE VISION DEFICIT DISORDER |
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Written by Neal Asbury
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Thursday, 08 May 2008 |
At a time when our country is fixated on a protracted
political process passionately promising to cure all our ills, this would be an
excellent time for our presidential candidates to put forward their vision to
solve the most critical economic issue of our time: our degenerative trade
deficit.
Unfortunately they appear to suffer from Trade Vision
Deficit Disorder (TVDD), or are simply too fixated on more electability issues.
We must take it upon ourselves to provide the remedy.
Unlike other seemingly impossible challenges we face, our
trade deficit is something we can correct in a relatively short period thus
creating millions of well-paying jobs. It is as straightforward as establishing
an environment where American exporters are allowed to compete.
First, we the people
must demand our candidates understand trade, be able to articulate a
comprehensive strategy in dealing with our global competitors and have the guts
to fight.
Unfortunately this election cycle is a huge disappointment
among the current candidates from both major parties. Barack Obama and Hillary Clinton have cut and pasted the AFL-CIO
anti-trade positions to their websites and routinely include the union's talking
points in their speeches.
They tell us they are going to "fix" the evils of NAFTA or
"opt out". This is the same rhetoric the ultra-left wing Mexican presidential
candidate Andres Manuel Lopez Obrador used against NAFTA in the 2006 Mexican
election. He lost the popular vote by less than one percent.
Lopez Obrador openly campaigned that it was his intention to
take Mexico out of NAFTA and aligning the country closer with Venezuelan
dictator Hugo Chavez and other radical leftist Latin American governments. This
would have been a disaster for Mexico, the United States and the region. Now
Obama and Clinton are essentially endorsing the same decision.
NAFTA is by far the most beneficial trade legislation
Congress has ever passed. Obama and Clinton are both ardently against signed
Free Trade Agreements with Colombia, Panama and South Korea, but are awaiting
Congressional approval. The year 2007 will be known as the year that Democrats
lost their way on trade.
Over on the Republican side John McCain rarely mentions
trade and when he does his comments are so elementary our competitors from
Beijing to Berlin are standing on their seats smugly shouting "four more
years". Although he supports free trade there is no vision, passion or
understanding of the issues. It is this sort of knee-jerk reaction that has
gotten us into the huge mess we now face.
We must rid ourselves
of trade policy derivations from the Marshall Plan era.
A Marshall Plan export economic mindset that stretches back
a half century has set us on course towards $1 trillion trade deficits
stretching as far as one can see.
It is important to understand how we got into this mess.
Only after World War Two did the United States begin to advocate a liberal
trade policy. To promote post-war recovery in Western Europe and Asia the U.S.
opened its market wide to war-time enemies without requiring equal access for
American exports.
The U.S. trade policy that developed during this period is
remarkable inasmuch as it permitted friendly countries to discriminate openly
against American products with impunity. Domestic financial interests were
completely subordinated to U.S. foreign policy. Imports from Germany and Japan
were aggressively encouraged whereas the necessity of exports was largely
disregarded.
A 1952 declassified document from the National Security
Council (NSC) recommended that the entrance of Japanese goods to the U.S.
should be "facilitated" to "halt economic deterioration" that "creates fertile
ground for communist subversion". Our bilateral trade agreement with Japan in
1955 completely surrendered domestic manufacturing concerns to foreign policy
objectives. The U.S. granted Japan historic tariff reductions on almost all its
exports and received no concessions in return.
By the late-60's it was already clear that our global
competitiveness was in rapid decline. However, instead of rethinking and
adjusting our trade policies, the same flawed strategy was perpetuated. Our
markets were opened further to several Asian, African and Latin American
countries while getting very little trade reciprocation in return.
It took just twenty years for one of the nation's greatest
miscalculations to become deeply rooted in our culture; essentially subjugating
the world's number one compulsive consumer by unconditionally surrendering its
export industries and the futures of millions of Americans whose livelihoods
are tied to them.
There is nothing new under the sun in global trade. Britain
at the height of its empire in the middle of the nineteenth century embraced
unilateral free trade and opened its markets to the world without any
reciprocal consideration for its industries. It is fitting to remember within
seventy years of this charitable gesture, Britain was nearly broke and its
position as one of the world's leading financial markets evaporated.
To keep American from suffering the same fate, our Marshall
Plan mentality must be reversed so that we never cede our once envious export
prowess to our competitors and adversaries, and thereby protect the economic
future of millions of our citizens.
We must make Trade
Promotion Authority (TPA) permanent either by a Constitutional Amendment
(highly improbable) or an Act of Congress (very achievable).
Article I of the U.S. Constitution grants Congress sole
power "to regulate commerce with foreign nations". The Constitution grants the
president no trade specific authority whatsoever. There is no sphere of
government policy where the primacy of Congress could be clearer. Congress
reins supreme on trade unless and until it decides otherwise.
Congress is a decentralized institution, particularly
vulnerable to pressure from special interest groups and lobbyists. So it does
what comes naturally once the politics of benefit seeking spins out of control,
it delegates responsibility. If it did not, the result would be a high level of
trade barriers and tariffs (resembling many of our most important trade
partners) to the benefit of certain groups and to the detriment of the nation
as a whole.
In 1934 Congress began delegating specific trade authority
for predetermined periods of time to the president. Since 1974 Congress has granted every President the authority to
negotiate trade agreements for Congressional approval on an up or down vote.
In 1994 the President's Trade Promotion Authority (TPA)
lapsed. It was not restored until 2002, passing in Congress by a single vote,
215 to 214. It was one of the most hotly contested and partisan pieces of trade
legislation ever. It expired June 30th, 2007.
With the over-the-top demagoguery that is now commonly
practiced in Congress, Trade Promotion Authority (TPA) will not be renewed at
the very earliest until the next administration takes office. Having a lame
duck administration unable to negotiate trade puts us at an overwhelming
disadvantage in dealing with our competitors.
We must insist upon
comprehensive Free Trade Agreements (FTA) with our most important trade
partners.
China and Japan alone are responsible for over 60 percent of
our merchandise trade deficit. American exporters are also at a tremendous
disadvantage in Brazil and India. Our trade deficit will not be reversed until
we deal with its root causes.
The global reality is that free trade amongst countries
rarely exists. Where free trade does exist is interstate commerce between our
50 states, where it has fueled our domestic economy.
We should therefore examine free trade at its purist. Why
not have our Free Trade Agreements resemble the kind of trade that exists
amongst the states? The U.S. Constitution
forbids tariffs amongst states on any kind of product or service. All 50 states
are under the same federal laws controlling banking, the environment, labor
rights, safety standards and copyright and patent protection. All 50 states use the same currency, not
subject to manipulation or devaluation. All 50 states are ultimately answerable
to the Supreme Court.
Adopting these same standards would eliminate tariffs on
manufactured and agricultural products and open up service markets and
government procurement. Labor rights, safety standards, environmental
protection, intellectual properties, and due process would all be protected and
regulated. In short, the playing field would be leveled. They must be pursued vigorously and
immediately.
Ninety percent of our trade deficit is from countries with
which we do not have Free Trade Agreements. The average duty on products
entering the United States is less than three percent whereas the average duty
imposed by a World Trade Organization (WTO) member is thirty percent. We do not
need WTO but we do need more Free Trade Agreements.
Create the Department
of Global Trade
Our command structure is a convoluted mess due to the split
authority between the USTR (United States Trade Representative) and Department
of Commerce. This split provides the USTR responsibility for "policy",
"coordination" and "negotiations" while providing the Secretary of Commerce
"nonagricultural operational trade responsibility".
We must replace the USTR-Department of Commerce two-headed monster
with a single Department of Global Trade. The Secretary of Commerce would
become the Secretary of Global Trade, possessing real power over a portfolio
that offers opportunities for important policy leadership. Unlike today, the
Secretary of Commerce would have complete authority over all facets of trade
including strategy, negotiations and enforcement.
Forget about trade
sanctions.
Trade sanctions rarely have the anticipated effect on our
adversaries. Instead, they usually only
hurt American manufacturers and workers. We have eager European and Asian
competitors tripping over themselves to fill every purchase order and contract
we walk away from.
In the past fifty years the United States has gone overboard
on sanctions. We have sanctioned more
than 80 countries over 175 times. If we include "soft" sanctions such as
denying export financing through the EXIM Bank the number would be much higher.
Our sanctions threaten two thirds of the world's population. Over half of the
sanctions established in our country's 231 year history have occurred in the
last ten years.
Although it is difficult to estimate, sanctions cost
American exporters at least $70 billion annually in lost sales which translates
into 600,000 jobs.
We are deemed by many to be unreliable suppliers beholden to
an impulsive Congress. Trade sanctions have become foreign policy "on the
cheap" as a way to show disdain without sending in the marines. At least we can
all be reassured that Congress can not be blamed for being discriminatory. We
literally sanction every country from A-to-Z: Angola to Zimbabwe.
We sanction to fight communism (ironically our trade
policies now perpetuate communism in China). We sanction in the name of human
rights, to protect the environment, to stop weapons and nuclear proliferation,
to protest military action, to improve treatment of labor, to elevate
environmental standards, for harboring terrorists, for dealing in expropriated
U.S. property, for drug trafficking, for money laundering and my personal favorite,
for having restrictive trade policies.
In fact, if we consistently applied our policies, only a
handful of countries would be left to trade with.
Of course all good people support human rights and don't
want the "bad guys" to get dangerous weapons. However our sanctions are totally
out of control. They have robbed the jobs (and lowered the wages) of hundreds
of thousands of Americans without having any impact on the targeted countries.
If they are to be used, sanctions should be weighed carefully, and be targeted
primarily against rogue countries with out-of-control weapons programs. Unless
sanctions are airtight and multilateral they have absolutely no chance to
succeed.
Why do we continue down a road of such arrogance and assured
failure? Too often we fail to realize that our power has some very real
limitations. A better solution is to let Americans engage the citizens of
foreign countries by traveling abroad, taking with them our values, culture and
ideas. By allowing Americans to engage with the world, trade barriers would
fall, and the only losers would be tyranny, poverty and ignorance.
The next time a member of Congress decides to make C-SPAN
highlights by thundering his or her intentions to bring sanctions against some
evil regime in the world, let us make sure that they remember who really will
suffer: the American worker.
Get tough on Intellectual Property Protection and Counterfeit Goods.
Counterfeit products produced and sold freely at markets in
China and exported around the world cost Americans an estimated 750,000 jobs a
year and American businesses $250 billion.
The bulk of the world's pirated material comes from China. If China for
whatever reason can not close this down, then the Chinese Government must make
restitution to US companies and workers being cheated because of their
ineptness to govern. We must declare war on Intellectual Property theft and
provide the resources to fight it.
We must radically
rethink our involvement with the World Trade Organization (WTO).
It is time to stop wasting energy, resources and goodwill
and admit that the multilateral Doha Round of the World Trade Organization
negotiations is doomed to failure. The WTO talks are at an impossible impasse
over the EU (held hostage by France) and Japan's inability to give up the
"opiate" of agriculture subsidies and a block led by Brazil and India unwilling
to agree on meaningful Intellectual Property Rights (IPR) protection.
It is much more practical and rewarding to negotiate with
one trade partner at a time instead of the 149 members of WTO all at once, each
having veto power. Groups are often formed to thwart American initiatives. The
WTO has reached the critical mass to be self-sustaining and will never be much
more than it is today. The WTO is the trade equivalent to the United Nations.
Take Back Our Trade
Sovereignty.
Once upon a time the United States possessed a feared and
effective weapon: Section 301 of the Trade Act of 1974. As amended, it is the
principal statutory authority under which the United States may impose trade
sanctions against foreign countries that "maintain barriers, policies and
practices that violate, or deny U.S. benefits under trade agreements or
restrict, burden or discriminate against U.S. commerce".
Super 301 went further and required in 1989 and 1990 the
USTR (U.S. Trade Representative) to publicly identify "priority foreign
countries" and unfair "priority practices" that were major impediments to U.S.
exports. If the offending country was not forthcoming in scrapping their
designated barriers, it provided the President authority to retaliate.
Super 301 helped open several successful quantifiable market
initiatives, especially those with Japan and Brazil. President Reagan deftly
used the threat of Section 301 to revalue the Japanese yen. Immediately after
the Plaza Agreement in September of 1985 the yen appreciated against the U.S.
dollar by over fifty percent playing a crucial role in increasing American
exports.
Today, in contrast Beijing steadfastly refuses to allow the
RMB (Chinese currency), under-valued by as much as forty percent, to reflect
its true value. The threat of Section 301 has all but disappeared.
You may wonder how China can avoid its responsibilities. The
answer is that we have surrendered our trade sovereignty to the World Trade
Organization (WTO). The United States is no longer allowed to directly apply
Section 301 to pressure trading partners into eliminating barriers to U.S.
exports and other unfair practices. U.S. trade enforcement is now in the hands
of the WTO's Dispute Settlement Body (DSB) which essentially takes the U.S.
government out of deciding its trade interests. This is tantamount to handing
over national security to the largely ineffective United Nations.
Get Rid of
Agricultural Subsidies
The true cost of farm subsidies that our tax dollars are
supporting should cause outrage among the American people. President Franklin
Roosevelt created farm subsidies to aid farmers barely staying alive during
Great Depression. This was a necessary and noble cause, however like many
government administered programs, it has become perverted. The intension was
never to be paying millions of dollars to millionaires.
The negative impact that our farm subsidies have abroad can
not be understated. They clearly distort world trade, deepen poverty and
undermine our credibility.
U.S. farm subsidies are currently about $20 Billion per
annum. We are not the only guilty party. The E.U. (European Union) pays $67
Billion in farm subsidies (France is the main beneficiary) while Japan pays $33
Billion. As a further barrier to trade, duties on many farm products in the
U.S., E.U. and Japan exceed 100%.
American agribusiness exporters routinely sell their
products below the cost of production with the American taxpayer making up the
difference. It is impressive to witness at foreign trade shows, the pervasive
presence of the U.S. Department of Agriculture and American food companies
exhibiting their products under its banner. Many of the products being sold are
costing the American taxpayer every time an order is placed. The companies
benefiting from these subsidized transactions are some of the biggest
corporations in the United States.
It is a misconception that farm subsidies exist to stabilize
the incomes of poor family farmers who are at the mercy of unpredictable
weather and uncontrollable price fluctuations.
Eligibility for subsidies has nothing to do with low incomes
or poverty alleviation but by the crop that is grown. Growers of corn, cotton,
rice, soybeans and wheat receive 90 percent of all farm subsidies. Most
subsidies go to large corporate farms simply because of how the program is
designed and administered.
The top 10 percent of subsidy recipients get nearly 75
percent of all federal funds whereas the bottom 80 percent of the farmers
receive a measly 12 percent. This is the largest corporate welfare program in
the history of the United States. These subsidies have accomplished the
complete opposite of their intended purpose. Instead of saving the family
farmer, it has provided capital for large corporations to buy out smaller farms
and consolidate the industry with taxpayer money.
Because of this ongoing consolidation, there is an
undeniable "plantation effect" happening in the United States. The number of
farm operators is rapidly shrinking while the average size of a farm is greatly
increasing. These mega-farms employ thousands of migrant workers and tenant
farmers that are being paid near poverty wages with limited access to
healthcare.
Fortune 500 companies that receive massive subsidies include
Caterpillar, Chevron, International Paper, John Hancock Mutual Life Insurance
and Kimberly Clark. Such diverse individuals as Bob Dole, David Rockefeller,
Scottie Pippen and Ted Turner receive large federal subsidies too. Even Ken
Lay, the ex-CEO of Enron, received several thousand dollars for not farming his
land before his dramatic meltdown.
Unfortunately the present farm bill is only accelerating the
transformation of farm subsidies into corporate welfare programs with most of
the funds going to highly profitable corporations and celebrity millionaire
farmers. The family farmer is rapidly becoming extinct while the American
taxpayer continues to be fleeced like an apathetic lamb.
To illustrate the impact this has overseas, consider the
following. Subsidized U.S. food products being imported to Jamaica are cheaper
than homegrown Jamaican crops. This makes it impossible for the dirt-poor
farmers to survive. If they are not competitive in their own market, there is
no way they can hope to export. Gripping poverty has a firm headlock on them
thanks to farm subsidies.
With the U.S. Government guaranteeing American farmers a
minimum payment for commodities such as corn, rice, soybeans and sugar, it
encourages over production in the U.S.
This drives down market prices forcing even higher subsidies paid by
taxpayer money and creating surpluses that are dumped around the world and make
it impossible for local farmers to compete in their home markets.
Rewrite the tax code
so it does not discriminate against U.S. manufacturers and exporters.
Our manufacturers pay a disproportionate share of taxes that
fund our schools, support our defense and build our roads. We must rid
ourselves of an arcane and convoluted income tax system and move to a simple
consumption tax that spreads the burden equally over American made and imported
goods. Like our competitors, we must provide tax incentives and rebates to our
exporters.
Fairly distribute U.S. government supports recognizing the
contributions of manufactured goods to our economy and security.
Whatever funding the American
government does provide to promote exports goes to the U.S. Department of
Agriculture (USDA). The USDA gets approximately seven times more funding to
promote agricultural exports which represent just nine percent of our overall
exports than the Department of Commerce (DOC) receives to promote the other
ninety-one percent. To add further to this inequity, much of our agricultural
exports are subsidized by U.S. tax payers and sold below the cost of
production.
The United States is
the only industrialized country that taxes its citizens based on nationality
rather than their residence.
Unlike the U.S., our European and Japanese competitors do
not pay income taxes to their home countries while working overseas. This is a
significant incentive for them to relocate overseas to assist their producers
in penetrating foreign markets.
I have witnessed the tremendous benefit ex-pat communities
bring their home country manufacturers. America must provide income tax
incentives, like our competitors, to those willing to be the front line
soldiers of American exports. The present Foreign Earned Income Exclusion that
Americans overseas are subject to is insufficient and outdated.
The Foreign Corrupt
Practices Act (FCPA) is an unrealistic, archaic law that is a serious
impediment for American companies competing overseas.
It is a law that our European and Japanese competitors do
not have to contend with. FCPA, enacted by Congress in 1977, makes it illegal
for U.S. companies to pay fees to foreign government officials in order to
obtain business or gain some advantage.
The trigger for FCPA was the Lockheed Scandal whereby the
American aircraft manufacturer paid various Japanese government officials in
the course of trying to sell its aircraft. Some of these funds found their way
to then Japanese Prime Minister Kakuei Tanaka and eventually forced him to
resign from office.
Though I don't subscribe to paying bribes to foreign
government officials, we need to re-think the way that the federal government
oversees U.S. exporters. It should be up to U.S. companies overseas, fighting
for American exports, to police themselves. The current law, for instance,
prohibits paying a "facilitation fee" to a foreign customs officer, even if
that is the only way to release goods required to complete a contract.
We must understand that in most other countries there is a
way to compete and conduct business that may seem out of character with
accepted U.S. practices. But by handcuffing U.S. exporters, they will be unable
to bring home business that American workers desperately need.
Our U.S. Export
Assistance Centers (USEAC) throughout the United States and our Foreign
Commercial Services Offices at our Embassies overseas must be provided
resources needed to promote and defend our exporters.
We must continue to invest in and build further our
infrastructure that promotes American exports. America's back bone has always been its small businesses and
entrepreneurs. The world is a big and daunting place. The U.S. Export
Assistance Centers and the Commercial Sections of our Embassies overseas are an
important resource in helping American exporters reach potential customers in
every market.
Our competitors have armies of
lawyers and trade specialists working feverishly to clear away barriers
targeted against their exports. The U.S. Department of Commerce which is
responsible for enforcing our trade agreements and promoting American exports
is woefully understaffed. Gross violations impacting thousands of jobs go
unchallenged allowing foreign governments to trample American interests with
not even the slightest resistance.
Quality trade education must be
made available that is predictable, affordable and convenient. A glowing
example of the U.S. Government and the private sector working together for the
good of the nation is the Florida District Export Council's Export University
program. Hundreds of students have passed through its courses. It is a program
that must be rolled out nationally.
The EXIM Bank and SBA
(Small Business Administration) are valuable tools and must be expanded upon.
Over seventy percent of American exports are done by SME's
(Small and Medium Enterprises). They are therefore essential to solving the
trade deficit.
Product financing is a major component of any purchasing
decision. Our European and Japanese competitors have long been offered soft
payment terms subsidized by their home governments. This often makes the
difference in winning large export orders that employ thousands of workers.
Each $1 that American taxpayers have invested in the SBA's export finance
program has yielded over $500 in export sales. This is probably the single most
successful export promotion program, dollar for dollar, in the entire U.S.
government.
The EXIM Bank and SBA programs need to be made more
accessible with increased borrowing limits and fewer restrictions. These
programs are the life-blood of American exporters.
Fifty years of successive Republican and Democratic
administrations without a comprehensive trade vision has resulted in an
infrastructure that is unable to compete globally.
Providence has bestowed on ordinary American an
extraordinary privilege to change things for the better. It is our duty to
seize that right.
It starts with a vision.
Neal Asbury is president of Greenfield World Trade, exporting
American-made products to 137 countries worldwide.
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