PrintSeptember 24, 2010
How to Win the Trade War with the Democrats
There are two trade wars going on at the moment. One is between the mercantilist countries and the United States; the other is between the Democrats and the Republicans. In both wars, one side is punching while the other side just stands there taking punches.
In the trade war between the mercantilist countries and the U.S., China and the other mercantilists intervene in our markets by manipulating the price of the dollar as compared to their currencies, so that our goods are overpriced and their goods are underpriced in world markets. In the meantime, they keep our products out of their markets through various tariff and non-tariff barriers.
There are three positions on trade when a country is being punched out by mercantilists:
- 1. Unilateral Free Trade. This is the Republican establishment's pacifist strategy of just taking the punches to afford an example to the rest of the world. This has been U.S. policy for three decades.
- 2. Protectionism. This is liberal Democrats' "industrial policy" strategy of protecting government-preferred industries with tariffs and subsidies. President GW Bush did it with respect to steel and was forced by the WTO to back down. President Obama did it with respect to tires produced in China and succeeded in enforcing it.
- 3. Balanced Trade. This is the conservative pro-free-market strategy of balancing exports with imports in order to defeat the mercantilist strategy of maximizing exports and minimizing imports. It takes advantage of a special WTO rule that lets trade deficit countries impose import duties or limitations in order to bring trade into reasonable balance.
China, the largest of the mercantilist countries, lets its people buy only 27¢ of American products for every $1 we buy from them. They use a variety of tariff and non-tariff barriers to keep out American products, forcing American companies to locate their factories in China in order to sell to the growing Chinese market.
Lately the Chinese government has even been upping its demands on those American companies producing goods in China, threatening to exclude even their Chinese-produced goods from Chinese markets, unless they hand over proprietary technology to Chinese competitors and/or move their Research and Development laboratories and their patents to China. Just last week, the Chinese government told American car companies that they will have to give Chinese competitors their electric automobile technology.
There is no good reason why the U.S. should let the Chinese government exclude American products from their markets in order to steal our industries and our technologies. If we require what Lou Dobbs calls "mutual, reciprocal, balanced trade," American companies would be able to produce in the United States and still sell in China, just as Chinese companies can already produce in China and sell in the United States.
The Democrats' Trade War
Public opinion on trade has shifted decisively against the unilateral free trade position. For example, an October 2007 Wall Street Journal/NBC News poll found that 59 percent of Republicans agreed with the statement that "[f]oreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products."
Similarly, a poll conducted in April 2010 by the Alliance for American Manufacturing found that 71% of the American people would "[i]mpose tariffs on products from China unless it stops cheating on its trade commitments with the United States."
The Democratic Party, but not the Republicans, began talking about trade in 2006 when Senator Chuck Schumer took leadership, both on the trade issue and in enlisting Democratic candidates who would make trade an issue.
Democratic candidates this fall are drawing inspiration from the way Democrat Mark Critz used trade rhetoric to win a special election earlier this year in Pennsylvania's 12th congressional district. Currently, Democratic Party candidates are tapping into trade rhetoric in order to pull out the 2010 elections. Here are some recent examples, reported on September 18, by the Associated Press:
- "New York Democratic Rep. Tim Bishop unleashed a television ad christening [businessman Randy Altschuler] an ‘outsourcing pioneer' who sent jobs overseas while millions of Americans struggle ... an announcer adds that Altschuler 'made millions outsourcing jobs.'
- "In California, where unemployment stood at 12.3 percent in July, Sen. Barbara Boxer recently began running a commercial that says Republican candidate Carly Fiorina laid off 30,000 workers while she was CEO of computer giant Hewlett-Packard."
- "In other cases, including races in Wisconsin, Illinois, Nevada, Virginia and elsewhere, Democrats have seized on a no-tax-increase pledge signed by Republican incumbents or candidates as evidence they want to protect breaks for companies that export jobs."
- "In still others, the allegation is that a Republican will support a new trade deal that promises to result in the loss of jobs overseas."
Changing the Narrative
The Democratic narrative is that U.S. trade deficits are caused by Republicans, who take the side of big business against the American worker. The problem is that when Democrats actually gain power, they do nothing to address the trade deficits. Since the Obama administration took office in January 2009, the U.S. trade deficit has risen from $376 billion to $536 billion, while 864,000 American manufacturing workers lost their jobs.
The Democrats' current policy was laid out in February 2009, when President Obama sent Secretary of State Hillary Clinton to China -- not to demand balanced trade, but to beg the Chinese government for loans. The Taipei Times reported, "In Beijing, she called on Chinese authorities to continue buying US Treasuries, saying it would help jump-start the US economy and stimulate imports of Chinese goods." The Democrats' wild escalation of spending has left the United States critically dependent on Chinese purchases of Treasury debt, weakening our bargaining position with Beijing. Restraining or ending the federal deficit is vital to strengthen our hand.
The Republican establishment's narrative is that the Democrats support protectionism while Republicans support free trade. Unfortunately, this rhetoric ignores the fact that American trade with mercantilist countries is not free. Furthermore, trade is beneficial only if it is balanced so that each country trades a bundle of products that it makes relatively efficiently for a bundle of products its trading partner makes relatively efficiently. When trade is kept unbalanced by mercantilists, the mercantilist country gets industry and technology while its victim gets consumer goods, debt, and eventual economic collapse.
To change the narrative, Republican candidates can move away from the Republican establishment's pacifist trade policy and instead advocate mutual reciprocal balanced trade, a policy that could be easily achieved through our scaled tariff proposal. The mercantilist governments would then have to take down their barriers to our products in order to keep our doors wide open to their products.
No longer would the Chinese government restrict its people to just buying 27¢ of American products for every $1 we buy from them. No longer would American companies have to move their factories to China in order to have access to Chinese markets. No longer would American companies be subject to Chinese government blackmail that they must hand over their technology in order to have access to Chinese markets.
But balanced trade is just one of the three pillars of fiscal conservatism that Republicans should be advocating. Together, the three are sufficient to insure long-term economic stability: (1) balanced budgets, (2) balanced monetary growth, and (3) balanced trade.
The authors maintain a blog at www.idealtaxes.com, and co-authored the 2008 book Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too Late, published by Ideal Taxes Association.
