Topic Category: Politics

A primary economic problem poor countries typically incur is not too much global economic integration, but rather, their lack of it. This coupled with the absence of freedom is a recipe for poor growth prospects, high unemployment, hopelessness, and ultimately, revolution. History is replete with examples.

On spending, debt and health care, the tea party message on Election Day was loud and clear. But where dozens of newly elected tea party candidates stand on trade policy is a big question hanging over the next Congress.

Free Trade Benefits Questioned by Some Tea Party Influentials

While tea party members embrace free markets, limited government, and reduced federal meddling, some tea party leaders have openly questioned the benefits of free-trade agreements such as the North American Free Trade Agreement (NAFTA) and a recently reached deal between the United States and South Korea.

The U.S. House of Representatives recently passed the American Jobs and Closing Tax Loopholes Act (HR 4213). This bill will hurt American workers, reduce American exports, and make American companies less competitive in the international marketplace. Since the U.S. Senate has already passed companion legislation, the American Workers, State, and Business Relief Act (S 3336), these ill-considered bills could soon be reconciled in conference and become the law of the land. If so, American firms and workers will pay the price.

President Obama’s goal of creating American jobs has thrust the Chinese currency onto center stage in Washington, where an undervalued renminbi is blamed for the trade deficit with China, and in turn, the deficit is blamed for U.S. job losses.

Growing acceptance of that sequence of fallacies threatens our economy, as Congress considers restrictions on imports from China to compel the Chinese government to appreciate its currency. In true Washington fashion, these policies will reduce Americans’ real incomes and destroy U.S. jobs in the name of economic growth and job creation.

On February 4, Commerce Secretary Gary Locke fleshed out the details of President Obama’s National Export Initiative (NEI), a plan unveiled in the 2010 State of the Union address that promises to double U.S. exports over the next five years and support two million American jobs. The NEI aims to bolster U.S. international competitiveness by creating (1) an export promotion cabinet that will oversee the expansion of both government programs and special financing for firms and farmers seeking oversees market opportunities, and (2) tougher enforcement of international trade laws.

President Obama's historic visit to China is an opportunity for the U.S. to deepen its Chinese relationship and pursue a more sincere partnership. Why? The two economic superpowers are increasingly dependent on each other and will be for decades to come.

The United States needs China to continue financing its debt; China needs U.S. markets to sell its goods. But there's much more.

Since China joined the World Trade Organization in 2001, U.S. exports to China have risen 273 percent as compared to 78 percent for the rest of the world. And that growth is likely to continue because Chinese consumer demand is predicted to rise from 8 percent of global demand today to 31 percent by 2020, according to a Credit Suisse report.

China also is an important ally in the effort to fight global terrorism, denuclearize North Korea and promote environmental initiatives. But challenges could derail our relationship.

Chinese intellectual property piracy, product safety, market access and human rights issues remain problematic. To remedy this, we should continue a policy of constructive engagement and urge China to become a more responsible global stakeholder.

Other issues, which remain a concern, need to be viewed in a broader context.

For example, since July 2005 when the Chinese exchange rate regime was adjusted, the renminbi has appreciated 18 percent. Although it's still undervalued, giving Chinese companies an advantage, a floating renminbi likely would lead to instability. And right now we need a stable China to help pull the world out of recession. Former British Prime Minister Tony Blair expressed it well: Chinese "disorder is their enemy and ours."

In reality, a higher valued renminbi, and in turn, more expensive Chinese products would not eliminate our trade deficit. Other low-cost nations would simply fill the gap.

Most aren't aware that the proportion of our global trade deficit coming from Asia, including China, is actually less than a decade ago. The U.S. trade deficit with China reflects changing Asian trade patterns not revealed in statistics. Instead of flowing directly to America, today much of Asia's exports first go to China for assembly, and then to the rest of the world. As a result, about half of "Chinese exports" to the U.S. are not of Chinese origin.

To further accelerate the pace of Chinese reform—which compared to other nations has been astounding—many want President Obama to adopt a confrontational strategy and brand Chinese imports as bad. This will only result in a hostile China, which is contrary to U.S. interests. Plus, it hurts American consumers.

For instance, President Obama's recent decision to implement a 35 percent tariff on cheap Chinese tires—which was not supported by U.S. tire producers—has raised prices forcing many consumers to keep worn tires on their cars longer. And this will not create more manufacturing jobs in America. U.S. producers don't want to make low-margin tires. Instead, tire imports from Indonesia, Mexico and Brazil will rise.

Lower-cost imports from China or elsewhere subsidize living standards for many of America's lower and middle class consumers, who can stretch their dollar further at retailers like Walmart. And low-cost Chinese imports aren't the reason U.S. manufacturing jobs have declined. The real culprits are technology and productivity, which enable fewer workers to produce more products faster.

China has 20 percent of the world's population and soon will surpass Japan to become the second largest economy. It's also our third largest export market. American companies need continued access there, so more higher-technology, higher-paying jobs are created here.

We need to work constructively with China to overcome obstacles. We need to better understand what's at stake. The bottom line: How we view China today will determine whether we are friends or enemies tomorrow. And friends can accomplish a lot more than enemies.

The annual North American Leaders Summit was held in August in Guadalajara, Mexico, with President Obama, Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon. As I speak to audiences around the United States, I repeatedly hear the same question: “What was accomplished during the summit?” My short answer: not much.

President Barack Obama is neither a committed free-trader nor a hard core protectionist. But his continuing failure to commit to a pro-trade agenda amounts to de facto protectionism and subverts his economic and foreign policy objectives.

No Clear Signal

Reacting recently to a provision in the climate change bill that would impose trade penalties against nations that do not limit carbon emissions enough, the president said, “At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals.”

As President Obama seeks to boost the U.S. economy and build stronger ties with our friends abroad, he could advance both goals at once by urging Congress to pass the pending trade agreement with our South American neighbor, Colombia.