Experts Urge Next President to Dump US Trade Policy, Demand Tougher Enforcement
The title of the Washington, D.C. conference was “What the Next President Should Do about U.S. Manufacturing: An Agenda for the First 100 Days.” The most contentious issue at the September 14 conference was clearly trade policy. While sharply differing viewpoints were expressed, most participants urged the 45th president of the United States to follow a new direction on trade and dump the Trans-Pacific Partnership now awaiting an unlikely approval by the U.S. Senate.
Jason Miller, an economic advisor to President Obama, told the conference held at the National Press Club and convened by the Indiana University School of Public and Environmental Affairs, that the president was convinced that the Trans-Pacific Partnership was “critical to our economic strength and to our place in the world.” Miller warned that China was “not waiting” on the U.S. and was forging its own trade agreements.
Miller defended the Obama administration’s efforts to ensure that U.S. companies were competing on a level playing field with regard to trade. He said the administration had initiated more enforcement cases at the World Trade Organization than any other country and has won every case it has brought. He added that the administration at the September G20 meeting in Hangzhou, China, had met with Chinese leaders on excess steel capacity and that the Organization for Economic Co-operation and Development had convened the first meeting of a new global forum to address the issue.
Steel is not the only industry facing a threat from overcapacity, Miller noted. China has committed $150 billion in public and private funds over the next decade to ramp up its semiconductor industry. Miller called the U.S. semiconductor industry “critical to our exports and to our innovation going forward.”
But Sen. Jeff Sessions, R-Ala., urged caution on new trade agreements. He noted that 13 trade agreements had been ratified while he was in the Senate and that “he had voted for all of them.” But he said the agreements had not worked as advertised and the Congress was now “very wary of this monstrosity, the TPP.”
When China was granted most favored nation status in 2000, he recalled, the U.S. trade deficit with the Asian nation had been $83 billion. “What they promised us was that the deficit would not increase, we would both benefit equally, create more jobs in the United States, open markets in China and it was going to be great for the United States,” he said. Since then, the U.S. trade deficit with China had increased more than fourfold, to $367 billion.
The 2011 free trade agreement with South Korea has similarly backfired, Sessions noted. Proponents of that agreement said it would increase U.S. exports to Korea by $11 billion and would not increase the trade deficit. Instead, he said, U.S. exports to Korea in 2015 were lower than in 2011, Korean exports increased by $15 billion and the trade deficit has more than doubled.
Now, Sessions told conference attendees, the same promises are being made for the TPP. He said there was growing concern among citizens of the developed world that “their interests are not being effectively defended while everyone else is making progress.” Sessions warned that Asian trading partners are “ruthless mercantilists” who “lust after the American market.” He said the U.S. must defend its interests if it is to maintain its manufacturing industry and continue its leadership role in the world.
Sessions said any new trade agreements should reflect a “fundamental value – does it advance the interest of the United States?”
“Free trade, which we supposedly have now, isn’t free at all,” said Dan DiMicco, former CEO of Nucor Corp. and a vehement critic of U.S. trade deals. “It is being manipulated by foreign governments and we for a lot of reasons let them get away with it.” He said the U.S. has been in a “trade war” for two decades and was losing it because “we have yet to show up and fight.” He urged the United States to negotiate trade agreements from a position of strength and demand reciprocity in terms of market access.
Gary Clyde Hufbauer, an economist with the Peterson Institute for International Economics, said the consensus for a TPP trade deal was “dead,” but he argued that the United States was making a mistake in turning from the trade policies it had pursued since World War II.
Calling the arguments that trade agreements were hurting the U.S. a “strong myth,” Hufbauer said research had shown repeatedly that these agreements had made “no difference to trade balances, that is, the deficits.” Instead, he said, there was a strong association between exchange rates and trade deficits. The United States, he stressed, has had a “persistently overvalued dollar since 1990.” That, he said, was the “number one reason for a continuing large trade deficit.” Hufbauer added that U.S. manufacturing firms were also being hampered by tax rates that were too high.
Ralph Gomory, a research professor at New York University Stern School of Business and a former IBM executive, said U.S. companies had learned that they could maximize their profits by taking their technology and know-how to Asia in exchange for subsidies in the form of underpriced currencies, ready-to-go factories, tax incentives and cheap labor. For the U.S. economy, this resulted in harming domestic industries while failing to increase exports.
“Until we learn how to assess the real effects of these trade deals, remembering that they take place in a mercantilist world…we should have no more of them,” he urged.
Gomory joined several other TPP critics in warning against the agreement’s dispute settlement provisions that give companies the power to sue governments if the companies believe the governments have taken “any step that hurts their profits.”
“If the TPP should pass, it will be a grant of legislative and judicial power to corporations over governments, including ours,” said Gomory.
For Leo Gerard, president of the United Steelworkers, the prescription for the next administration was simple – “make sure the TPP never rises again.”
Gerard criticized current trade dispute enforcement mechanisms. He noted that a case had been brought on behalf of the paper industry. The union won the case but no remedy was required of China because it was found that there was no evidence that the U.S. company had suffered economic harm. Three years later, the same basic case was brought again but by this time the company had lost 7,000 jobs and profits had plunged. The U.S. won the case again but at a high cost.
“In order to win a case, we have to lose,” Gerard said. “That has to change.”
China produced 500 million tons of steel in 2003-04, Gerard said. It is currently producing 1 to 1.2 billion tons annually, 400 million tons more than it can consume in the best circumstances.
“Where are those 400 million tons going?” Gerard asked the audience. “They are flooding our market. They are killing our steel industry.” He called the trade deficit resulting from China’s unfair trade practices “the transfer of American wealth.”
Gerard also cited the transfer of advanced technology to China by U.S. companies. He said it galled him that Boeing transferred wing technology to China and GE had provided its avionics technology. The rise of a Chinese aircraft industry, he warned, will result in the loss of thousands of U.S. jobs.
Gerard pointed to a foundry which spent $50 million so that it could create collars for wind turbines for GE. But after making the investment, GE said it had to cancel the contract.
“If we don’t make the collars in China, we won’t have enough domestic capacity to meet the 85% [domestic content] threshold,” Gerard related.
Protecting U.S. Defense Capabilities
“National security is threatened by deterioration of the defense industrial base,” warned John Adams, a retired U.S. Army general and president of Guardian Six Consulting, in a separate conference session. He said large chunks of production were moving offshore and added that the U.S. runs a more than $100 billion trade deficit with China in advanced technology products.
Calling the steel industry the “backbone of the industrial base,” Adams said the U.S. Navy depends on U.S.-made steel and specialty materials but the industry was “under attack from steel dumping.”
Adams said it was a “myth that steel will always be available for defense.” He said without a domestic commercial steel industry, there will be no steel for defense uses and the U.S. could be forced to depend on China and other international competitors. He added, “We can’t afford to buy submarine hull steel from China.”
Without maintaining domestic defense supply chains, Adams concluded, the U.S. faces “significant risks to our readiness for future conflict.”
Stephen Vaughn, a partner at King & Spaulding, recommended at least a one-year moratorium on new trade agreements and the appointment of a high-level bipartisan commission to conduct a “top to bottom review” of U.S. trade policy and determine why agreements have not worked as promised.
