The Bush Administration, like others before it, has been a big proponent of "free trade." One may well question the wisdom of this international policy, not only because the United States keeps running huge trade deficits, but also because of the hemorrhaging of manufacturing capacity and good jobs. While resigned to the inevitable consequences of globalization of markets and labor, the United States owes it to our manufacturers and working families to demand a policy of "fair trade."
In 2005, the United States incurred an $805 billion trade deficit, the largest in U.S. and world history and the ninth such record in ten years. A rising trade deficit leads to the loss of jobs in traded sectors – especially good jobs in the manufacturing sector. A decade of rising U.S. deficits has contributed to the loss of over 3.2 million manufacturing jobs between 1998 and 2005. A series of free trade arrangements has apparently helped to accelerate the rate of outsourcing. Too many efficient United States companies are being undermined by competition from countries that use illegal and unfair trade practices. In a downward spiral, trade deficits also tend to weaken the U.S. dollar, with consequential harmful effects on our economy.
1. World Trade Talks. In multilateral trade talks within the context of the World Trade Organization (WTO), American manufacturers and others are urging that the United States strongly oppose any efforts to reduce or eliminate U.S. tariffs on industrial products – at least until all major trading partners agree to lower their tariff rates to our levels. It is unacceptable, they point out, for Brazil, China, India, Pakistan and some other countries to be able to enjoy huge trade surpluses with the U.S. while their tariff rates are significantly higher in many areas. In addition, countries that have advanced so far in manufacturing should also be stripped of the advantages of so-called "developing country" status and redesignated to reflect their true "developed" status.
There are several other areas of concern, including in connection with the currently-stalled Doha Round of WTO talks. One is identification and elimination of non-tariff barriers used to reduce imports of United States manufactured goods. This includes challenging such obstacles as customs procedures that are not uniformly applied, lack of competitive bidding procedures for contracts, direct and indirect subsidies by foreign governments in support of domestic suppliers, discrimination in adoption or enforcement of burdensome certification and testing requirements, and bribery and other corrupt practices by foreign manufacturers. Another important objective is vigorous enforcement of intellectual property rights. In this country, Congress might also consider transitioning from a corporate income tax to a value added tax (VAT), to reduce or eliminate competitive disadvantages suffered by U.S. companies in relation to competitors in foreign countries that have gone the VAT route.
2. Trade Agreements. Likewise in the regional context, the United States cannot continue to allow other countries that do not adhere to fair trade and tariff practices, internationally recognized workers' rights and environmental standards to continue to undercut us. In the view of many, beginning with the North Atlantic Free Trade Agreement (NAFTA), the U.S. has entered into a series of unwise and progressively more objectionable Free Trade Agreements that will further fuel burgeoning trade deficits and harm U.S. workers and the environment. These deals provide the wrong model for trade, by promoting free trade over fair trade. Meanwhile, over 90% of U.S. trade is with non-treaty countries, and the federal government t should exert what pressures are available to make all such trade fair.
A large part of the problem appears to lie in the process. Fast Track/Trade Promotion Authority is coming up for renewal in Congress in the spring of 2007. The current Fast Track/TPA limits Congressional debate to 20 hours and allows only for an up-or-down vote with no amendments permitted. This has prevented Congress from assuring adequate environmental and labor protections in trade agreements. If Fast Track is to be renewed, it should include included binding mandates, not just guidance to United States negotiators, with respect to environment and labor objectives.
3. China Trade Deficit. Within the overall problem of huge and growing United States trade deficits, China is a special case. The U.S. has in recent years run record trade deficits with China, larger than with any country. In 2005, the shortfall reached $202 billion. There are several reasons for this imbalance and several measures that could be effective in reducing it:
The principal reason for this huge trade gap is that the Chinese currency, the yuan, is undervalued by as much as 40%. This makes Chinese goods that much cheaper in the United States and conversely American products more expensive in China. The Chinese government has repeatedly made hollow promises and proposed inadequate remedial measures, and our own government has failed to respond effectively. The U.S. may consider imposing large tariffs, perhaps in excess of 25%, on all Chinese imports unless officials in Beijing take prompt and effective action to allow the value of the yuan to rise.
The Chinese government has also repeatedly violated World Trade Organization rules in engaging in illegal manufacturing and other subsidies. The United States Department of Commerce should be filing and vigorously pursuing complaints against China for such WTO violations.
China, as many other countries, lacks laws and regulations protecting workers and the environment. Consequently Chinese manufacturers can produce products at much lower immediate costs. The answer is not to weaken U.S. labor and environmental protections, but rather to focus on preventing those countries that do not adhere to internationally recognized workers' rights and environmental protections from continuing to undercut us. The United States has, however, among other things been reluctant to criticize gross violations by China before the United Nations Human Rights Commission and elsewhere. Such inaction may be costing hundreds of thousands of American jobs (in addition to effectively condoning by non-action repression of Chinese workers).
China also lacks adequate consumer laws, regulations and practices. While this helps keep down the cost of goods, it gravely endangers United States (as well as Chinese and other) consumers. In early 2007 alone, first it was melamine-contaminated pet food killing cats and dogs in the United States, next came toothpaste containing a poisonous chemical used in antifreeze, and after that we got toys with lead paint. Most recently, the United States National Highway Traffic Safety Administration ordered a distributor to recall 450,000 tires imported from China for lack of a safety feature to prevent them from separating, and the U.S. Consumer Product Safety Commission (CPSC) recalled 13,600 Chinese-made fireworks destined for July 4 celebrations. Overall, the number of products made in China recalled by the CPSC has doubled in the last five years. In 2006, of a record 467 CPSC recalls, China was responsible for 60%, compared with 36% in 2000; 100% of toy recalls were attributable to China (not so unusual, since 70 to 80% of all toys sold in this country are Chinese imports).
Finally, China has in recent years become the second largest international holder of United States public or national debt. It is very hard to argue with one's banker, and the magnitude of its holdings affords China significant control over the U.S. economy. Among other problems, if a sizeable portion of the debt securities were to be precipitously dumped on the world financial markets, it could cause severe disruptions in the U.S. economy. Also, China uses its debt leverage to manipulate exchange rates, with the disruptive trade consequences already discussed. One general way to reduce this threat is for the U.S. to returning to policies of fiscal responsibility and a "pay-as-you-go" approach to the federal budget -- thereby incurring less debt for China (and Japan and certain other countries) to own and exploit for unfair trade advantages. But with particular regard to China, as already observed, a vital policy component is to exert whatever legitimate pressure is available to compel that government to let the yuan rise to its real value.
Promote Fair Trade Not Free Trade.
The United States should adopt a policy of "fair trade" not simply "free trade." It needs to be implemented at all levels, from broadly multilateral to regional to bilateral arrangements.
With respect to the World Trade Organization, the Doha Round of trade talks was suspended at the end of July 2006. There appears to be little chance of resuscitating the effort without accommodation of the legitimate priority interests of both developed and developing countries. The United States and Japan would have to make sincere commitments to a substantial reduction in farm subsidies, and the European Union to a more generous cut in agricultural tariffs; for their part, major developing countries such as Brazil and India would need to agree to a further lowering of their industrial tariffs. The situation in this country is further complicated by the fact that next year Congress must either renew or rewrite the current farm bill, a huge legislative effort affecting all U.S. agricultural policy, including subsidies.
The 2006 mid-term elections clearly signaled a change with regard to Free Trade Agreements on the North American Free Trade Agreement (NAFTA) and especially on the Central American Free Trade Agreement (CAFTA) model. Particularly in areas of the South and Midwest that have lost manufacturing jobs, Democratic candidates posted strong gains by campaigning against such agreements. In addition, most Democrats have voted against them since Fast Track/Trade Promotion Authority was renewed by the slimmest of margins in 2002. Consequently, the White House will face an uphill battle to win approval of the trade agreements signed with Peru and Colombia because of Democratic demands for tougher labor and environmental provisions (although Congress may support extending existing trade preferences with the Andean nations). It is also highly problematical whether a Democratic-controlled Congress will agree to extend Fast Track/TPA. In addition to putting a halt to the Bush Administration impetus for FTAs, failure of renewal is likely forestall any resumption of the Doha Round (since with Congress regaining the power to make amendments to trade deals, WTO members will be more reluctant to participate in negotiations in which they are unsure of obtaining any lasting U.S. commitments).
As regards China, in light of the 2006 elections, pressures to impose substantial import tariffs on Chinese goods are likely to intensify, unless Beijing agrees to a substantial revaluation of its currency. More than two dozen measures aimed at reducing record United States trade deficits and/or compelling revaluation of the yuan have been blocked by Republican leaders over the past two years. Now, however, the climate is changing, and a recent bill seeking to force China to cease its currency manipulations was introduced in the Senate with strong bipartisan support. If such measures are now passed, even if President Bush exercises his veto, they will complicate efforts by the Administration to smooth relations with China, and for U.S. companies such as Wal-Mart Stores Inc. to use China as a low-cost source of goods. In addition, there is an obvious need for stepped-up surveillance and enforcement of safety standards by United States regulators and importers, as well as by government and industry in China.
Overall, victories in taking over control in both the Senate and the House as a result of the 2006 elections may afford Democrats a unique opportunity to forge new trade policy alliances among traditionally-Republican United States manufacturers and Democratic-leaning labor unions and environmental groups. These groups share certain common "fair trade" interests, particularly with regard to China and its currency. The major challenge is likely to be avoiding going overboard in inaugurating a new protectionist era while working to transform concepts of free trade into a fair trade regimel |
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