The Core Issue: Trade Deficits and Crumbling Empires

March 16, 2015


The front line battle is Fast Track and Trans-Pacific Partnership.  But ultimately, the core issue is that trade deficits matter. America cannot grow economically strong without fixing the trade deficit. We can't fix the trade deficit until we stop Fast Track and TPP.  So we must stop them.

Michael Froman, Orrin Hatch, Paul Ryan and the Fast Track pushers think it is ok for the U.S. to buy a half trillion per year more than we sell.  They don't care about building US supply chains, instead they want to globalize supply chains.  The recently deceased Fast Track bill filed in January 2014 actually said this, as a top negotiating objective.  Let me repeat: the paragraph in the January 2014 Fast Track bill that contained the "principal negotiating objectives" - the most important, primo, "gotta do this" negotiating objectives - said that the administration should pursue global supply chains, rather than domestic supply chains, as a matter of policy.

This would transform offshoring from a mere consequence of trade deals into established national policy.  Outrageous!  Empires grow through domestic economic strength, and they crumble from stupid leadership.

The pro trade deficit crowd claims "free trade" status in the face of rampant mercantilism.  Other countries replace their tariffs and subsidies with currency devaluation, border taxes, state-owned enterprises, prohibitions on selling there unless our companies manufacture there.

The forces of economic degradation are getting busier these days.  Senate Finance Committee Chairman Orrin Hatch is speaking this week before a major association of importers, the American Apparel and Footwear Association. The USTR office has created a new director of policy planning and named Ed Gresser of Progressive Economy to the post. 

A pro-Fast Track letter was released containing the signatures of 19 former members of Congress, including former Senator Majority Leaders Tom Daschle and Trent Lott.  Out of the many, many former members of Congress, they could only get 19?

Free trade was supposed to be the antidote to the persistent trade imbalances of mercantilism, where some countries gamed the system at the expense of everyone else.  But modern mis-named free trade agreements, like TPP, are foreign mercantilism enablers.  We cannot recover as a country while consumer demand stimulates other economies more than ours, via net leakage of our consumer demand overseas.  We cannot recover as we invent things here and make them there. 

Many in Washington think that the value of the iPhone is in the design, not the supply chain production.  I hear that quite a bit. Because they can't keep complex systems in their heads because it is easy to think very simply.  These are ivory tower wannabees who don't understand that supply chains produce wealth, jobs, process innovation, economies of scale, spin off jobs, product innovation, etc.  Japan, South Korea and Germany understand these benefits, and are winning as a result.  We are losing the global competition for a diverse array of desirable industrial and product supply chains.  Because if 50 designers and engineers are able to put something cool on paper, and a product arises, that's enough for the Very Smart People in DC.

At the core, we need a national goal of balanced trade over time.  Then we need to set out to achieve that goal.  First, we need to stop Fast Track in its tracks.

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