A Trade Policy as Great as the American People

04/14/2010 05:12 am ET | Updated May 25, 2011
  • Gilbert B. Kaplan Former Deputy Assistant and Acting Assistant Secretary of the U.S. Department of Commerce

Most Americans think we are giving it away for free when it comes to trade, and in many respects they are right.

The last decade has not been a good one for the United States in the international trade arena. We have lost over five million manufacturing jobs, and total manufacturing employment in the U.S. is at a historic low of about twelve million. At the same time there are about 100 million people at work in manufacturing in China. This picture doesn't bode well for people looking for jobs in the U.S. If we want to turn it around we have to radically change what we are doing here in the trade arena.

The simple fact is that U.S. jobs are flowing off-shore. We can create more, which President Obama and Congress are trying to do, but then they will flow off-shore too. The conditions of competition in this country do not favor keeping jobs here. President Obama's plan to double exports is very unlikely to change this. The Chinese, the Koreans, the Taiwanese did not create an export driven economy by simply setting an export goal of doubling exports. They changed the basic terms of trade in their countries, by creating big tax benefits for exports, big subsidies to build-up industries, and closed markets to allow their industries to have a secure base with no competition from which to export. We will not double exports without a major shift in trade policy, nor will we bring jobs back home that should have never left in the first place.

What should our trade policy be? First, the President has to take action to off-set Chinese currency manipulation. The President has talked about this problem recently, and I applaud him for doing that. Now he has to solve it, and he could do that today by simply applying our anti-subsidy law (also called the countervailing duty law) to exports from China, putting on a duty to off-set this currency subsidy.

President Obama should also announce stronger action against China related to its internet censorship. U.S. companies trying to access the Chinese internet -- now having the largest number of users in the world -- have to somehow transverse the Chinese "great firewall." This firewall should be brought down, and there are trade laws and negotiation mechanisms, including bringing a WTO case, that can make that happen.

In his State of the Union address, President Obama was right to say that we should conclude the long-stalled Doha Round. But the President at this point should demand a clear deadline for negotiations, and if we can't reach it, we should set off in a new, more important direction.

What would that direction be? I would propose a three-fold agenda. First, we should focus on free, unfettered, and unencumbered access for United States' innovation and creativity-based products anywhere in the world. Secondly, we need to switch our focus to helping U.S. manufacturing. This is where we have lost millions of United States jobs and seen entire towns shut down by unfair trade practices. And thirdly we need to equalize the tax treatment our exports get in comparison to exports from other countries. Due to a grossly unfair peculiarity in the WTO system, when foreign producers export their products, they receive a rebate of their VAT taxes. U.S. exporters do not get a rebate of the income taxes they pay, creating a disadvantage equal to as much as a 17% in every potential shipment from our shores.

President Obama should also call on the Congress to do a major overhaul of the U.S. trade laws, making them faster, more accessible, and more reliable tools for US companies and workers harmed by unfair trade. There are a series of bills that have been proposed over time, by Senator Rockefeller, Senator Snowe, Congressman Levin and others, that could make a real difference, and these changes should be put in place now. In addition there should be fast, real recompense to companies and workers harmed by unfair trade, and these payments should be financed by duties on the unfairly traded goods, so they would not increase the deficit.

We also need to deal with the problems of foreign subsidies to industry and agriculture in one of two ways. Either we need to reach agreements to eliminate these subsidies -- a world-wide stand-still agreement on subsidies -- or we need to give our producers and workers the same benefits. We can't expect them to compete against foreign governments empty handed.

Enforcement of existing trade laws and agreements should be a key part of the trade policy. This is a goal the President and Commerce Secretary Gary Locke have already spoken up on forcefully. They should now create an Unfair Trade Strike Force that would work across agency and sectoral lines to take strong, quick action on unfair trade. Cases should be self-initiated and problems solved on a real time basis. We cannot wait one or two years for issues to be resolved. The Strike Force should also take action against circumvention and evasion of existing trade case orders.

In the trade and environmental area, President Obama needs to lead the way in resolving the apparent conflict between strong U.S. environmental laws and their potential trade effect on U. S. companies and workers. We cannot require U.S. manufacturers to pay millions of dollars to clean up their plants if our foreign competitors do not have the same requirements. We will simply become uncompetitive and there will be substantial "leakage" of U.S. jobs abroad. One way to deal with this is border measures, pursuant to which imports that come from plants that are not environmentally sound and that are causing global warming have to pay an extra tax at the border.

Finally, we need to take a stronger stand when it comes to our existing free trade agreements. To some extent these agreements have helped U. S. companies and workers, but there have also been significant downsides. Our trade deficit with Mexico, for example, has steadily been increasing over the last decade, and more and more factories are moving down there. It is hard to find an example of a Mexican company coming to the U. S. and adding jobs here. With employment stuck at over 10 percent and the job base migrating outside the country, it is time to revisit this issue.

The high levels of unemployment we have in this country are caused not just by the recession, but also by the unfair terms of trade that our manufacturers and workers are subjected to. We will not solve one problem without dealing with the other. The American job base cannot fight bare-handed against foreign governments arming their industries with enormous structural advantages. The program above will create jobs in the United States, and consistent with one of the President's other goals, with the exception of personnel costs in the trade agencies, it is free.