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Half Trade Policy

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There was a wonderful book I read as a child called Half Magic. A group of children find a lucky magic token that could work wonders, but with a big caveat. It only gave you half of what you wished for. If you asked to be transported somewhere, you would only get half the way. This is what President Obama's recently announced trade and economic policies look like to me: the President talks about exports, and infrastructure, and green jobs, but he is only doing half of what needs to be done. He is totally missing a plan for the other half of the trade and economic equation, imports.

What is the problem with imports? It is because of unfairly traded imports that major United States industries are close to death, and U.S. manufacturing cities are closed down. No one seems to want to admit that or to do anything about it, but that is the truth. It would be one thing if the imports were fairly traded, came from market economies and were not government subsidized. We live in a capitalist system based on competition and companies that can't compete should lose. But our companies are losing because foreign governments are putting billions of dollars into industries on a sustained basis and targeting them to export to the U.S.

Recently we had the largest trade deficit in goods we've had for years, over $61 billion in one month. And so we're left, on Labor Day, with unemployment at 9.6% (officially) and at a real rate closer to 19%. Happy Labor Day: almost 1 in 5 Americans is out of work.

"Green jobs" are not the answer either, because China is already well ahead in this category and is putting in more money than we are. Recently I heard the story of a U.S. company in the green jobs area that was offered a low interest loan of well over $40 million by the U.S. government to build a plant here. They were told it would take more than a year to process the paperwork to get the loan. By way of competition, the Chinese government offered not only hundreds of millions of dollars of interest-free funding but also land to build the plant on in China, both to be delivered immediately. Where do you think the company will build the plant?

So how do we build and save U. S. industries? Hard as it may be to believe, there is a formula for doing this, and it has worked well before. In 1984 the U.S. semiconductor industry was close to death, decimated by intense targeting by the Japanese government. The targeting consisted of four elements. First, the Japanese government kept their market closed. Secondly, they dumped product into the U.S. at a ferocious rate, selling at a fraction of the normal U. S. price. Thirdly, they adopted a similar strategy in third country markets such as Taiwan, where they lowered their price to whatever level was necessary to prevent U.S. companies from making any sales. Fourthly, the government provided financial assistance to the industry.

As head of Import Administration at the U. S. Department of Commerce, I and other government officials implemented a plan to counter every one of these elements of the targeting strategy. We self-initiated a major case on DRAM semiconductor dumping from Japan. We did not require the industry to come in and start the case; the U. S. government did it for them. This stopped the dumping in the U.S. It also forced the Japanese to the negotiating table, and we entered into a broad scale agreement on trade in semiconductors. One element of this was that Japan agreed to buy 20% of their semiconductor needs from U.S. companies. This opened their semiconductor market. They also agreed to stop dumping product in any market in the world. When they violated this agreement, we slapped trade sanctions on them, putting high duties on other products they were exporting to the U.S. They immediately complied with the agreement. Finally, we started a government/industry consortium, Sematech, that had government funding to assist with the revival of the industry.

This comprehensive strategy worked, and the U. S. semiconductor industry was saved. Even today, twenty years later, it is a very strong industry, certainly much stronger than the Japanese industry.

This is the kind of full-bodied strategy we need on trade if we want to save the manufacturing sector. We should counter unfairly traded imports with self-initiated trade cases at the U.S. Department of Commerce. We have to pass new trade legislation which will prevent evasion of these laws when we do get orders, and that will require off-sets against currency undervaluation. We have to insist on full and fair access to the Chinese and other foreign markets, implemented with strict agreements. We have to put enough money into manufacturing to make sure we come out on top.

The Committee to Support U.S. Trade Laws and a group of other associations deeply concerned about why we are putting in only half measures will hold a conference on this issue in Washington on September 28 of this year, called the Conference on the Renaissance of American Manufacturing. It will look at how much needs to be done. In the book Half Magic, the kids realized that if they asked for twice as much as what they wanted, they would get where they wanted to go. To like effect, we need to redouble our efforts now. We are falling way behind in manufacturing. An export strategy or a green jobs strategy is at best a half policy.