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Leo Hindery, Jr.

Leo Hindery, Jr.

Posted: July 6, 2010 09:31 AM

"Doubling U.S. Exports" Not a Sufficient Jobs Policy: Not Even Close

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In his January State of the Union Speech, President Obama first committed his administration to the goal of doubling U.S. exports within five years. Mr. Obama said that this will "create two million jobs, about the same number that the U.S. manufacturing sector has shed during this economic downturn." His administration spokesman said just the other day that "the U.S. is on track to hit this export target."

There are three problems with this pledge. First, doubling U.S. exports would create just 10 percent of the 22 million new jobs we need, and yet, combined with multiple new free trade agreements (FTAs), it seems to be the only specific jobs policy coming from the White House. Second, this strategy wrongly overshadows the more critical imperative of 'import substitution'. Third, the first three FTAs being proposed -- with South Korea, Panama and Colombia -- are very poorly negotiated and will cause even more American jobs to be lost overseas.

As the United States Business and Industry Council (USBIC) just concluded:

"the President's decision to limit his trade-related recovery policies to export expansion efforts is too narrow, since the most promising source of the new orders needed by U.S.-based manufacturers and their workers are home market shares that have been lost to imports."
And as the economist Clyde Prestowitz has determined, with plenty of supporting evidence, "the more free trade agreements the U.S. has entered into, the bigger America's trade imbalances have become and the less our allies have seemed to like or pay attention to us".

To appreciate why doubling U.S. exports and rushing into new FTAs isn't at all the combined overall trade and jobs policy we require as a nation, all we need to do is look carefully at the pending FTA with South Korea (the ROK), the largest of the three pending FTAs, and do so against the backdrop of the dismal results of NAFTA and China's entry into the WTO.

The South Korea FTA

The Obama administration says that it has "made new progress" on the ROK FTA first negotiated by the Bush administration in 2007 and is now poised to advance it. Unless, however, "new progress" means a substantial renegotiation of the simply awful version we have in front of us, then the Obama administration will be giving a major unwarranted victory to America's multinational corporations and Korean workers at the expense of America's workers. And assuredly down the road, we will see results that track the screw-ups which NAFTA and China-WTO each became, differing only in relative size.

Polls in Korea have shown that South Koreans widely believe that their negotiators bested the U.S. in the 2007 and later negotiations -- and they absolutely did, especially in automobiles. The FTA would lock in Hyundai Motor Corp.'s dominance of the South Korea market while locking out American manufactured vehicles. In beef, the U.S. would largely be excluded from exporting all but young carcasses. South Korea currently exports each year to the U.S. about $40 billion of goods and services while we send only $29 billion of our goods to it, and with this already large imbalance it is complete poppycock for the White House to now threaten American workers (and Congress) by saying that without the ROK FTA "we stand to lose about $30 billion in [U.S.] exports".

As Mr. Prestowitz has noted, America's trade problems with Korea stem from "its undervalued currency, the inability of its anti-trust regime to discipline the predatory business practices of its giant chaebol whose control of distribution can impede entry of foreign products into the market, the unwillingness of its courts to enforce intellectual property rights for foreign companies, and deeply rooted 'buy Korea' attitudes." The Bush-cum-Obama ROK FTA doesn't address a single one of these issues.

NAFTA and China's Entry Into the WTO

In pushing forward the South Korea, Panama and Colombia FTAs, the administration is completely overlooking what happens when FTAs are not fair and balanced and don't provide clear and measurable benefits for American workers.

When NAFTA was proposed in 1993, five promises were made about the positive effects that were certain to come to the U.S., not one of which has been kept. The two 'biggies,' of course, were that (1) "NAFTA will generate a U.S. trade surplus with Mexico of around $100 billion between the years 2000 and 2010" -- in fact, our trade deficit with Mexico for these ten years will be around $527 billion; and (2) "NAFTA will create many new high-wage jobs in the United States" -- instead, at least two million American workers have already lost their jobs.

Two recent examples confirm this. First, just this month, we watched Whirlpool completely shut down its once 10,000-worker plant in Evansville, Indiana and move the last remaining operations and jobs to Mexico -- when the workers were asked who's to blame, they said President Bill Clinton for having negotiated NAFTA. Second, and of even greater impact, we've learned, also this month, that despite the Obama administration spending $80 billion last year propping up General Motors and Chrysler, the Big Three U.S. auto companies, including Ford, are now intending to put most of their new jobs and plant capacity in Mexico, with NAFTA's imbalances again 'setting the table.'

But even more imbalanced has been China's entry into the WTO, which occurred a decade ago. Back then, President Clinton promised that this would be "a hundred-to-nothing deal for America when it comes to the economic consequences" -- instead, our overall trade deficit with China has increased 173 percent since 2000, China is now responsible for around 75 percent of our overall annual trade deficit in manufactured goods, and we've lost more than one-third of our manufacturing jobs, mostly to China (and Mexico).

President Obama is not wrong to want to double U.S. exports -- with every $1 billion increase in the U.S. trade deficit 10,000 to 20,000 American jobs are lost -- but this achievement would, in his words, create only two million new jobs and then only over five years, when we need to create 22 million new jobs now.

There are the five things the President needs to do to bring this all together:

1. He needs to assert that job creation is the number one objective of his administration's economic policies. This means, as many of us have been demanding for years, outspokenly 'valuing manufacturing' and having a domestic manufacturing policy for America that is as jobs-centric and mercantilist as the policies of our major trading partners.

2. He then needs to get his entire administration committed to and acting in support of his exports and trade agenda. Right now, this isn't even close to being the case. For example,

(a) Larry Summers, chairman of his National Economic Council, continues to say that a job is a job, the loss of manufacturing jobs and goods can be offset by the export of movies and management consulting and legal services, and the U.S. economy is strong when GDP grows no matter the real unemployment rate and the magnitude of our trade deficit, all of which is complete BS;

(b) James McNerney, chairman of the President's Export Council (and CEO of Boeing), says that Mr. Obama's export goals won't be met unless the U.S. finalizes those job-eliminating FTAs with South Korea, Colombia and Panama while confidentially telling Boeing's suppliers that they should begin making parts in Mexico; and

(c) The U.S. Export-Import Bank denied, just last week, loan guarantees to an Indian utility building a power plant poised to buy $600 million worth of US-manufactured mining equipment from Bucyrus International, a South Milwaukee-based company, solely because the project's "carbon footprint" was deemed too large, even though there are no objective guidelines by which the Bank could make this judgment.

3. He needs to shift our global trade focus to fair and balanced "bilateral and regional trade agreements," as the other members of the G-8 just acknowledged in Toronto, which means dropping his commitment to finishing the nine-year-old Doha round of global trade talks, which frankly he should have abandoned the first day of his presidency. In the process, because the proposed FTAs with South Korea, Colombia and Panama are definitely not fair and balanced, they need to be radically amended or we need to start each negotiation over again.

4. He especially needs to level the trade playing field between the U.S. and China, absent which there is simply no way to double U.S. exports, balance our trade, and create those millions of new jobs. The actions needed remain obvious:

(a) Balance out China's unfair trade advantages gained through its abysmally low direct labor costs and lack of meaningful environmental and labor standards; and

(b) With tariffs and levies (and a baseball bat if need be) go after China's currency manipulation, its regulations that block non-Chinese firms from selling their products to Chinese government agencies, its technical standards that prevent or at least greatly hinder the Chinese government and businesses from buying non-Chinese goods, and its rules that force Western companies to give up technological secrets in exchange for access to China's markets.

5. He needs to emphasize the primary (not secondary) role of responsible 'big business' in creating the bulk of the millions of new jobs we need and stop saying, as he did on June 11, that, "Government can't create private-sector jobs, but it can create the conditions for small businesses...to grow and hire more people." This fixation with small businesses started in the Reagan administration, but that was only after what we thought was a largely non-erodible manufacturing foundation had been established with 20 percent of America's workers in, and 20 percent of GDP coming from, manufacturing. With 50,000 factories having closed in just the last decade, however, the corresponding figure today in each category is 11 percent, and no matter what the theory of "comparative advantage" says, this nearly halving of our industrial base, especially our big-company manufacturing base, means that America, with its very large population, wide geography and great diversity, is destined for economic mediocrity unless we give large American corporations policies and incentives that generally mirror those available to them overseas.

Last Friday, President Obama said, "Make no mistake, we are headed in the right direction [even as] we continue to fight headwinds from volatile global markets." In fact, we're not even close to making sufficient progress in reemploying America, and those "headwinds" are actually powerful turbines pointed in our faces by China and Mexico (and India). I can only hope that the continuing depressing trade and real unemployment numbers will wake up President Obama and his economic team to the reality that if they want to reach their export and trade goals and materially reduce U.S. unemployment, they need to materially change course.

So, Mr. President, take the five actions outlined above and there will be 'prosperity throughout the land', as they say. Don't take them, however, and a double dip recession will look like a God-send compared to the extended jobless recovery that will hang around our economy like the plague for years to come.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.