11/09/2009 05:12 am ET | Updated May 25, 2011

Building A New Economy: What Obama's Next Big Speech Should Be

At a delightful dinner party the other night, our host, a cosmopolitan man with interests ranging from water in California to Sufism in India, punctuated a brief complaint about the economy by noting, "and of course, I'm a nut on trade" (meaning an ardent advocate of our corporate "free trade" policies). You aren't the only one, I thought, and you've got to be a nut to be able to defend that position -- but I bit my tongue, choosing the pleasures of a soft evening over the delights of a sharp argument.

Over the next few weeks, however, President Obama has little choice but to descend into that argument. Just as in his health care speech tonight, he must address a fundamental threat to our security that can no longer be ignored, which challenges powerful and entrenched interests -- and that is coming to a head over the course of this month.

Next week, the president will address the convention of the labor federation, the AFL-CIO, as delegates convene to elect new leadership. That same week, he must decide what to do about the ruling of the International Trade Commission recommending that he slap tariffs of up to 55% on rubber tires being dumped in the U.S. market by the Chinese. The week after that, the heads of the leading economic nations in the world -- the G-20 -- with gather in Pittsburgh to discuss next steps in reviving the global economy.

Given the health care battle, the president may well decide to muffle the core issues in the soporific diplomatic quilting of shared principles and professed intentions. (Also on his plate is the stark question of whether to dispatch more U.S. men and women to a distant place called Afghanistan).

But this can't be put off for long. The reason is simple, although not accepted by the self-professed nuts on corporate trade. We can't recover the old economy -- and shouldn't want to. In that economy, the U.S. served as the world's consumer. America ran up deficits as high as 6% of GDP, borrowing some $2 billion a day from abroad. Global growth -- particularly in mercantilist export nations like China and Germany -- relied on Americans spending more than they earned, running up debts purchasing goods made abroad, often by branches of U.S. multinationals. We were shipping jobs, not goods abroad, losing three million manufacturing jobs under Bush before the crash while the economy was growing. Not surprisingly, wages stagnated, family incomes lost ground, debts soared. And that was in the good times.

In his "Sermon on the Mount" economic speech, Obama summoned America to build a new economy, not on the quicksand of speculation and debt, but on the rock of investment and production. He laid out core elements of a new strategy -- investment in education and training to create the best educated workers in the world, investment in research and development to stoke new markets, building a 21st century infrastructure from a new electric grid to fast trains and modern broadband, getting health care costs under control.

But central to this new economy must be a more balanced global economy -- one where the U.S. makes and sells more, and consumes less -- and the mercantilist nations like China and Germany consume more at home and export less abroad.

That sounds simple but it requires wrenching changes. For the U.S. a first order, one reason Obama has made new energy a centerpiece of his agenda, is to reduce our dependence on foreign oil, the import of which spiked at over half of our trade deficits, sending billions abroad to the corrupt emirates that aren't exactly a hotbed of enlightenment.

Second, we'll have to change our relationship with our largest creditor -- China. Our deficit with China has peaked at an astounding 83% of our non-oil good trade deficit.

It lends us the money to buy the goods that American companies make with jobs and technology they sent there. It does so because it pursues what has been a remarkably successful mercantilist policy designed to make it the dominant global center of manufacturing, a 21st century version of what the U.S. did in the late 1800s and early part of the 20th century.

Obama's commitment to new energy as a centerpiece of the new economy illustrates the question. It isn't sufficient to wean ourselves from dependence on foreign oil if, as Steelworkers President Leo Gerard notes, we become dependent on imported solar cells and windmills. But China has designated wind and solar as strategic industries that it intends to dominate. We need a clear industrial and trade strategy of our own.

That's why the decision on rubber tires is so important. The nonpartisan commissioners of the International Trade Commission have recommended the president slap tariffs on Chinese tires now being dumped on the market. The case arises under the laws that the Chinese agreed to as a condition of joining the World Trade Organization and gaining most favored nation status. Needless to say, the Chinese are not subtle in expressing their opposition to the tariffs, and suggesting that any such action would damage our relations. This is our banker talking. Bush faced similar choices several times and folded.

But the tire industry simply exemplifies the broader challenge can't be ducked. The Chinese are intent on capturing this industry. They encourage U.S. tire makers to open factories in China, offering cheap labor and lax environmental standards and an underpriced dollar. They aren't subtle. One manufacturer was allowed to open a factory on the condition that the entire production be exported.

China has to be weaned of its export addiction, just as America has to revive its ability to make things in America. This is best done cooperatively, with a grand bargain revaluing the Chinese currency, while both nations join others in creating a more balanced global economy. But at the end of the day, it won't happen unless the U.S. is ready to stand up and act to protect its interests. Obama has already told the G-20 that the U.S. could not return to being the world's consumer of last resort. But in the midst of the global financial meltdown, the administration has chosen to postpone calling China on its currency manipulation. Eventually, however, words must be turned into action.

One last note: Change like this, however imperative, is hard, forbidding. Big interests with powerful and rich lobbies are challenged. Conservative shibboleths have to be shattered. Politicians in both parties have no stomach for it. It is a hell of a lot easier to go along and get along. This country doesn't have that luxury anymore. On the economy, health care, energy, public investment, progressive taxation, global economic strategy -- this president has inherited not simply the failures of the Bush years, but the catastrophic consequences of the conservative Age of Reagan -- 30 years in which the U.S. squandered its assets while failing to make investments vital to its future. Remember that when people say Obama is taking on too much. He has little choice if he is to be the transformative president that we need to get us out of the hole we are in.