President Obama touted his National Export Initiative this week, boasting that in the first quarter of this year, exports were up 17% from a year ago. Increased exports abroad generate jobs at home. Given the failure of the Senate to pass badly needed jobs bills, the collapse of consumer confidence, plunging home sales, declining factory orders, continuing layoffs at the state and local level, and the weak June jobs numbers, a little good news comes as welcome relief. At a time when jobs are in short supply," Obama said Wednesday, "building exports is an imperative." And give the president some credit for beginning to focus government on the question of exports.
But don't break out the spirits. Exports are a delectable appetizer, but the full meal is less digestible. Imports count too. Buying stuff abroad that could be made here displaces jobs. What matters is the balance of trade, not simply the rise or fall of exports. With consumers tightening their belts, businesses sitting on over a trillion in retained profits, and government slated to cut back its spending, we would need record trade surpluses to generate jobs
And there is the rub. Exports are up from early last year when the economy was still in freefall and, not surprisingly, so too are imports. The problem is that the latter are much greater than the former, and our trade deficits are on the way back up.
As reported by the Bureau of Economic Analysis, the trade deficit in goods and services is up to $115.3 billion in the first three months of 2010, or back over one billion a day. The current account deficit -- which adds in financial flows -- is up to $109 billion. In the airless prose of the BEA, this represents the "third consecutive quarterly increase since the deficit of $84.4 billion in the second quarter of 2009, which was the smallest deficit since the third quarter of 1999."
We were running deficits of over two billion a day before the economy tanked. The Great Recession more than halved those deficits, but now they are steadily rising once more. The grip of the pre-recession economy is reasserting itself.
Why is this important? Because, as President Obama correctly said in his economic Sermon on the Mount at Georgetown, we cannot "recover" to the old economy and should not want to. That economy was built on bubbles and debt, borrowing $2 billion a day from abroad, with American consumers taking on ever more debt while serving as the world's consumer of last resort. We were shedding manufacturing jobs when the economy was growing. The global imbalances contributed directly to the economic collapse.
Obama put the case most clearly earlier this year:
We can't go back to that kind of economy. That's not where the jobs are. The jobs of the 21st century are in areas like clean energy and technology, advanced manufacturing, new infrastructure. That kind of economy requires us to consume less and produce more; to import less and export more. Instead of sending jobs overseas, we need to send more products overseas that are made by American workers and American business. And we need to train our workers for those jobs with new skills and a world-class education.
The president has urged the US to act boldly to capture a leading role in the new green industrial revolution -- centered on renewable energy -- that surely will drive global markets of the next decades. He called for new investment in education and training, in 21st century infrastructure, in research and development. "The fight for American manufacturing," he said," is the fight for America's future."
In addition to ending our addiction to oil, any effort to create more balanced trade requires challenging Chinese mercantilism, and getting surplus countries like Germany to rely less on export-led growth. One of the president's first global victories was to get the G-20, including China, to agree that the imbalances in the global economy were a problem that had to be dealt with by both countries with large trade deficits like the US and countries with large surpluses like Germany and China.
But addressing these imbalances requires wrenching changes -- and little progress is in evidence. The Chinese have agreed formally to let their currency float, a bit, but US companies now complain that they are getting worse, not better treatment from the Chinese government. The Germans, reaping the benefits of a declining Euro, are ginning up exports, while instituting greater austerity at home. The imbalances are headed back up, limited only by the faltering revival of economic growth.
The president now presents the bilateral trade accord with South Korea -- negotiated during the Bush years -- as illustrative of his agenda. The treaty is an archetype of the old order, an imbalanced "free trade" treaty advertised as creating jobs that will do little to affect the oligopolistic structure of Korean markets that systematically disadvantages US exports. The president would have been wise to start over, and use the Korean negotiations as a precursor for how to deal with China. Instead, the president's endorsement, a dutiful recitation of free trade pieties, is a tribute to the free trade priesthood that has hounded him to return to the faith. Like Galileo prosecuted by the Church, he avows that the sun does revolve around the earth.
We've witnessed over and over again the grip of the old economy -- and the strength of entrenched interests in frustrating the change Obama called for. The "drill, baby, drill" crowd filibusters the energy and climate bill in the Senate. Financial reform will leave the big banks more concentrated than ever, with financial profits headed back over 30% of all corporate profits. Trade deficits are going back up. China, Germany, Spain and other nations with industrial policies are capturing the lead in the emerging green industries. Inequality in America is growing, even as the middle class is sinking.
Some have given up in despair. Some on the left write Obama off as hapless or a stooge. Imploring the president to show passion has become a media fixation. If elections were held today, the party of obstruction brandishing the same ideas that led us into the Great Recession has an even chance of winning control of the House of Representatives. But it is still early. The fight has only been joined. The special interests and a mobilized right stand in the way. The question now is less what Obama will do than how citizens will respond.