Is The Obama Administration Really This Clueless About US Companies' Global Competitiveness? (UDATED)

In Sunday's Chicago Tribune, Caterpillar CEO Doug Oberhelman explained why his manufacturing powerhouse has no plans to expand business operations in its home state of Illinois.  The whole op-ed is worth reading, but here are the money grafs:

Despite the fact that we announced plans for dozens of new factories in the last few years and our United States workforce increased by more than 14,500 in the past 10 years, we haven't opened a new factory in Illinois in decades. Our Illinois workforce is at the same level it was 10 years ago. Caterpillar recently informed several Illinois communities that they are not in the running for a new factory we will build in the U.S., ultimately adding 1,400 jobs — work that's now done in Japan. In that case, logistics was a key factor, but even if it were not the case, when Caterpillar and most other companies look to locate a new factory in the U.S., Illinois is not in the running.

It doesn't have to be that way.

About 10 months ago I wrote a letter to Illinois political leaders expressing my hope that the state would undertake long-term, fundamental reforms so Illinois could compete for jobs and long-term business investment that drives growth.

To date, we haven't seen much change.

The governor's recent three-year projection of state revenue and spending proves that even with the income tax increase, Illinois has not done what is necessary to balance its budget. Major credit agencies have downgraded the state's bond rating. The state passed some changes to workers' compensation last spring, but it wasn't enough. Illinois will still be among the most expensive states in the nation for workers' compensation insurance. Our own comparison of workers' compensation costs showed Illinois was far more costly than neighboring Indiana, which is consistent with a comparative study by Oregon, which also shows Illinois is much more expensive than Indiana, Iowa and Kansas in workers' compensation insurance rates.

What's the solution? For starters, Illinois needs to adopt a long-term sustainable state budget that relieves pressures on taxpayers. Unlike some, I do not favor an early rollback of the temporary tax increases in Illinois; but they should expire as planned. Keeping the temporary tax increases in place for now gives the state time to develop a multiyear plan that balances the state budget. In addition, the state needs to dramatically lower workers' compensation costs. Some say these changes are not politically possible in Illinois. But if Illinoisans put pressure on both parties to make these types of improvements, I think the state can become a place that can successfully compete for business growth and new jobs.

Let me be clear. Caterpillar is not threatening to leave Illinois. Rather, we want to grow our presence here. For Illinois to really compete for new business investment and growth, the state must address these matters.

In short, high taxes, fiscal profligacy and bad regulation - not the absence of state subsidies or other taxpayer-funded "incentives" - prohibit Caterpillar from both locating new business operations in Illinois and remaining globally competitive (a critical issue for the export-dependent company).  Mr. Oberhelman was speaking about state-level policies, but the principles he describes apply equally to national policy.

Unfortunately, the Obama administration does not appear to understand these principles and is instead cluelessly pursuing the exact opposite course.  I've already explained repeatedly how existing US regulations - and new ones like ObamaCare - are doing a number on American businesses' ability to compete on the global stage, so I won't get into that again tonight. [UPDATE: Brand new - and totally depressing - stuff from The Economist on how the United States "is being suffocated by excessive and badly written regulation."]  Instead, I'd like to review the administration's brand new budget plans and their impact on American corporate competitiveness.

In short, it ain't pretty.

On tax policy, the budget keeps the United States' corporate tax rate at one of the highest levels in the world, even though pretty much every other industrialized economy has lowered their rates (charts courtesy of AEI's Jim Pethokoukis):

Pethokoukis cites to studies showing how high corporate tax rates lead to lower growth, and then explains that President Obama's budget not only retains our sky-high 35% stautory rate but also "raise the corporate tax burden by some $350 billion over ten years."  This insanity includes $30 billion in new taxes on oil & gas companies, even though they are fueling (pun intended) the current economic recovery and already pay a much higher effective tax rate than other US manufacturers:

Smart.  Meanwhile, our northern neighbor (and a major global competitor) Canada lowered its corporate tax rate again to a jealousy-inducing 15% on January 1, 2012, making Canada the #1 country in the world to do business, according to Forbes Magazine.  Congrats, Canada.  You big jerks.  (As I said, I'm jealous.)

Ok, well, sure, that's just tax policy.  I'm sure that those taxes are being well spent in the Obama budget and making sure that the United States house is totally in order, right?  Wrong (again via Pethokoukis, who's clearly been on a roll this week):

Pethokoukis concludes that the President's Budget "makes no effort to deal with Medicare, Medicaid, and Social Security — the long-term drivers of U.S. federal debt. The debt curve never gets bent, as the above White House(!) chart shows. It just goes up and up and up — until the heat death of the universe or the economy is struck by a Greek-style debt crisis."  Holy souvlaki, Jim!

So the Obama budget kills US companies on regulations, taxes and debt, but how does the administration propose to help them?  Targeted subsidies for US manufacturing, of course.  The administration's "Blueprint to Support U.S. Manufacturing Jobs, Discourage Outsourcing, and Encourage Insourcing" pays lip service to broader tax reform, but never once actually provides even a hint as to what such reform would look like. Instead, it just provides a laundry list of new tax subsidies for US manufacturers - including expanding "domestic production incentives," a new "Manufacturing Communities Tax Credit," and temporary tax credits for "domestic clean energy manufacturing."  (The plan also proposes - in tellingly vague fashion - to eliminate tax breaks for "shipping jobs overseas," but we all know what a political joke that is.)

Unfortunately, the administration's manufacturing blueprint - which continues the President's long-held preference for manufacturing - is just as misguided as their broader tax and fiscal plans.  As I've repeatedly noted, the prioritization and subsidization of US manufacturing over other sectors of the domestic economy (like our expanding and globally dominant services sector) is completely misguided, especially as some sort of "plan" to solve the country's high unemployment.

But, hey, don't take my word for it.  The former Chair of President Obama’s Council of Economic Advisers (Christina Romer) thinks the same thing, recently arguing in the New York Times that Obama's "singling out of manufacturing for special tax breaks and support" was wrongheaded because none of the primary rationales for subsidizing the American manufacturing sector - market failures, jobs or income distribution - actually holds any water.  She concludes:

AS an economic historian, I appreciate what manufacturing has contributed to the United States. It was the engine of growth that allowed us to win two world wars and provided millions of families with a ticket to the middle class. But public policy needs to go beyond sentiment and history. It should be based on hard evidence of market failures, and reliable data on the proposals’ impact on jobs and income inequality. So far, a persuasive case for a manufacturing policy remains to be made, while that for many other economic policies is well established.

As I noted when Romer's op-ed first came out, smart people on the right and left might disagree about the solutions to our current mess, but at least we they all can agree that the solutions do not involve targeted subsidies for the US manufacturing sector.  If only Dr. Romer had explained this obvious fact to President Obama when his office was a just few doors down the hall.

When Caterpillar realizes that Illinois' tax, spending and regulatory policies prevent it from competing in the global economy, it can - and often does - choose to simply move its operations to a state with a better business environment.  Indeed, the migration of American companies from poorly-managed, debt-ridden states like Illinois and California to leaner, meaner states like Texas is well-established.  Unfortunately, those migrating businesses won't escape bad federal policies so easily.  And if President Obama and his team don't soon get their fiscal and regulatory acts together quickly, Caterpillar and others might not be moving South to Texas but instead heading North to Canada and thus out of the country altogether.

Classic: Poster Child for President's SOTU "Trade Enforcement Team" Is an Abject Failure

I've already spent too much time writing about the stale trade ideas in President Obama's 2012 State of the Union, but one of the President's many comments on trade - reminded to me by Cato's indomitable Sallie James - deserves more pointed criticism (emphasis mine):

I will go anywhere in the world to open new markets for American products. And I will not stand by when our competitors don’t play by the rules. We’ve brought trade cases against China at nearly twice the rate as the last administration –- and it’s made a difference. Over a thousand Americans are working today because we stopped a surge in Chinese tires.

The President's aforementioned job-creation boast relates to his 2009 decision to impose prohibitive tariffs on Chinese tires under "Section 421" of US trade law.  One aspect of that boast is true - Obama's tariffs did cause a dramatic decline in surging Chinese tire imports (as prohibitive tariffs tend to do).  However, another aspect of the President's statement is shamefully misleading: those tire tariffs had absolutely nothing with China's "not playing by the rules" because Section 421 addresses surges of fairly-traded Chinese imports.  I actually corrected this fallacy when the administration first started pushing it after the tariffs were imposed:

Section 421 has nothing to do with "unfair" trade. It's only a determination of whether (i) the subject imports have "surged" and (ii) that surge has injured (i.e., created a "market disruption" for) US producers of like products.  Here's the ITC's own summary of China safeguards under Section 421:

Under section 421 of the Trade Act of 1974, the Commission determines whether imports of a product from China are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. If the Commission makes an affirmative determination, it proposes a remedy. The Commission sends its report to the President and the U.S. Trade Representative. The President makes the final remedy decision. (For further information, see section 421, Trade Act of 1974, 19 U.S.C. 2451.)

Please note the conspicuous absence of a word about "unfair trade" or "violations of US law." That's because, unlike antidumping or countervailing duty investigations, China-specific safeguards do not address or remedy unfair trading practices. So technically, China has done nothing "wrong" here other than to sell lots of tires - that Americans obviously want and benefit from - in the United States. Oh, the humanity! (Full text of Section 421 is here if you're interested.)

Despite my repeated clarifications, the President and his team are still relying on this "unfair trade" fallacy when they speak of the tires case (gee, it's as if they don't read my blog or something).  Of course, if they did honestly mention that their vaunted tires case was about simply preventing US consumers from purchasing fairly-traded Chinese tires, then the President's awesome "new" enforcement team might not sound so awesome... especially considering the many real problems with the President's Section 421 decision.

I recently noted some of those problems following the release of a new report by the US-China Business Council which examined the first two years of the Section 421 decision and found that, while Chinese tires did decrease dramatically, they were replaced by other imports rather than increased US production:

The [USCBC] paper goes on to show that, according to US government data, "[t]he biggest beneficiaries of the tariffs are probably tire producers in Korea, Thailand, Indonesia, Mexico and other countries that replaced supply from China."  Of course, anyone who understands trade diversion could have predicted this outcome (and a lot of us did - including US Trade Representative Ron Kirk who hilariously told a Brazilian delegation that they should welcome the President's decision because they'll export more tires to the US).  Unless US manufacturers are the second-most competitive producer of widgets on the planet, tariffs on imports from the #1 widget producer will almost always result in an increase in imports from other countries' widget producers, not from the US producers.  This is not just basic economics, it's also common sense - very well-documented common sense. 

The only thing not mentioned in the new USCBC report is another commonsense outcome of protectionist tariffs - pain for American consumers in the form of higher prices.  In the case of tires, I've cited anecdotal evidence of such price increases, and a previous USCBC report documented significant price increases in the 10-month wake of President Obama's decision.  It'd be good to see more such analysis in the future.  And, of course, there's that sweet Chinese retaliation against US exporters in direct response to the Section 421 announcement.

The Wall Street Journal recently followed-up on my blog post with more distressing facts about the President's tire tariffs.  Most notably, they found (i) further evidence that Obama's decision caused trade diversion abroad and sky-high tire prices at home and (ii) very little evidence that it created a "thousand" jobs like he boldly alleged in Tuesday's State of the Union Address:

The [Section 421] measure was meant to whack imports of passenger and light-truck tires and give a boost to manufacturers and job creation in the U.S.

Yet, for a variety of reasons, it has apparently done little of either—and has surely raised prices for consumers.

"So far as saving American jobs, it just isn't working," says Roy Littlefield of the Tire Industry Association, which has 6,000 members. "And it really hurt a lot of people in the industry—smaller businesses that geared up to bring these tires in from China."...

Mr. Everett, the tire shop owner, says prices jumped not just for China-made tires but for tires made in the U.S., too. Wholesalers, he said, used the cover of the tariff to raise prices across the board. Bob Ulrich, editor of Modern Tire Dealer, a trade publication, says prices are up 29% in the replacement market since 2009. Large increases in shipping and raw-material costs have contributed to the rise, as has recovering consumer demand in the U.S....

Some companies have indeed added production and employees, but whether that is a result of the tariff or the recovery in the U.S. economy isn't entirely clear.

Yes, it isn't "clear" because such results would defy all available evidence and, you know, the laws of basic economics.  As the WSJ article notes (and as I've repeatedly explained), low-end Chinese tires simply don't compete with high-end US tires, and the tariffs simply caused Chinese tires to be replaced by other imports.

So there you have it, folks: Obama's vaunted tire tariffs - literally the centerpiece of his "new" unfair trade enforcement initiative - have nothing to do with unfair trade and have proven to be an abject failure.

So if that's the best he can do...

UPDATE: Heritage's Bryan Riley beat me to the punch on this one and comes to a similar conclusion: "In his State of the Union Address, President Obama followed up his tire tariff story by calling for a brand new federal bureaucracy to investigate unfair foreign trade practices. In fact, the tire tariff is a cautionary tale that should remind policymakers that to the greatest extent possible, the determination of whether a particular transaction is fair or unfair should be made by the people spending the money, not by officials in Washington, D.C." 

SOTU Preview

The Obama administration has already leaked much of what the President will say in tonight's State of the Union Address - a really nice gesture towards those of us who'd prefer to watch sports or a movie or something (anything!), rather than sit through the speech.  So since we already know much of what the President will say tonight (hooray "fairness"!), and since he appears ready to recycle a lot of his old material, I figure I'll recycle some of my stuff for a little SOTU pre-buttal.  Enjoy:

• On the President's Big Plan for Combining US Trade Agencies;
• On "Outsourcing" and "Democrats' 'Plan' to End Tax Breaks for Companies Who Ship Jobs Overseas";
• On "Competitiveness," the President's "Adversary Economics" (aka America vs. the World), and the True State of the US (and Global) Manufacturing Sectors;
• On "Fairness" (re: Trade Policy);
• On the Myths Surrounding China Trade and Currency; and, finally,
• On the Perils of Infrastructure Spending.

That should just about cover it.  If I missed anything (or if the President actually says something new!), I'll be sure to circle back in the coming days.

Now, if you'll excuse me, I have ballgame to get to.

UPDATE: Looks like I missed one - in retrospect, really obvious - thing from the big speech: Trade "Enforcement".  But, true to form, it's yet another recycled idea: the President first proposed a Trade Enforcement Team in 2009.

Mankiw: You Don't "Win the Future"

Greg Mankiw has a great op-ed in tomorrow's NYT about the wrongheadedness of trying to "win the future," as President Obama challenged us to do in his State of the Union Address.  Mankiw hits on several of the fundamental issues that I've discussed here, including the President's continued - and misguided - adherence to what I call "adversary economics."  I highly recommend the whole thing.  Here's a sample:

[C]alling on Americans to “win the future” misleads us about the nature of the policy choices ahead. Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team.

To see why, let’s start with a basic economic transaction. You have a driveway covered in snow and would be willing to pay $40 to have it shoveled. The boy next door can do it in two hours, or he can spend that time playing on his Xbox, an activity he values at $20. The solution is obvious: You offer him $30 to shovel your drive, and he happily agrees.

The key here is that everyone gains from trade. By buying something for $30 that you value at $40, you get $10 of what economists call “consumer surplus.” Similarly, your young neighbor gets $10 of “producer surplus,” because he earns $30 of income by incurring only $20 of cost. Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties.

This example is not as special as it might seem. The gains from trade would be much the same if your neighbor were manufacturing a good — knitting you a scarf, for example — rather than performing a service. And it would be much the same if, instead of living next door, he was several thousand miles away, say, in Shanghai.

Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States. But the essence of economic exchange belies that description. Other nations are best viewed not as our competitors but as our trading partners. Partners are to be welcomed, not feared. As a general matter, their prosperity does not come at our expense....

The president is right that we should encourage a greater number of highly educated foreigners to migrate here. Because skilled workers pay more in taxes than they receive in government benefits, increasing their supply would reduce the fiscal burden on the rest of us. But if these foreign students decide to return home, as many do, we shouldn’t worry that they are competing against us.

Instead, we should view higher education in the United States as one of our most successful export industries. The United States has 5 percent of the world’s population but most of the best universities. Is it any wonder that students from many nations flock here to learn? And as they do so, they create opportunities for Americans — from the professors who teach the classes to the grounds crews who maintain the campuses.

When the foreign students head home, they take the human capital acquired here to become productive members of their own communities. They spread up-to-date knowledge, so it can foster prosperity everywhere. Some of this knowledge is technological. Some of it concerns business, legal and medical practices. And some is even more fundamental, such as the values of democracy and individual liberty. Nothing could be better for the United States than these thousands of American-trained ambassadors who have seen at first hand the benefits of a free and open society.

Good stuff.

SOTU Round-up

There's far too much good commentary on last night's Go America Pep RallyState of the Union Address for me to list it all here, but these are the ones that I liked the best (other than mine, of course):

• Cato's Sallie James briefly explains why the President's "competitiveness" theme is misguided and dangerous.  She even channels the Sane Paul Krugman of Yesteryear ("SPKY"): "When it became clear that President Obama would make 'competitiveness' a theme of his SOTU address, I looked forward to seeing Paul Krugman’s statement pointing out how much nonsense that is. Here he is, after all, in his excellent 1997 book, Pop Internationalism (MIT Press): 'International trade, unlike competition among businesses for a limited market, is not a zero-sum game in which one nation’s gain is another’s loss. It is [a] positive-sum game, which is why the word 'competitiveness' can be dangerously misleading when applied to international trade.' Sure enough, President Obama’s speech last night was peppered with references to 'the competition for jobs,' 'new jobs and industries take root in this country, or somewhere else,' 'the competition for jobs is real,' etc. And of course there was a healthy dose of the usual mercantalist obsession with exports."  I'd only add that this type of "adversary economics" - i.e., discussing the global economy as a war to be won against our trading partners - is nothing new for this President, and I've critiqued it many times on this blog.  No need to do it again tonight, but I'm sure I'll be hitting it again soon.

• Cafe Hayek's Don Boudreaux provides some must-read clarity for those poor, misguided soles out there who thought that Obama's "pro-business" and jibberjabber would be warmly welcomed by those who believe in and support free markets.  My favorite lines: 

"In a free market, businesses profit only by pleasing consumers. But a business that obtains special favors from government can profit without pleasing consumers. And it’s here that trouble starts. Consider Obama’s commitment to make America more 'competitive.' (He used variations of the word 'compete' nine times in his address as part of his argument that American firms and workers are threatened by their foreign counterparts.) 'Competition' sounds good. But businesses don’t like competition; they like protection from competition – along with subsidies, special tax breaks, and other government favors that relieve them from the need to cater energetically to consumer demands. So a pro-business president is prone to curry favor with businesses by shielding them from competition."

"Did you know that in the decade from 2000 through 2009, the total amount of foreign direct investment (FDI) received by China was $686 billion, while the total amount of FDI received by the U.S. was $1.8 trillion – by far the largest inflow of capital from foreigners received by any country on earth? America’s receipt of FDI dollars exceeded China’s by 162 percent. On a per-capita basis, the figure is even greater: The amount of FDI America received per person from 2000 through 2009 was ten times (!) greater than was received by China. So when Obama said in his speech on Tuesday night that 'We need to out-innovate, out-educate, and out-build the rest of the world,' he wrongly implied that America currently doesn’t do so well in the international economy. But it does – which is not to say that there isn’t a lot of room for improvement. The president is correct that tax and regulatory reforms – along with reining in Uncle Sam’s deficit spending – are in order. Especially welcome is his call to lower corporate tax rates. And if calling such reforms 'competitiveness policies' improves their chances of being implemented, I’m all for it. But let’s not be fooled into thinking that America’s current economic troubles are caused by America’s open participation in global trade."

• AEI's Phil Levy succinctly labels it A Disappointing Speech and - gasp! - also channels SPKY: "In advance of the president’s State of the Union speech, I wrote about the need for difficult choices and serious stances on trade and the deficit. I didn’t hear any of that in the address. On trade, the president’s positive agenda was largely limited to endorsing his minor reworking of the three-year-old free trade agreement with Korea. He also mentioned vague plans to rework the Colombia and Panama agreements (after only two years of inaction!). I heard no mention of seeking trade negotiating authority, despite the recent efforts of Senator Rob Portman (R-Ohio) to get it for him. Nor was there any initiative to advance the global trade talks that the president has repeatedly pledged to conclude. Instead, there was an unhelpful jingoistic refrain about international competitiveness and economic threats from abroad (see Paul Krugman for why this is misguided)."

• And speaking of SPKY, since all the cool kids seem to be quoting him, I guess I will too: "The view that nations compete against each other like big corporations has become pervasive among Western elites, many of whom are in the Clinton administration. As a practical matter, however, the doctrine of "competitiveness" is flatly wrong. The world's leading nations are not, to any important degree, in economic competition with each other. Nor can their major economic woes be attributed to "losing" on world markets. This is particularly true in the case of the United States. Yet Clinton's theorists of competitiveness, from Laura D. Andrea Tyson to Robert Reich to Ira Magaziner, make seemingly sophisticated arguments, most of which are supported by careless arithmetic and sloppy research. Competitiveness is a seductive idea, promising easy answers to complex problems. But the result of this obsession is misallocated resources, trade frictions and bad domestic economic policies."  Sadly, that was written in 1994, and SPKY is today little more than a collection of words on the InterTubes.  And even more sadly, our current President, despite all his talk of "winning the future" and dominating the 21st century, is, as deftly pointed out by the AmSpec's Phil Klein sounding a lot like his Democratic predecessor back in 1994.

• Finally, Judy Shelton of the Atlas Economic Research Foundation has an excellent op-ed on the problems with the President's approach to doubling exports and "investing" in the future.  She wisely notes: "The only way to increase real wealth is through productive activity that generates true gains in economic output leading to higher future living standards; if wages are going up while purchasing power is going down due to inflation caused by government deficit spending, the gains are illusory.  If you have faith that America can compete in the global marketplace without resorting to monetary artifice, you will not be quick to embrace a strategy that elevates government industrial policy over private sector decision-making and free-market outcomes."  Exactly.

With (Trade) Friends Like These...

I've frequently lamented the attempts of many advocates of trade liberalization and FTAs to champion free trade policies through an exports-only, essentially mercantilist, approach.  Tonight's State of the Union Address - and protectionists' responses to it - perfectly demonstrate why my angst is well-deserved and why free trade proponents in Congress, the White House and the US business community need to ditch the mercantilism and adopt a new sales pitch.

Beyond the simple fact that there are myriad moral and economic arguments for open markets that are equal to or better than an export-centric approach, one of the biggest problems with a "free trade" message based only on exports is that it's completely self-defeating.  As I said last year when commenting on the President's post-State of the Union statements on trade to a group of GOP congressmen:

Obama states that "the suspicion about trade agreements is that they're all one way." Ok, that's true, but what's feeding that suspicion is not the FTAs themselves, or most Americans' real-world experiences with imports and free trade, but rather political demagoguery and media misreporting on imports, the trade deficit and the state of US manufacturing.... Until these myths are corrected - until the American people understand that imports are good for US businesses and consumers, that US manufacturing output is still the world's largest, and that the US trade balance is not some "free trade scorecard" - any attempt to sell free trade through an exports-only focus will actually enhance Americans' suspicions, rather than alleviate them. Americans simply will look at the trade deficit (which the US has held since the 1960s, so it's not like it's going away anytime soon) and think that we're "losing" at trade, and that our supposedly "reciprocal" FTAs stink. Why? Because the President told them that exports are the only thing that matter, and that the only reason that American companies aren't exporting more is because our trading partners are cheating by illegally denying US companies access to their markets....

Protectionists, of course, are more than happy to exploit this glaring vulnerability and, as I've noted many times here, they've tailored their trade-skeptical (and myth-filled) messages to prey on the public's misconceptions about trade - many of which are fueled by free trade advocates' shoddy trade salesmanship.

Case in point: President Obama's State of the Union sales pitch on the US-Korea FTA:

To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 – because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.

The message here is clear: FTA = exports = jobs.  And while exports are certainly a fine and laudable goal, the immediate protectionist response to this argument is exactly as predicted:

• Whether trade creates U.S. jobs depends on net export gains and reducing the trade deficit, which our past policies have not done.
• U.S. export growth under past Free Trade Agreements (FTAs) has been less than half that to countries with which we do not have FTAs.
• The U.S. International Trade Commission's (USITC) official study of the Korea FTA that Obama will emphasize concluded that the deal would increase the U.S. trade deficit.
• Korea FTA's chief U.S. negotiator admitted it would not be a boon for U.S. exports.
• Beware of administration claim that the Korea FTA will "support" 70,000 jobs; the core question is what net effect the Korea FTA will have on U.S. employment.
• The Economic Policy Institute projects American job losses from the Korea FTA at 159,000.
• The December 2010 Obama supplemental Korea trade deal does not alter the increased trade deficit, job loss findings.
• The USITC study identified nine losing U.S. economic sectors that include many high-wage industries, including auto and electronics manufacturing.
• Beware of the administration claim that the Korea FTA could reduce the U.S. trade deficit.
• The auto manufacturing industry may lose a significant number of workers due to the Korea FTA.
• Lack of currency manipulation disciplines in the Korea FTA mean agriculture could also lose out.

Every single one of these arguments is based on the same old protectionist myths about imports, the US trade deficit, and the state of US manufacturing.  And, despite the fact that these myths (and bogus "stats" like those from the union-backed Economic Policy Institute) have been routinely debunked here and elsewhere, they unfortunately sound almost-plausible when cast against the backdrop of the President's mercantilist SOTU statements on exports and the US-Korea FTA (and, of course, other, similar statements from pro-trade members of Congress and the US business community).

Just as troubling is the fact that the anti-trade "response" above actually came out yesterday!  In short, the "pro-trade" message coming from the White House and Congress has become so stale and predictable that anti-traders don't even have to wait until after the message has been delivered before they respond with their tired, mythtastic talking points.  (It must be nice to get paid for repeatedly cutting and pasting the same old arguments over and over again, huh?)

Could you imagine if the President and other trade advocates ever changed their mercantilist tune and spoke about the benefits of both exports and imports?  Or if they defended each American's freedom to engage in voluntary, mutually beneficial transactions with whomever he or she pleases, regardless of the political boundaries involved?  Or if they denounced protectionism as a pernicious, regressive tax on American consumers designed to line the pockets of a few well-connected producers?  Or if they simply explained that the American manufacturing sector has resumed its decades-long rise and remains the world's largest, or that an expanding US trade deficit is closely associated with economic growth, or that 55% of all imports are capitol goods and equipment that American businesses use to remain globally competitive?

For starters, anti-traders' responses couldn't be mailed-in anymore; and they'd actually have to come after the President's remarks, not before them.  Maybe they'd come up with new arguments, but seeing the dreck that they currently peddle, I'm not so sure that they could.  And considering that they've been relying on the same tired playbook for the last twenty-odd years, it would definitely be fun watching them scurry to come up with new dreck for a change.

Crazy thoughts, I know.

State of the Union: Trade

President Obama devoted two paragraphs to US trade policy in his State of the Union address tonight:

[W]e need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.

We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores. But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. And that’s why we will continue to shape a Doha trade agreement that opens global markets, and why we will strengthen our trade relations in Asia and with key partners like South Korea, Panama, and Colombia.

I've already stated my many concerns re: a recovery strategy based on manufacturing exports, and while I certainly give the President credit for sounding kinda supportive of the pending FTAs and the WTO's Doha Round, his craptastic 2009 efforts in these areas (and others!) belie any new and real commitment to their success.  I'd be thrilled to see his 2010 agenda prove me wrong, but considering that President Obama's 2009 trade agenda also expressed support for pending FTAs and the Doha Round, I'd say that a hefty dose of skepticism is warranted.

More broadly, the President's words revealed an unflinchingly mercantilist worldview - exports are good, imports are bad, full stop - but this archaic, self-defeating outlook is also nothing new, so it's not like tonight's speech gave me any reason to get all worked up on a school night.  (He also repeated the tiresome pablum about ending tax breaks for "companies that ship our jobs overseas," and that's similarly out of touch with economic reality.)

In sum: same old, same old.  My 2010 predictions remain unchanged.