Think about it. We’re getting ready to borrow trillions of dollars that our children will need to repay some day. We’re going to give it to the governors of the fifty states, to spend on teacher salaries, Medicare and Medicaid, condoms, candy and bubble gum, new paint and computers for government buildings, a vast array of left-wing spending priorities, and a small number of roads and bridges.
Doesn’t it make sense to keep as much of that money here, and keep it from leaking out to other countries?
Well, the $650 million that Nancy Pelosi wanted to spend on condoms would just have to leak away. Condoms are made in China. But what about the steel and other building materials for the roads and bridges? Doesn’t it make sense to reserve as much as that spending as possible for American companies?
Ask your average person on the street, or certain Democratic Senators, and the answer would be some hyper-vigorous form of YES.
Unfortunately, Obama and his people (including Tim “Obama believes China is manipulating their currency” Geithner) have handled this problem without finesse.
Obama has to walk a knife-edge between political sensitivities here in the US, and those of our trading partners, who haven’t hesitated to take him to school on the issue.
So he’s now softening his anti-free trade rhetoric, to cool off the harsh criticism from abroad. And in so doing, he opens himself to criticism from unions and other domestic interests.
Here’s what I don’t like about this. We live in an interconnected world. Until we cure the global imbalances which result in large deficits here and large surpluses abroad, we will depend on imported capital. This makes our position relatively weak. Meanwhile, other countries depend on being able to export their products to us. And that makes our position relatively strong.
The previous Administration well understood this balancing act. For the most part, they kept the negotiations in back channels, out of open view. Obama is a young, inexperienced man who lacks this kind of finesse.
Obama is doing the right thing by softening the trade-war rhetoric, there’s no doubt about that. As good as it feels, no one benefits from trade war, least of all the American companies who would suffer the retaliation from other countries.
But the way Obama has handled this is very disappointing. He’s put the weakness of our position on display in a way that Hank Paulson wouldn’t have dreamed of doing.
Moe Lane
Steve Maley
Dan McLaughlin
Neil Stevens
Daniel Horowitz
Proverbial Rock/Hard Place...
Darvin_Dowdy (Diary) Wednesday, February 4th at 8:35AM EST (link)…bold, new thinking on this issue is way past due. U.S. wealth is being slowly bled out. While other nations practice all-out protectionism, we’re not allowed any. Anyone who even speaks with the slightest bit of negativity regarding our cross-border/international trade policies is immediately branded a protectionist. This entire issue is bullied about by extreme false dichotomy. And its disappointing that Obama cowered/caved to the EU’s bullying so quickly. DD
Balanced trade?
John E. (Diary) Wednesday, February 4th at 10:07AM EST (link)I’ve been trying to sort out the impact of the trade imbalance on our current crisis. Richard Duncan’s book The Dollar Crisis back in 2001 makes an eerily accurate prediction of our current collapse. Austrian economists have reviewed this book favorably while not entirely agreeing with his prescription. In this view our trade imbalance has resulted in asset inflation instead of the more common price inflation, but that is merely temporary. Some have prescribed “balanced trade” and urge the use of Warren Buffet’s idea of import certificates. Others, Bret Swanson for example, claim that trade imbalances don’t matter as long as monetary policy maintains a strong dollar.
Any thoughts on this? (I know the question is far too open-ended).
A strong dollar is key, but trade imbalances weaken the dollar
JSobieski (Diary) Wednesday, February 4th at 11:25AM EST (link).
My rules of the road for primary season.
Rule #1: Vote for YOUR first choice in the primaries
Rule #2: Vote for the R in the general.
Rule #3: Don’t let anyone convince you to violate Rule #1 or Rule #2
Rule #4: When in a center-right argument, reaffirm Rules #1-#3–it will help us all to get along better.
Rule #5: If you are using the language of the left, you probably aren’t furthering conservativism
Rule #6: The priority is issues first, candidates second, and supporters third. Nobody is bigger than the issues. Conversely, if you spend your time focusing on supporters, you are wasting everyone’s time.
STOP THE MADNESS!
A reduction in the rate of spending increases is NOT a cut!
In-state tuition for illegals is NOT amnesty!
Requiring someone to pay their medical bills is NOT an individual mandate!
Reducing tax rates is NOT a tax increase!
From Francis's previous posts
The_Gadfly (Diary) Wednesday, February 4th at 1:10PM EST (link)I think he believes anyone complaining about trade imbalances is selling a pig in a poke. While I would get lost in the specifics trying to explain how it works, the essential point of it is that it all has to balance out, not merely in the end, but even at the time the trade is made.
JS and Gadfly
John E. (Diary) Wednesday, February 4th at 2:42PM EST (link)The guys that were focused on trade imbalances managed to predict the structural failures that have occurred. That’s a reason for giving the subject a harder look.
I’m not confident in my full grasp of blackhedd’s explanations, but I do understand the idea that China imports our demand and we balance that out by importing their capital investment. And I also understand that as JS says, that trade imbalances theoretically weaken the dollar. On that score it could be that the dollar is going to end up being much weaker.
What about their idea that all those foreign investment dollars in combination with our monetary policy caused a massive inflation in our asset values while everyone was looking for price inflation instead? (That’s also reminiscent of FC’s posts). Suppose that is the bubble that is bursting. That everything balances out eventually is just sort of a truism. More to the point, we are after maintaining a healthy economy and some stability. Importing/exporting demand/capital may be balances but may also have an impact on economic strength.
Buffet’s concept, Import Certificates, is aimed at promoting economic stability through balanced trade. The way I read Buffet (as an economic novice), it would be consistent with dollar strength overseas while promoting current account balance without protectionism. The pain would be felt by the US consumer in price inflation for foreign products, but only until our production increases sufficiently.
Heck, I don’t know… I hope we get it figured out though.
JS and Gadfly
John E. (Diary) Wednesday, February 4th at 2:42PM EST (link)The guys that were focused on trade imbalances managed to predict the structural failures that have occurred. That’s a reason for giving the subject a harder look.
I’m not confident in my full grasp of blackhedd’s explanations, but I do understand the idea that China imports our demand and we balance that out by importing their capital investment. And I also understand that as JS says, that trade imbalances theoretically weaken the dollar. On that score it could be that the dollar is going to end up being much weaker.
What about their idea that all those foreign investment dollars in combination with our monetary policy caused a massive inflation in our asset values while everyone was looking for price inflation instead? (That’s also reminiscent of FC’s posts). Suppose that is the bubble that is bursting. That everything balances out eventually is just sort of a truism. More to the point, we are after maintaining a healthy economy and some stability. Importing/exporting demand/capital may be balances but may also have an impact on economic strength.
Buffet’s concept, Import Certificates, is aimed at promoting economic stability through balanced trade. The way I read Buffet (as an economic novice), it would be consistent with dollar strength overseas while promoting current account balance without protectionism. The pain would be felt by the US consumer in price inflation for foreign products, but only until our production increases sufficiently.
Heck, I don’t know… I hope we get it figured out though.
I hate the whine...
bobbymcgill Thursday, February 5th at 1:33AM EST (link)…as if these other countries aren’t doing the same thing.
The U.S. –the most open market in the world– is seeking to protect one industry and the world loses its mind. All of those countries lining up to complain have their own protections in place on certain industries. “What’s the difference?”
While it is a fair question, my problem is that I love the idea of free trade. On a positive note this saber rattling should scare some trading partners into lowering more of their own barriers.
That is if, as you rightly put it, Obama can bring some “finesse” to equation.
Bobby McGill
http://idlewordship.com