Guest Opinion by Gilles Stockton: Ruminations on Trade and Trade Wars, Part One
July 5, 2018
Is this political grandstanding or is there an actual change in trade policy because It is hard to say if we are in a trade war with China or if it is just a lot of talk. We apparently imposed tariffs on Chinese steel and aluminum and China in turn has put tariffs on agricultural products. Now we learn that the tariffs will also apply on steel and aluminum from Canada, Mexico, and Europe. This talk of tariffs and trade war is not good news for producers of soybeans, corn, wheat, and pork, but so far, its seems to be more of a skirmish than a war.
Two weeks ago it was reported that China will not impose tariffs on US agricultural imports in return for our country allowing ZTE, a huge Chinese tele-communications firm, to purchase US produced components for which ZTE was previously banned because they violated sanctions on Iran and North Korea and spied on US customers. Apparently as part of this agreement, China will strive to import more agricultural products from the US in an effort to reduce its annual 376 billion dollar trade advantage over the United States.
But everything is up in the air again as the White Houses announced last week that we will impose 25% tariffs on a number of high tech Chinese imports. It is really not clear if we are in a "trade war" with China or not but there are underlying issues that need to be resolved. We, as a nation, have never had a substantive debate over the pros and cons of the trade agreements. Public debate has been difficult because the partisans of laissez-faire free trade refuse to debate. They brand anyone questioning the trade agreements as naïve moronic protectionists not worthy of consideration. But now after 24 years of experience with NAFTA (North American Free Trade Agreement) people have a lot of questions. Especially questions about how the trade agreements are structured and who wins and who loses.
According to the Free Traders, a half a trillion in annual trade deficits does not matter because trade is always good. This misses something important because not everything one buys is actually useful. Much is simply "stuff," purchased because it is in fact very cheap, but has no "intrinsic" productive value. Buying "stuff" you don't really need can make you feel good but it is like throwing your money away.
"Productive" purchases on the other hand are an investment. A new truck, or tractor, or machine tool, or household appliance can potentially make you money or save you valuable time. If you habitually throw your money away, eventually you will have less money. If, on the other hand, you systematically invest your money in productive purchases, in the end, you will have more money. This is true for both individuals and for countries.
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Unfortunately, our culture is addicted to shopping and this explains much of the trade deficit – we see this both in record levels of personal indebtedness and the ballooning national debt. Our political leadership structured the trade agreements to favor imports over exports.
We were repeatably promised that the outsourcing of our manufacturing capability would not matter because we will be the leaders of the "the new global economy." That of course has proven to be not true. Our country and our people are steadily falling behind because we failed to make the educational investments needed to prepare our younger generation, or make sure that there were good jobs waiting for them.
We totally abandoned the people who once worked in the outsourced industries. By some accounts the net effect is 2 to 3.5 million jobs lost to China and another million to Mexico. The actual total is way more and hard to count because imports also creates jobs. The problem is that the "new American economy" does not pay as well as the "old."
This is still a dangerous world. War and environmental disasters are too common, and any country that becomes too dependent upon global supply chains is risking the lives and wellbeing of its population. There are such things as strategic industries, and our country should protect those industries from excessive and predatory competition.
Our national defense capability should of course be a protected. The viability of steel, aluminum, copper, and other metals industries is obviously important because metal is needed in so many manufactured products. It would be foolish to allow one's entire metal refining industry be undermined by imports. Energy, electronics, aviation, robotics, artificial intelligence, and pharmaceutical production are candidates for protection. Food – any country that allows its food production capability to wither in favor of less expensive imports is putting its citizens at risk.
Our sovereignty, and by extension our Constitution, has also been circumvented by the inclusion of "Investor-State Dispute Settlement" mechanisms in the trade agreements. Foreign governments and global corporations were given the right to challenge and overturn laws and regulations that the citizens of this country democratically enact. We have not even been allowed the opportunity to object.
What happened over Country of Origin Labeling (COOL) is an egregious example of how foreign governments and global corporations are allowed to interfere on our sovereign right to govern ourselves. In order to distinguish domestically raised beef, pork, and lamb, Congress, in 2002 passed a law requiring a label stating the country of origin.
The governments of Canada and Mexico, on behalf of the global meat packing cartel, challenged COOL. The issue was adjudicated by an international panel of three trade judges (one judge previously served as a trade official for Mexico). Since only government officials can address the essentially secret proceedings, representatives of the US cattle industry could not attend these hearings. Ultimately, the World Trade Organization tribunal ruled against COOL and Congress dutifully rescinded the right of US consumers to know the country of origin of their meat purchases.
This is obviously disturbing but given the secrecy in how the trade agreements were and continue to be negotiated – inevitable. The interests of the American public have been systematically excluded from participation in the trade negotiations. However, international investors and representatives of global corporations are at the negotiation table. Once a trade treaty has been negotiated, Congress is not allowed to debate the individual provisions but pass the entire treaty in an up or down vote. The process guarantees that the international trading system always favors the investor class, while undermining the rights of labor, and ignoring the environmental side-effects.
All of the trade agreements were signed with our President at the time making lavish promises of immediate increases in exports. Time and again that proved not true because the treaties are clearly structured to favor imports. We grant trading partners favorable terms with little regard to equal access to their markets.
We unilaterally dropped tariffs to nothing but still face both tariffs and non-tariff barriers for our exports. Currency manipulation to discourage imports and make exports more attractive is technically not allowed, but in practice nothing has been done to stop China from doing just that. In addition, China will not allow foreign investors to own more than 50 percent of a corporation. Chinese investors, however, face no restrictions when buying US corporations, including high tech companies in Silicon Valley. Equivalency, in terms of trade has not been a consideration for our government.
To be continued …F