Categorized | Trade

State of the Union Address: Obama is wrong on trade. So very wrong.


President Obama’s views on trade will prevent economic recovery during his second term.  He could have used the State of the Union Address to establish a national strategy to eliminate the U.S. trade deficit to create jobs and economic growth while increasing production of food and goods in the U.S.  But instead, he vowed to pursue more of the trade agreements that have hampered our ability to fix the trade deficit.

He said:

To boost American exports, support American jobs, and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.

Take another look at this phrase, in which nothing is true:  ”To boost American exports, support American jobs, and level the playing field in the growing markets of Asia…”.

First, Obama and the Office of the U.S. Trade Representative don’t understand that “net exports” are the goal, not gross exports.  Germany and China get this.  Obama does not.  We have indeed increased exports, but imports grew more so ultimately we give up more domestic market share than we gain in foreign markets.  This is the source of our net job losses from trade.

The red area in this trade deficit chart shows the economic hole our government created by allowing trade deficits instead of pursuing balanced trade.

In 2011, our trade deficit subtracted 4% from overall GDP. This is the government estimate, from the Bureau of Economic Affairs.

 So, you can understand why I pull my hair when government officials say “boost exports.”

Second, Obama also said he wants to “support American jobs” through pursuing these trade agreements without a balanced trade strategy.  Odd phrasing.  They used to say “create jobs”, which was incorrect because net imports destroy jobs.  But “support”?  That allows the President and USTR to peg trade agreements to pre-existing jobs in companies that have at least a nominal amount of exports, or who sell to another company that has at least a nominal amount of exports.  So it is misleading (1) because the core issue is net job creation; and (2) the “support” terminology allows the false implication that those jobs would go away without the pieces of paper that say “trade agreement” on the front page.

Third, Obama wants to “level the playing field with Asia”.  If he really wanted to level the playing field, he would address currency manipulation now.  He would address foreign border adjustable taxes (value added taxes) that subsidize foreign exports and tax our shipments abroad.  He would neutralize state-controlled enterprises that are arms of foreign countries, massively subsidized to gain U.S. market share through predatory pricing.

If he wanted to “level the playing field with Asia”, Obama and the USTR would not bind our hands by negotiating agreements that reduced our ability to craft a balanced trade policy.

It is up to us in the trade reform movement to counter the President and the USTR on this front.  There simply wasn’t anything correct in what he said last night about trade.


2 Responses to “State of the Union Address: Obama is wrong on trade. So very wrong.”

  1. W. Raymond Mills says:

    Yes. Thank you, Michael Stumo. “there simply wasn’t anything correct in what he said last night about trade”. The speech was a kick in the gut for those of us who support balanced trade. The public doesn’t understand the role that our trade deficit plays in reducing good jobs in the U.S. Politicians are going to continue the failed policies of the past, as long as they can. But a salute to the Gideon’s band of stalwarts who continue to argue for balanced trade.

  2. Mo says:

    Since Bretton Woods ended the US has been running increasing trade deficits as the US continues to inflate faster then its trade partners and have lower savings. This chart of the Current Account Balance actually looks like Zimbabwe’s during their high inflation. Zimbabwe had record current account deficits as their currency depreciated against every currency around the globe. Zimbabwe having record current account balances when their currency depreciated against every currency refutes the notion that you can depreciate your currency to have trade surpluses and a growing economy.


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