Economist Jared Bernstein says “corporate capture” of our trade process isn’t the only thing we have to fix for trade to benefit all of us. We also have to do something about “excess savings.” He means trade imbalances.
Monday’s Progressive Breakfast informs us that:
A revamped trade policy needs to go beyond stopping “corporate capture” says W. Post’s Jared Bernstein:
“All global income must be saved (by households, governments or businesses) or spent (consumed or invested) … they’re exporting savings and importing the demand for manufactured goods from other countries, notably the United States … putting issues of excess savings back into the trade policy agenda, we would be taking a step in favor of healthier, more equitable globalization.”
Bernstein, former chief economist to Vice President Joe Biden and a senior fellow at the Center on Budget and Policy Priorities, writes at The Washington Post in a column headlined, “Sometimes, your trade deficit is thrust upon you“:
For years, elites of both parties have touted only the benefits of globalization, which are real and important. But … in the case of the United States, the winners from globalization have failed not only to compensate those hurt by it. They have also taken their winnings and, in our heavily money-driven political system, used them to buy policy changes — tax cuts, less government, deregulation — that further hurt those already hit by trade.
Finally, significant numbers in the electorate have said “enough,” and the candidates are responding by acknowledging the problem. But what can anyone do about the downsides of trade?
What can we do? Bernstein writes that Trump “has not even the hint of a plan (beyond bloviating about unrealistically high tariffs that Congress would never consider).” Meanwhile “Clinton’s plan to try to reshape trade deals so that they reflect workers’, consumers’, and environmental concerns instead of those of multinational investors is definitely a step in the right direction.”
Bernstein says that is all about “trade deals” but not so much about “trade” itself in an economy. He says we also have to do something about “long-term macroeconomic imbalances that have played a major role in generating the negative trade outcomes” that have caused so many to “sour on globalization.” He’s referring to “negative trade outcomes” like … well, to see the negative outcomes of our trade policies look at Detroit and Flint and the rest of what remains of manufacturing regions and their people, or at the way so many of the good jobs of the 1970s and 1980s have been replaced by low-wage crap jobs with no benefits.
Bernstein says this happens “because flows of goods and the money to pay for them have to balance out, when some countries run large and persistent trade surpluses, others must run similarly persistent trade deficits.” In other words, because China, Germany and others run persistent trade surpluses, we run trade deficits. We’ve run trade deficits every single year since the late 1970s in fact, when we were persuaded that “free trade” will be great for all of us. Bernstein says this is because countries like China use an “export-oriented strategy to boost their manufacturing sectors,” and this “thrust upon us” a trade deficit.
Doing Something About It
To fix this, Bernstein says countries currently engaged in strategies to boost their manufacturing sectors need to instead make “more investment in health care, anti-poverty measures, education, and higher wages, along with less currency manipulation.”
How do we get these countries to stop, change their strategies and spend more like we do? Bernstein doesn’t have answers. We could, as Bernstein writes, put “issues of excess savings back into the trade policy agenda,” and ask other countries to please do the right thing to bring the world’s economy back into balance.
Or we could just move toward balanced trade policies with something like a “Buffett Plan” approach that says, “if you want to sell to us you have to also buy from us.” This 2014 post, “Balancing Trade – Remember The “Buffett Plan”,” explained:
When You Sell The Farm, The Jobs And Ability To Make A Living Go Away
When a family sells off the farm to a housing developer the members of the family might put a bunch of cash into their bank accounts, but all the people working at the farm are out of a job and the surrounding community loses its ability to grow food to eat in the future. That is what our country is doing. That is the inequality we are experiencing. The trade deficit is a few people selling off our jobs and ability to make a living in the future. They get really rich, and the rest of us lose everything in the long run.
[. . .] The trade deficit is a few rich people selling the farm that grows the food we eat and where the rest of us work.
To remedy this, our government would set up a cap-and-trade-style system where exporters get a certificate when they export, importers have to turn in those certificates to be able to import. We could phase in balance by ramping down from where we are, to a 1-for-1 dollar ratio for the certificates. Exporters could use certificates to import, or importers could purchase certificates from the exporters.
So selling these certificates would mean extra cash to exporters, and would help them modernize factories, pay specialists and the other things needed to revive our in-country industries. Or the extra cash would let them sell for less, which would counter currency manipulation and other subsidies that other countries provide to their exporters.
The government could also auction import certificates instead. Either way, this is an internal mechanism to force other countries to do what they need to do to balance their trade with us.
Phasing this in gives fair warning to the surplus countries that the free ride is ending. They will have to make the adjustments they need to make – buy more from us – if they want to continue to sell as much into our country.