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Opinion: The US's Feckless Trade Policy
Mike Froman was confirmed last week as the new US Trade Representative and immediately said something he absolutely doesn't mean.
After being sworn in by the Supreme Court Justice Elena Kagan, Froman said: "Trade must promote economic growth, create jobs and strengthen the middle class. As USTR, I intend to use every tool to increase exports of Made-in-America goods and services, level the playing field for our people to compete and win in the global economy and fully enforce our trade rights, while also working to foster development through trade."
I have heard every new trade representative since Christian Herter - the first USTR in 1962 - say virtually the same thing upon being appointed and confirmed. I mean it's a mantra. They have all repeated it almost word for word. If they had all acted upon their statements, there would be no barriers today and really no need for Froman, as worthy as he may be. But they didn't mean it and neither does Froman.
"Use every tool? Really? In the 1970s, illegal collusion and dumping by Japanese electronics companies drove most of the US industry out of business. While the Japanese courts found the Japanese companies to be in violation of the anti-collusion laws, a succession of US administrations and USTRs neglected even to collect anti-dumping duties from the Japanese companies. In the late 1980s, Airbus was being heavily subsidized by France and other European governments. These subsidies were clearly in violation of existing trade agreements and were causing significant damage to the market position of the three main US aircraft producers (yes, we had three in those days), Boeing, Lockheed, and McDonnell Douglas. A proposal to initiate anti-dumping and other action under the US and international trade laws was developed at lower levels of the Reagan administration. But the USTR at the time took no action.
In the 1990s, numerous anti-dumping and countervailing duty cases were filed by private industry in the steel and other industries, but no USTR or secretary of Commerce used his/her powers to self-initiate action by the US government to stop illegal trade activities. In the first decade of the 21st century, several USTRs led the successful effort to admit China to the World Trade Organization.
They swore to the US Congress that by admitting China to the WTO, the US trade deficit would be reduced because all the barriers in the Chinese market would be removed and US exports to China would thereby soar. It turned out not to be true. The US trade deficit with China at the time it entered the WTO was somewhere in the neighborhood of US$100 billion. Thereafter it soared to nearly US$300 billion. Chinese companies have engaged in widespread dumping and the Chinese government has managed the Chinese yuan to be undervalued against the dollar. Yet, no USTR has self-initiated an action against China or called for taking China to the WTO or the International Monetary Fund for illegal currency manipulation. In short, none of them has even contemplated using all the tools.
Nor is this just a matter of enforcement of trade laws. Over the years innumerable negotiations have been conducted - the Uruguay Round, Free Trade by 2010 for countries in the Asia Pacific Economic Cooperation group, Free Trade Agreements with South Korea, Singapore, and many others. Yet not once has the issue of currency manipulation even been included in the talks. Now reduction of a 10 percent tariff to say 5 percent is a 50 percent reduction and a good thing, but if it can be negated by a 30 or 50 percent change in currency values more or less overnight (keep in mind that in the wake of Abenomics the yen has now fallen by about 30 percent in the last couple of months) what's the point of all the so called "tough free trade negotiation"?
Froman has been part of this syndrome for the past five years. There is no reason to imagine that he is now going to break out of the mold. Indeed, he invited me to the White House about three years ago to discuss the then fledgling proposal for negotiating a Trans Pacific Partnership Free Trade Agreement (TPP). At the time, the deal included in addition to the United States, Peru, Chile, New Zealand, Australia, Brunei, Malaysia, Singapore, and Vietnam. I pointed out to Froman that we already free trade agreements with five of those countries covering about 80 percent of the potential trade. What was the real point of the deal, I asked, since it seemed like we already had the free trade element largely covered. He responded by saying "we have to show the Asians we're back."
I was puzzled. I had not been aware that we had ever left. But what Froman was telling me was that TPP is mainly about geopolitics, not trade. It's part of the Pivot to Asia. It's to reassure Asian allies and friends that America will be there to offset the influence of China and it's about trying to contain China. To that end, Froman will not insist on the issue of currency being part of the negotiation. Nor will he call into question the activities of many of our partner countries in offering special subsidies to attract away from the United States in key industries.
It's not that Froman is a bad guy. Indeed, he's a very smart, hard working guy. It's that US trade policy is an afterthought. It is the handmaiden of the Great Game of GeoPolitics, and so long as this is so, USTRs will continue mouthing the familiar mantra without meaning a word of it.
(Clyde Prestowitz is a former US trade counselor in the Reagan administration and heads the Economic Strategy Institute in Washington, DC. This appeared originally in Foreign Policy.)