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Yesterday President Obama called on Congress to ratify bilateral free-trade agreements between the United States and Korea, Colombia and Panama. Supporters say the deals could be worth billions to our economy. The White House and Congressional negotiators are also working on legislation that offers protections for U.S. workers who have been hurt by foreign competition, and the Senate seems poised to ratchet up pressure on China. Legislation is coming to the floor which would impose new trade sanctions on China in an effort to compensate for the relatively low value of its currency: Join us for a discussion on politics, the U.S. economy and global trade.
- John Murphy vice president of international affairs, U.S. Chamber of Commerce.
- Robert Scott is an international economist and director of international programs at the Economic Policy Institute.
- Elizabeth Williamson reporter for The Wall Street Journal.
MS. LAURA KNOYThanks for joining us. I'm Laura Knoy of New Hampshire Public Radio, sitting in for Diane Rehm. Diane's on vacation. President Obama is asking Congress to take up long-stalled bilateral trade pacts with South Korea, Colombia and Panama. Meanwhile, the Senate is considering new trade sanctions on China to balance what many say is an unfair valuation of its currency.
MS. LAURA KNOYJoining me to talk about proposed changes to U.S. trade policy is Robert Scott of the Economic Policy Institute. Hi, Robert. Thanks for being here.
MR. ROBERT SCOTTHi. Thanks for having me.
KNOYAlso with us, Elizabeth Williamson, reporter with The Wall Street Journal. Welcome, Elizabeth.
MS. ELIZABETH WILLIAMSONGood to be with you.
KNOYAnd John Murphy of the U.S. Chamber of Commerce. And, John, welcome to you, too. Thanks for your time.
MR. JOHN MURPHYIt's a pleasure to be here.
KNOYWell, Elizabeth, I want to start with you. Just step back for us, if you could, please, on these bilateral trade deals with South Korea, Colombia and Panama. First of all, Elizabeth, just -- what's the big idea behind these? How are these supposed to benefit our country?
WILLIAMSONThis is part of President Obama's jobs platform. He would like to build more markets abroad and broader markets abroad for U.S. production. So this effort represents reversal for him from 2008 when he was on the campaign trail, but this is recognition on his part that more needs to be done to grow American jobs.
KNOYSo exports will help our economy and so forth. Is it fair to say, Elizabeth, that there are winners and losers here?
WILLIAMSONThere are absolutely winners and losers. It will vary by industry. The textiles industry, electronics, computer makers are potential losers in this. The winners are definitely the agricultural sector and the service industry -- banking, health care and legal.
KNOYAnd there are three deals we're talking about: South Korea, Colombia, Panama. Are we pretty much lumping these together, Elizabeth? Or are there differences among the three?
WILLIAMSONThere are enormous differences.
WILLIAMSONThe South Korea deal is the biggest by far in terms of new exports that could be created. That would be worth about $11 billion annually once it comes into force. The others are miniscule by comparison. They are about $1 billion a piece.
KNOYAnd does Congress vote on them individually or altogether as a group?
WILLIAMSONThey will vote on them individually. They'll also vote on them in tandem with the Trade Adjustment Assistance bill, which provides worker training and extended unemployment benefits for workers who are displaced by globalization.
KNOYAnd that's been an issue, and we'll talk about that in a minute, for sure.
KNOYAnd, John Murphy, to you, the Chamber has been a strong proponent of all three of these agreements. Tell us why.
MURPHYWell, we agree with the president that these agreements stand to create tens of thousands of American jobs. There are different studies out there, but the president has estimated that the Korea deal alone could create 70,000 jobs. And an estimate by the U.S. International Trade Commission economic staff that was requested by Sen. Wyden estimates that that agreement alone could create 280,000 jobs.
MURPHYThe way it works is really by opening these markets to American exports. The U.S. market is wide open today to imports from around the world. But U.S. manufactured goods going into Korea face average tariffs of 7 percent. In Colombia, it's 15 percent. These agreements will sweep away those tariffs on both sides, and so we really see significant opportunities for American goods to get into those markets and in a big new way.
KNOYWow. So 15 percent, that's a big tariff. So if I make something here, even if it's competitively priced, once you slap an extra 15 percent on, that's not as attractive to those buyers.
MURPHYIt's a real game changer. And what we also see going on is that Korea, Colombia and Panama had been entering into separate trade agreements. Korea has a new one with Europe. Colombia has a new one with Canada. And in those cases, our Canadian and European competitors are now able to sell their goods duty free in many cases. That's a huge price advantage. And if we don't act quickly, just by standing still, we will be falling behind.
KNOYRight. So the people in those countries might get more used to buying German products. And by the time we get in there, you know, they've already got that loyalty to that German product instead of American product.
MURPHYYes, that's absolutely the case. In Colombia, for instance, U.S. farmers have already lost $1 billion in sales to competitors in Argentina and Brazil, where -- which have their own trade agreement with Colombia. The harvest season is coming, though, and, if we get these trade agreements enforced by the end of the year, U.S. farmers and agricultural producers tell us that we won't lose too much, but time is of the essence.
KNOYWell -- and if you want to join us, we'll be taking your questions and comments throughout the hour. You can call us at 800-433-8850, or send us your email at email@example.com. Join us on Facebook or Twitter. And again, the number, 800-433-8850. And, Robert Scott, I haven't forgotten about you, again, director of international programs at the Economic Policy Institute.
KNOYYou've called these trade agreements classic NAFTA, and in your opinion, that's not a positive. What's wrong with these trade deals?
SCOTTWell, these -- proponents of these agreements continue to sell us the same fairy tale, that they're all about exports and it create tens or hundreds of thousands of jobs. They told us the same thing in 1993 before the NAFTA agreement was signed. The problem with their analysis is they're only looking at one side of the equation. They're looking only at exports.
SCOTTIt's like trying to keep score in a baseball game only by counting the runs of your home team. You don't know -- the problem with it -- with that analysis, you don't know who wins the game. And we know who won the game in this case. I've looked at the trade agreement with Mexico, for example, under NAFTA. And, between 1993 and 2010, we had a rapidly growing trade deficit with Mexico because imports increased much more rapidly than exports.
SCOTTI've estimated that we lost 682,000 jobs due to growing trade deficits with Mexico. And that's the concern that I have with all three of these trade agreements. I've estimated that, just looking at Korea and Colombia, we could lose over 200,000 jobs in the first two years alone. Again, exports will grow. My estimates are not very different from those of the Chamber.
SCOTTBut when you look at the other side of the equation, at imports, imports are going to grow much more rapidly. The reason, the key reason is these agreements make countries like Mexico and Colombia and Korea safe for foreign investments. And the -- you know, the International Trade Commission that does the analysis for the government never evaluates the impact of foreign investment on trade.
SCOTTAnd that is the biggest aspect of these agreements. And with Mexico, for example, foreign investment in Mexico tripled as a shared GDP in between the 1980s and the decade after NAFTA took effect. And what that did was fuel a tremendous flow of outsourcing.
KNOYSo when you say foreign investment, you mean, you know, a shoe company that used to make shoes in the United States now making shoes in Mexico. Is that what you're talking about?
SCOTTExactly. And what I'm really talking about are companies like Ford and Chrysler moving car production to Mexico, VW making cars in Mexico, all for access to the U.S. market. And that's what this agreement is about. It's what it was about with Mexico, and it's what these agreements with Korea and Colombia are about.
KNOYDid you want to jump in there, John Murphy? And then I have a question for you, too, Elizabeth. Go ahead, John.
MURPHYSure. I would just differ with what the historical record is here. You know, the Department of Commerce will tell us that, over the past three years, the United States has actually had a trade surplus in manufactured goods with our free trade agreement partners taken as a group. In addition to that, the United States has very large trade surpluses globally in services and in agricultural goods.
MURPHYSo if you're concerned about the trade deficit, these free trade agreements aren't the problem. They're the solution. And it's just simple logic. Again, going back to the Colombia example, because it's so clear, last year, the average tariff that the United States imposed on Colombian goods was one-tenth of 1 percent. Getting rid of that is a small price to pay in order to get the elimination of that 15 percent tariff on U.S. goods.
KNOYYou know, Elizabeth, how are we supposed to sort this out? We, the average person, we've got one side saying we're going to lose so many jobs, another side saying we're going to gain so many jobs. How is the average listener supposed to figure this out?
WILLIAMSONLaura, it's really difficult. And, you know, it's great that we got right to this point because this really is the rub in making the argument for or against these agreements because it could be said that trade agreements don't necessarily create or destroy jobs, but, rather, they move them around. And I think that both sides could agree on that.
WILLIAMSONYou're going to move -- you're going to lose jobs in one industry. You'll gain them in another. You're going to move one factory to another country, but then you could argue that if you move a Ford plant to Mexico, you're not necessarily hurting Ford in the Unites States. Rather, if they're able to turn a profit there, they can support the whole operation, and that becomes the rising tide that floats all boats.
WILLIAMSONBut the jobs thing is really something to be careful of because they'll use terms like created and supported. Those are two obviously highly different things. So it's very difficult to sort this out. It really depends. You can see by the numbers being cited here. It's huge swings in the numbers of jobs created, supported, lost, moved, so it is hard to sort out.
KNOYWell -- and for you, I think, Robert Scott, as we said earlier, Congress is considering protections for U.S. workers who are hurt by foreign competition. What are those protections, Robert, and how satisfied are you with them? Are they enough?
SCOTTI think the protections are important. They provide, as you said earlier, extended unemployment compensation and extra training for these workers, I think, for up to two years, but only helps workers who can be identified as directly displaced or, in some cases, a few cases, indirectly displaced by trade. They really miss the vast majority of workers who are hurt by this.
KNOYAnd do you have to apply? Do you have to fill out a form and say, hey, I lost my job because of this trade deal?
SCOTTOh, you have to apply. Absolutely, and it varies tremendously state by state. I've looked at the Trade Adjustment Assistance data and two very similar states -- say, Alabama and Mississippi, one might report, you know, tens of thousands of workers registered for TAA, another might report none. So this is a big problem with the NAFTA-TAA program. So much of it is up to the discretion of state officials who would actually administer these programs.
KNOYSo it sounds good on paper, but on the ground, it's not as satisfying.
SCOTTIt's not enough, certainly, to compensate for all the hundreds of thousands of jobs that had been, or will be lost, due to these trade agreements.
KNOYWell -- and we will talk more after a short break. And we'll take your comments and questions throughout the hour, so you can call us on 800-433-8850. Send us your email at drshow@wamu. Join us on Facebook or Twitter. Coming up, more on shifts in U.S. trade policy, plus your comments. So keep it right here.
KNOYWelcome back. I'm Laura Knoy, sitting in for Diane Rehm. We're talking today about shifts in U.S. trade policy with Robert Scott, director of international programs at the Economic Policy Institute, Elizabeth Williamson, reporter at The Wall Street Journal, and John Murphy, vice president for international affairs at the U.S. Chamber of Commerce.
KNOYAgain, your comments are welcome throughout the hour at 800-433-8850, email at firstname.lastname@example.org, or join us on Facebook or Twitter. All of you, I want to go to the phones now. And let's go first to Mark in Pace, Fla. Go ahead, Mark. You're on the air, and thanks for being with us.
MARKYes. I, at the risk of sounding -- or oversimplifying this, I know that a point when we had trouble in our embassies, we would do a tit for tat sort of a thing. Like, if they caught several people that were supposedly spying or they prevented our diplomats from traveling, we would prevent their diplomats from traveling.
MARKWhy isn't there something that the State Department can do to make this more of a simpler transition and more flexible so that we can deal with tariffs and such?
KNOYOkay. I'm not really quite sure how that has to do with trade. And, by the way, Elizabeth, the State Department doesn't really get involved in trade deals, do they? This is more of a thing for the Obama administration's economic people.
WILLIAMSONWell, there's a geostrategic element, particularly to the Korea deal. I mean, one of the appeals to President Obama of this deal is the fact that it strengthens the U.S.' role in East Asia as a counterweight to China, so there is a diplomatic element to it, certainly.
WILLIAMSONAnd Hillary Clinton came out yesterday supporting the deals and saying that they were an important -- sort of important incentive to building diplomatic relations with these countries, but other than that, not so much.
KNOYWell, thanks again for that call. Let's take another one. This is Prem (sp?) in Sugar Land, Texas. And hi, Prem, you're on the air. Go ahead. Welcome to "The Diane Rehm Show."
PREMSpeak up. My question to the expert was that, how can American companies compete with China, India, Brazil when they are -- I meant to say those countries are accepting jobs anywhere from $1 an hour to as high as they can get paid? They do not have any restrictions on the business. They don't have to provide any health care insurance to their employees. While in U.S.A., we have to pay minimum wage. We have to pay them pension.
PREMWe have to make sure that they are given health care. I think, regardless of this trade agreement, I'm not sure it's going to make a huge difference. Before we criticize other countries and their policies, we should look into our faults and see what we -- what have we done wrong that we can fix. Because what I'm seeing -- a simple example is I have iPhone. And this iPhone is made in China.
PREMNow, this is our technology produced by our company, and it's being manufactured by other countries.
KNOYWell, Prem, lots of points that he raises. And the first one, I think, I will throw to you, John Murphy. This comes up all the time. How can the U.S. compete with countries like China that have such lower-wage structures that don't have all of the worker benefits and environmental protections and so forth?
MURPHYWell, the iPhone example is actually a very interesting place to start. There's been a number of studies that have looked at the iPhone and the iPod. And what you find out is that, even though the product may be assembled in China, more than 80 percent of the value added is actually produced here in the United States. It's merely the final stage assembly that's taking place in China.
MURPHYAs you dig in to trade statistics, what you find is that things aren't always exactly as they seem because the value added is not what you're seeing when you read on the bottom of the product, made in country X. In fact, U.S. manufacturers have been hit pretty hard in the recent recession, but they're by no means out of this global contest. Between 1988 and 2008, U.S. manufacturing output rose by more than 80 percent.
MURPHYNow, the American people don't always recognize that because this is also a period when manufacturers have shed employment. And that's because there is a productivity revolution that has gone on across the U.S. economy, and particularly in manufacturing, where you can just make more widgets with fewer workers.
MURPHYBut, again, I believe this comes back to our -- the importance of these trade agreements because the best source of demand for the -- our increasingly productive factories is selling to other countries. And we can't compete on that basis.
KNOYWhat do you think, Robert?
SCOTTWell, there are so many myths there. I don't quite know where to start. First of all, we've been losing manufacturing jobs not just in this recession but for the last decade. We've lost 6 million manufacturing jobs in the last decade. Secondly, this is not because of productivity growth. We had high productivity growth in the 1990s, and we had stable employment in manufacturing.
SCOTTThere's really been almost no change in productivity growth if you compare the two periods on a similar basis, say, as peak to peak, the way economists do it, similar productivity growth -- 1990, stable employment, 2000s, we get massive, massive job loss. Almost a third of manufacturing jobs were destroyed. And the difference is the tremendous increase in the trade deficit.
SCOTTPeople were still buying manufacturing goods. They're just made somewhere else. Now, it doesn't have to be that way. Germany is a similar country to the U.S. Germany has very high wages, very high benefit costs, and yet they had maintained a large and growing trade surplus. And they have a growing share -- or stable share of employment in manufacturing in their economy, plays a huge role there, much larger in here in the United States.
SCOTTSo it doesn't have to be this way. I think that the cause of the U.S. problems are a combination of both our failure to address persistent trade problems with countries like China -- we're going to get to in a minute -- and failure to do more to help ensure that we're creating jobs here at home, which is what the European countries do that we don't.
KNOYBut, Robert, Germany does have some of these free trade deals that we talked about earlier, right?
SCOTTThat's right. And the free trade deals don't necessarily guarantee that you're going to get job loss if you also pay attention to creating jobs at home in a domestic market. We simply leave that entirely to the market. We have no industrial policy, no sector planning designed to help create jobs here.
KNOYElizabeth, I know you want to jump in.
WILLIAMSONYeah, we definitely do have an industrial policy here. And I think that's what the president has been pushing with his jobs act. So I don't think it's entirely fair to say that, you know, there is no industrial policy other than let's sign three trade agreements and hope for the best. The other thing is productivity definitely has an impact, but I think it's tempting to put this purely in manufacturing terms.
WILLIAMSONLook at the beneficiaries of these agreements. I mean, they're agricultural producers. These are oil, seed, corn, grains, fruits, vegetables that wholesale go across the border. There's no manufacturing component there whatsoever, so I think it's important to look at that, too, when making these arguments.
KNOYWell, let's look at the politics, Elizabeth, since you brought it up. So how are congressional Republicans and Democrats each trying to get what they want here?
WILLIAMSONWell, I think, on the Republican side -- I mean, this is a rare point of bipartisan accord. You wouldn't know it from how difficult it's been to try and get these things to the point where they were delivered to Congress yesterday. But this is something where everybody recognizes the need to grow the economy, to grow jobs, to support the manufacturing sector and to support the agricultural sector. So they all agree on that.
WILLIAMSONBut they do agree on the potential -- or they do disagree, rather, on the potential impact of this. The Republicans tend to see it as a boon for manufacturing, a boon for many sectors of the economy, where the Democrats turn around, particularly labor-backed Democrats, and say, no, this really does cost jobs in certain sectors of the manufacturing portion of the economy, and we're not always going to get what we want.
WILLIAMSONSo there really is a kind of, you know, dichotomy here. But I think the unifying thing in this particular case is the fact that the economy has been so sluggish in its recovery and that the unemployment rate is so stubbornly high. So there's where -- the point where they can come together, and that's why these were delivered in the first place.
KNOYWell -- and where's President Obama on this? He's all for it, right, Elizabeth?
WILLIAMSONHe is. In 2009, I mean, he would've liked to have pursued just the South Korea deal because the Colombia and Panama agreements are somewhat more controversial among his base, particularly Colombia because of that country's history of violence against union organizers. They would have liked to have left that deal alone.
WILLIAMSONIt's small beer in terms of new exports, and they would've liked to just focus on South Korea 'cause they could also make that geostrategic argument. But they weren't able to do that. But the president has recognized the value of this, not only in terms of new exports, but also in cementing that relationship with a very important ally in that region.
KNOYJohn, what's your take on the politics of this? A rare moment of bipartisanship.
MURPHYIt has made for strange bedfellows, but it's clearly one of the areas where we're going to see some bipartisan wins this year. The Chamber has been pleased to work with the White House, with Democrats in Congress such as Steny Hoyer, the Democratic whip in the House, and Max Baucus, the chairman of the Senate Finance Committee, but also with great leadership from Republicans, such as Mitch McConnell and Speaker Boehner, Dave Camp in the House.
MURPHYIt's -- we're looking at what we hope will be a short campaign and strong bipartisan vote for all of these. You know, I would go back to one thing, though, that, you know, the administration clearly did come around first on Korea. But I think they also did a second hard look at the Colombia agreement. And it's not lost on them that 43 percent of American exports go to our neighbors here in the Americas.
MURPHYAnd in the past decade, our exports to South America rose twice as fast as our exports to Asia. So leaving behind a large country like Colombia, a growing market that is our closest ally in South America, just wasn't in the cards in the end of the day. And it's great that everybody's doing the right thing there.
KNOYWell, and one more political question for you, Robert Scott. How upset is the left, is the union movement with the president, given his backing for these three trade agreements?
SCOTTWell, I don't think it's just the left. I think it's really a mistake to try and pigeonhole the opposition as just "labor-backed Democrats." We actually have pretty widespread bipartisan opposition to many of these trade agreements, have had in the past. They're being given the so-called bum's rush here.
SCOTTThey're going to enforce them through Congress in the next two weeks, so we don't have time for debate. So we really can't see what's going on. But the fact is that it's become increasingly difficult to move these kind of trade agreements through Congress because there is very strong bipartisan agreement in the general public, that they have been bad for workers. They've cost us jobs.
SCOTTThe public knows, as you do, in countless opinion polls, the public says that agreements like NAFTA have cost jobs, China trade has cost jobs. I think the numbers who are concerned about China exceed 80 percent in the general public. And so what you're seeing now is that you got candidates of both parties taking strong, unconventional positions against continued expansion trade.
SCOTTYou've got a couple of Republicans presidential candidates, Romney and Huntsman, who have come out for the China agreement, which passed this, I think, yesterday. We'll talk about that later. So I think it'll be interesting to see how these agreements actually play out.
KNOYI'm Laura Knoy, and you're listening to "The Diane Rehm Show." If you'd like to join us, call 1-800-433-8850, or send an email to drshow@wamu. And let's go next to Howell, Mich., where Joanne's on the air. Hi, Joanne. Welcome to "The Diane Rehm Show."
JOANNEGood morning. Thank you for taking my call. I think we need to stress -- and I cannot stress it enough since we are in manufacturing, our business -- that there are people who would like to do, or can only do, repetitive jobs. And so we need to make sure that we have jobs for them in manufacturing. Also, people that do have knowledge, we cannot get. We need (word?) hands. We need CNC operators.
JOANNEWe need die makers. We've looked a year-and-a-half for a CNC programmer. So, I guess, what's happening...
KNOYWhat's a CNC programmer, Joanne?
KNOYWhat's a CNC programmer?
JOANNEIt's a computer operated machine -- you program it, and then it does -- it cuts the steel by itself.
KNOYSo it sounds like, Joanne, you...
JOANNESo you program it.
KNOYYeah, you've got some hands-on experience with manufacturing. And you seem to be saying, don't just go for the super high-tech manufacturing. You know, keep your basic run-of-the-mill manufacturing, too. Is that what you're saying, Joanne?
JOANNEWell, yeah, see, we need both. And, as I said, there are people who cannot or are not interested in learning too much. So we need to have manufacturing jobs for those people also. A country that does not manufacture will lose out in the end.
KNOYOkay. And that's a profound point that you hear people make. I think I want to get you first on that, Elizabeth, and Robert and John. Go ahead, Elizabeth.
WILLIAMSONThis is a really interesting phenomenon that's been raised in the past, and that's this mid-level manufacturing conundrum where they cannot find enough skilled workers to take these jobs. It's actually a very hopeful thing. I mean, a big chunk of the manufacturing growth in this country is accounted for by these component makers, the tool and die companies, the mom and pop small manufacturers.
WILLIAMSONAnd business is actually really good for them. And these trade agreements, most arguments would say, tend to benefit these individuals because, just as we talked about with the iPhone, it's made with mid-level components, and then the final assembly might be done abroad. But those individual components are made here in the U.S. by those mid-level manufacturers.
KNOYAnd I wonder, John Murphy, if this is an area where you and Robert Scott might find agreement with Joanne's point. If a country isn't making things, it's going to go down the tubes. You need that base there.
MURPHYIt is important. And just to go back to a point that we started to make earlier, you know, it's -- the first order is to get our own house in better order here.
MURPHYAnd that comes back to U.S. domestic policies -- in this case, relating to education, making sure that training programs are genuinely connected with industry so that we're actually educating people for the jobs that are going to be available, having regulatory policies that are sufficient, but not so burdensome that they impede U.S. manufacturers in global competition.
MURPHYSo looking at keeping our own house in order really should be the first order of business.
KNOYElizabeth, and then I also want to talk to you, Robert, about the presidential candidates. Go ahead, Elizabeth.
WILLIAMSONYeah, just a quick point on this, education absolutely is the key here. You've seen the trend in this country is toward university education and not technical and vocational school education. And, I think, what the caller is pointing out here is that there is a lack of training for these individuals. That is a big issue. It's not a trade agreement issue.
WILLIAMSONIt is an educational policy issue, and it is something that needs to be addressed because, how can you have people -- you know, how can you have these jobs gone begging, you know, for individuals who can occupy them when we have 9 percent unemployment in this country, when training would actually provide a big chunk of the solution?
KNOYIt is frustrating when you think about that dichotomy. Go ahead, Robert.
SCOTTAnd here's where I think we see a big difference between the U.S. and Germany. Germany does have very sophisticated school to work, educational transitional programs. They take -- workers and businesses and post-secondary institutions work together to train them on the job, to acquire the skills that they need. But there's something else that Germany does that we don't. During the past great recession, Germany kept workers on the job.
SCOTTAnd when they didn't have enough work for them, they retrained them, and they helped them develop new products. So, when the recession ended, Germany had a fully staffed workforce, and they had the workers that they needed with new skills and new products to sell to the rest of the world. Meanwhile, we had lost another 2.5 million workers.
SCOTTAnd many of those workers, by the way, were not just workers with a high school degree or with mid-level skills. Manufacturing is the biggest employer to scientists and engineers in our country as well. So we lost many jobs at all levels of skill.
KNOYWell, Joanne, great points. And coming up, more of your calls and questions, and we'll turn our attention to another shift in U.S. trade policy: possible sanctions against China. So more on that. Stay tuned.
KNOYWelcome back. I'm Laura Knoy, sitting in for Diane Rehm. We're talking this hour about shifts in U.S. trade policy with Robert Scott, director of international programs at the Economic Policy Institute, Elizabeth Williamson, reporter for The Wall Street Journal, and John Murphy, vice president for international affairs at the U.S. Chamber of Commerce. You can join us at 800-433-8850, or send an email to email@example.com.
KNOYAnd, all of you, we were talking earlier about the three free trade deals that Congress and the president are looking at. Let's turn now, though, to China. And, Elizabeth, just explain for us, please, what the Senate is considering in terms of possible punishments for China.
WILLIAMSONOkay. The legislation that just made its way through the Senate and was passed with an overwhelming vote would punish China for not letting its currency revalue basically so that U.S. exports are that much more expensive in that country and obviously more -- and, more importantly, imports are cheaper. So the accusation here is that China is artificially manipulating its currency in order to strengthen its exports.
WILLIAMSONThis has probably not a very good chance of making it through the House, but it's an important symbolic move. And it is potentially cover for people in the House who want to support the free trade agreements but also want to say that they're not, you know, blanket endorsing trade agreements or trade deals that are not fair to the United States.
KNOYWell, and your paper, Elizabeth, came out on the editorial page strongly against this, said that Obama and Mitt Romney were both supporting this and said, look out, don't do this.
WILLIAMSONYeah, I mean, there are obviously two schools of thought on this. It's highly controversial. There are a number of -- particularly from the Bush administration, but the Obama administration as well. I mean, the president, once again, in 2008, was very much in favor of punishing China for unfair market practices, which is what currency manipulation is. But now, he has reversed himself, and they're pretty quiescent on this right now.
WILLIAMSONBut they definitely don't support these moves because they feel like they need China as an ally. They're working with them on a variety of issues, North Korea in particular, and they don't want to start a trade war at this particular juncture.
KNOYWell, sure, in the midst of a possible downturn again.
KNOYJohn, how big a factor do you think currency valuation is in this imbalance between the U.S. and China? And how much are other forces at play here?
MURPHYWell, I think there's a wide consensus that the Chinese currency is undervalued and pretty significantly. And it is clear that it is a challenge for the global economy. The G-20 has agreed consistently that we need to pursue a rebalancing, where China focuses more on domestic consumption. From the Chamber's perspective though, the legislation at hand were concerned that it won't create jobs as advertised.
MURPHYAfter all, what it really does is alter the way that the United States implements its trade remedy law. That's the tariffs that we oppose from time to time on dumped goods or subsidized goods. It will -- that's really just a small sliver of American industry that's ever in the circumstances where they can bring a case and win a case. So the relief that this bill promises would be pretty modest.
MURPHYBut we're also concerned that, in our analysis, China's currency policy is really just one aspect of China's industrial policies. And there are an array of things that the Chinese government does that are of concern to U.S. industry.
KNOYWell, like what?
MURPHYSuch as widespread theft of intellectual property, which, if you think about it, gives a Chinese enterprise a significant competitive advantage that they don't have to pay for the software that American companies are paying for, for instance. There are a host of policies that are called indigenous innovation policies, which is -- it's a set of polices that compels companies to produce in China if they want a piece of the Chinese market.
MURPHYIt incentivizes them to not only produce there but to develop their intellectual property there, to move some of their R and D there.
KNOYThat's a smart move on their part.
MURPHYIt's -- these are very troubling policies, and there has been a bit of progress there. But we need a lot more. So by exclusively focusing on currency, we believe we're taking our eye off the ball. And Dave Camp, the chairman of the House Ways and Means Committee, has promised a more holistic approach. So we're looking forward to seeing how the House takes up this issue separately.
KNOYRobert's got a new one. Jump in. Go ahead there.
SCOTTYes. The currency manipulation is not just a problem with China. The bill does not name China. It -- in fact, there are at least five Asian countries that are guilty of substantial currency manipulation. According to best estimates from the Peterson Institute, in addition to China, we have Singapore, Hong Kong, Malaysia and Taiwan, all with currencies that are estimated to be undervalued by anywhere from 27.5 to 20 -- to 38.5 percent.
KNOYAnd just to make it crystal clear, if a currency is so-called undervalued, that country's goods are massively cheaper on the global market. And that's...
SCOTTIt acts like a subsidy…
KNOY...harder for the U.S.
SCOTTThat's right. It acts like a subsidy on their exports. It makes their imports here cheaper, but, more importantly -- and this is where it really hurt us -- it makes our exports not just more expensive in their market but in every market around the world where we compete with them. And that's where we really lose out against China with currency manipulation.
SCOTTI've estimated that if we could eliminate currency manipulation with these five countries, we could add as many as 2.25 million jobs over the next 18 to 24 months through -- largely through real growth in exports, and we maintain stable imports if we got the currencies right. So I think currency manipulation is one of the biggest trade problems we face, certainly not the only one.
KNOYSo you're probably happy then that the Senate might do this.
SCOTTI'm very happy that this bill passed. And what we've seen in the past is this kind of measure is exactly what's needed to persuade countries like China to revalue. We don't have to actually implement it, doesn't ever actually get signed by the president, but simply the statement to the Chinese that this is a serious issue and we're willing to act on it (word?) we get a response. We've done it before with Nixon in '71.
SCOTTHe imposed a temporary tariff, got revaluation. '85, we had a similar situation with the Japanese. We've done it before, several other countries in Asia, so this kind of process does work. All it requires is a threat. It doesn't require a trade war or tariffs, simply a firm statement that we're willing to do something.
KNOYSo the dire consequences that some have projected, you're saying, look, that's not going to happen.
KNOYYeah, and just real quick, Elizabeth, to you, untangle this for me because there's a push-pull going on. I mean, earlier this hour, we talked about the broad agreement -- not broad agreement, but there's a positive feeling about the three trade agreements, opening up trade. Now, we've got the other side of the coin.
KNOYThere's a push in Congress to close down or -- I shouldn't say close down, but you know what I'm saying -- go against trade with China. So we've got sort of both sides of the coin going on here. What is that about?
WILLIAMSONWell, I think at a sort of gut emotional level, this is about China. I mean, China looms as an enormous threat in the American mind. And so, consequently, it is a big deal in politics. You know, we're heading into an election year.
WILLIAMSONAnd taking a measure against China is enormously popular, so popular, in fact, that you have two of the nine Republican presidential candidates supporting this measure when they would never have supported it in the past, including someone who was the U.S. ambassador to China, Jon Hunstman.
WILLIAMSONSo it just gives you a sense of the enormous political power of an argument, that we should whack China, and that would be a way to sort of address the issues that we have, that Americans are really concerned about, unemployment and the loss of manufacturing.
KNOYWhat do you think, John?
MURPHYI think that there's a pattern in American politics where the incumbent in the White House is reluctant to be seen taking unilateral action on China's currency policies, whereas the challenger, whether he's a Democrat or a Republican, or she, out on the campaign trail, is inevitably going to accuse the administration of being weak on China. I did want to make one quick correction, though, that last night's vote was actually a procedural vote.
MURPHYIt shows that there is a lot of interest and support for this bill in principle, but the Senate is going to spend the whole week debating amendments. And this is the first time in nine years that there's a really amendable trade bill on the floor of the Senate, so there's a lot that could happen.
KNOYNine years, that's a long time.
KNOYAll right. Let's take another call. And, again, this is Terry in Indianapolis. Go ahead, Terry. You're on the air. Welcome to "The Diane Rehm Show."
TERRYHello. Good morning. I just wanted to say that I've been in transportation for, like, 30 years here in the United States. And Gary, Ind. used to be the steel capital of the globe. And because of unequal tariffs, I watched the manufacturing of steel just leave the United States. And it was -- it just mystifies me that we could -- they could actually purchase from overseas, steel, into the United States cheaper than it could be made here.
TERRYAnd so the sanctions on the tariffs, I don't think, were imposed or opened. And most countries that I've talked with representatives about have unfair tariffs, to me, or a limit on the amount of purchases that they can take. Like, 30 years ago, Japan had 10,000 vehicles they could take from the United States. United States had an open market on what they would import from there.
TERRYAnd if that's the first part of that, then the other part would be, what the manufacturers that have closed up and moved (word?) Mexico or Canada, why can't the United States smack their hands by saying, okay, if you do this, you know, you're leaving us in an economic crunch...
KNOYThe manufacturers themselves. So you're not saying, Terry, it's so much the laws or the agreements. But it's the companies themselves that are making unethical decisions? Is that what you're saying or...
TERRYAll I'm saying, that the United States should have -- not ever been unequal in the amount of import and exports. We should be -- you know, we have to first take care of our own. And by giving, you know -- like I say, let Japan charge us 15 percent tariff on any products that come into them, but yet we only imposed on them 2 percent, or anything along that line. We're not equal in our trade with them. We...
KNOYOkay. Yeah, and this is a complaint that we hear a lot, and I wonder what you think, Robert Scott. People feel that, you know, the United States has these wide open markets, and yet everybody else imposes unfair restrictions on us. And it's time to even up that equation.
SCOTTWell, I think that's absolutely correct. We've heard some of them from John talking about theft in intellectual property and indigenous innovation policies in China. We have massive problems with subsidies in many, many industries in China. We've studied four different industries now: steel, autos, glass -- auto parts, glass and paper. And we found massive subsidies in all of them.
SCOTTThis is my colleague, Usha Haley, who is one of our research associates. And in -- again, in the steel industry, I've done a lot of work in dumping cases. So that's another common problem. So these unfair trade policies have tilted the playing field against us. They have cost us jobs and industries. Now, what the caller was describing was something that actually Warren Buffett proposed in 2003. It was a plan to use effectively tariffs by another name.
SCOTTIt was what he called an import certificate program to require that we have balanced trade. That's -- it was a serious proposal. And, recently, investor Bill Gross proposed that we should be discussing ideas like that. So I think that there is legitimate reason for concern about the effect of growing trade deficits on the manufacturing in particular and the overall health of our economy.
KNOYWhat do you think, Elizabeth? A lot of people like our caller and I've got a stack of emails here who basically say the same thing, that, you know, the deck is stacked against us, and it's our own fault. We've opened the doors to everybody else, and they have not really opened their doors in response.
WILLIAMSONWell, in their essence, that's what these trade agreements are supposed to be about, right? It's supposed to be about zeroing out, well -- or at least equalizing the tariffs charged on the -- on goods and services going both ways. So that is the argument being made here. At the same time, what the administration is trying to do to offset some of these concerns is pursue WTO cases against China.
WILLIAMSONThey've had a couple of victories on Chinese tires, on unfair subsidization of Chinese producers of green energy products to try and protect U.S. manufacturers and pursue these. USTR -- sorry, the U.S. Trade Representative Ron Kirk has said that, you know, when he came into office with the Obama administration, he found that a lot of these cases had languished for years.
WILLIAMSONSo the idea is, while you pursue these free trade agreements, you are simultaneously pursuing these WTO cases to try and get these countries, particularly China, to live up to its international commitments. So that's important. But the other thing is the intellectual property theft.
WILLIAMSONI mean, the point that Ron Kirk makes is that it's considered an achievement that, right now, 92 percent of pirated software being -- or 92 percent of software being used by the Chinese government is pirated. And that's considered an achievement, down from 100 percent.
KNOYI'm Laura Knoy, and you're listening to "The Diane Rehm Show." If you want to join us, call 1-800-433-8850, 1-800-433-8850. And let's take another call. This is Susan in Arlington, Va. Hi, Susan. You're on the air. Go ahead.
SUSANGood morning. I'd like to make two broad points. First that most of these -- I'm a professor at George Washington University, and I write on how people talk about trade and the relationship of trade and human rights. First point is that these agreements, even the (word?) agreements, is a governance agreement. These -- our free trade agreements include things like rule of law, transparency, labor rights, ITR.
SUSANThe World Bank just came out with a new book on these free trade agreements and has almost 30 chapters on what each of these FTAs include. So we need to talk about these agreements as governance agreements, not just about trade itself, and ask, are they regulatory, deregulatory, re-regulatory? The second point that I'd like to make is about the Colombia FTA. And I studied the relationship between trade and various human rights.
SUSANAnd looking at this question empirically, it's interesting. Labor rights tend to disimprove, (sp?) but personal integrity rights, which is freedom from arbitrary killing, rape, imprisonment, murder, by -- so what's happened in Colombia is a lot of union leaders have been killed. That tends to improve. So it's interesting.
SUSANMy own view is that we should approve the Colombia FTA because it will give us more influence in Colombia and the ability to use (word?) to pressure the leaders to do more to improve labor rights.
KNOYI see what you're saying. And, Susan, in the interest of time, I'm going to let you go. Robert, you were kind of making a face there. Go ahead.
SCOTTWell, Colombia is a particularly strange case there. They've killed over 2,500 labor leaders, I think, more than 50 in the last two or three years alone. They're killing teachers. They're killing union organizers. And why in the world we would want to lock in a trade agreement now is beyond me.
KNOYAnd real quick to you, if I could, John Murphy, what's the timeline for these two trade pacts that we've talked about?
MURPHYWell, the three of them were sent to the Congress yesterday and...
KNOYOh, I'm sorry. I meant the trade deals, yes, all three of them...
MURPHYYes, all three of them.
KNOY...and then China, yes.
MURPHYRight. And so the three free trade agreements and the Trade Adjustment Assistance, we expect to move through the House of Representatives in the next two weeks and hopefully see the Senate approve them by the end of the month.
KNOYAll right. We'll keep an eye on what happens. I want to thank all of you for being with us. I'm Laura Knoy, sitting in for Diane Rehm. Thanks for listening.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture, Monique Nazareth, Lisa Dunn and Nikki Jecks. The engineer is Aaron Stamper. A.C. Valdez answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is firstname.lastname@example.org. And we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.
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