Commentary: Free Trade Isn’t Dead Unless America Is | Remark


Free trade between nations is not much different from specializing in our continental economy – California in high tech and New York in finance.

Nations increase their productivity by focusing on what they do best. Trade agreements dating back to the Reciprocal Trade Agreement Act (1934) increase the annual growth of the United States by about $ 280 billion.

Larger markets allow larger research and development budgets for leaders such as Intel and Alphabet. This creates additional dynamic gains that can make the difference between our gross domestic product increasing by 2.5% or maybe only 1.5%.

President Joe Biden’s middle class first trade policy maintains Trump tariffs on Chinese products, which will thwart China’s ambitions for electric vehicles. President Biden wants tax incentives for the purchase of electric vehicles geared towards American-made cars, federal purchases limited to electric vehicles made by unions, and other Buy America policies.

Damaging domestic production against vehicles made by unions illustrates the pitfalls of protectionism. Tesla is setting the tone globally for electric vehicles, but GM appears unable to manufacture a bolt that does not pose a fire hazard. Tesla and the Chinese are the pioneers of cheaper and safer batteries, not GM.

Biden wants to promote fairness, fight climate change and support unions in trade negotiations and generally avoids full new trade deals. These strategies tend to put all of our trading partners in the same basket as China.

American policies have failed Americans by not creating enough good jobs in export industries to replace those lost to imports and by not preparing enough young people for the skills these industries require.

The benefits of free trade – taught in economics classes since David Ricardo developed his theory of comparative advantage – assume balanced trade. The $ 700 billion trade deficit deprives American workers of opportunities to move from industries like clothing to higher paying jobs in businesses like factory automation equipment and artificial intelligence.

The United States has a chronic trade deficit thanks to the dollar’s status as the world’s leading reserve currency. As the world needs more dollar-denominated assets, the Treasury sells bonds that end up paying for imports.

There are two other important factors: China’s mercantilist practices and the inability of our high schools and universities to recognize the demands of globalization.

The Chinese Communist Party does not claim to be running a Western market economy. It pays massive subsidies and imposes market entry barriers to achieve self-sufficiency in semiconductors, artificial intelligence and other high-tech industries.

Meanwhile, our high schools are placing too much emphasis on college preparation at the expense of vocational education and enrollment in apprenticeship programs. Each year, about half of American college freshmen incur debt, but little more; they drop out or take an unnecessary major.

We cannot solve America’s business problems without refocusing high schools on broader, competency-based education and demanding greater responsibility from universities for the career paths they allow through participation in graduate programs. student loans.

Without confronting Chinese mercantilism, the world will switch to competitive national industrial policies to promote high technology. The sad news for the protectionist and industrial policy henchmen who populate Biden’s economic brain trust is that Chinese authoritarian capitalism looks better at this game than we do.

The Biden administration talks about strengthening America from within, but its industrial policy goals focus on just four areas: microelectronics, pharmaceutical ingredients, electric vehicle batteries, and rare earth minerals. We need a broader focus, like that of France, to repair vital links in our supply chains, reduce vulnerabilities to pandemics and similar disruptions, and create a wider range of opportunities for our workers and capital. .

The essence of Trump’s America First policy was to use tariffs and whatever other clubs he could find to open up the Chinese market. US Trade Representative Katherine Tai’s review of our policy in China offers little new and concedes that China will never change. It lacks a new vision, keeps Trump’s tariffs in place, and promises negotiations that have failed in the past.

Trade policy should work on two tracks:

First, strengthen ties with your allies by joining the Trans-Pacific Partnership and negotiating a trade pact with the UK, then use them as a wedge to strike a free trade deal with the European Union.

Second, as far as China is concerned, tariffs – the most important – can have a purpose. Require licenses to import goods and services from China, issue those licenses to US exporters for every dollar of goods sold in the Middle Kingdom, and let exporters sell those licenses to US importers.

This would settle the bilateral trade deficit by law. If the Chinese can run the business, so can we, and they need lessons on the rule of law anyway.

Pierre Morici is an economist and professor emeritus of commerce at the University of Maryland, and a national columnist.

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