GDP Revised Down — Conservative Trade Policies Exporting Our Growth And Jobs

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

When we pack up a factory here — and all of its jobs and supply chain and its support/.maintenance structure — and send it all over there to a country that doesn’t have the wage and safety and environmental protections we have, just to save a bit of money today we are also sending them the ability to make money in the future. And that future is here now.

The country’s second-quarter GDP was revised down sharply to 1.6%. So the "stimulus," by raising GDP somewhere between 1.7% and 4.5%, is the only thing that has kept us from falling completely over the cliff. But we can’t just get by on stimulus forever (especially when we waste one-third of it on tax cuts that leave nothing behind but debt). We have to fix the causes of the problems.

One big reason we are having so much trouble is that we haven’t solved the trade problem and our efforts to get growth going are just being used to help other countries grow.

In The Washington Post today, Flow of imports drags down economic growth:

The government said the trade deficit subtracted almost 3.4 percentage points from second-quarter GDP – the largest hit from trade in 63 years.

Corporate conservatives talked us into sending our manufacturing out of the country. In the short term some executives got huge bonuses as assets and capacity were sold off and payrolls reduced. But in the long term the ability for the country to earn money has been sent "over there."

I recently came across this talk by Ian Fletcher, author of Free Trade Doesn’t Work, given at the Heritage Foundation. I recommend watching, and clicking through to order his book. Ian doesn’t come from the left or right (watch him make this clear in the video) but instead just looks at trade with a scientific, fact-based, analytical approach.

Comparative Advantage?

Here is the most important point he makes, 20 minutes in (use that slider bar), in regards to the problem of moving factories to cheap labor countries. Comparative statics: Free-trade economists argue that cheap labor is a "comparative advantage." Fletcher explains that this means that if they are already making something more efficiently, today, then our best move today is to buy it from them. But it doesn’t make sense to just pack up an industry and reassemble it in a different country with low wages because then you are doing nothing more then sending away your ability to earn a living.

Yes, as I said, some people make a bunch of money in the short term doing that. But "it’s obviously going to cause a decline in our capacity to produce goods and services in the future."

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Our Growth Is Outsourced, Like Our Jobs

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
In the news today, a familiar story: imports increased, exports declined. About $50 billion in one month alone. The trade gap isn’t just costing jobs, it’s a significant factor in the slow recovery as well. See below.
In 2005, when we were halfway down to where we went, I wrote a post at my own blog titled, The Trade Problem. With (my) permission, here is the entire post:

LeavingSF1

View of San Francisco from Sausalito.

LeavingSF2

See how this ship is riding high off the water? This ship is loaded with empty containers, bound for China.
Ships come into the port loaded with goods that we buy from China. But China doesn’t buy very much from us. So we have to send ships back loaded with empty containers. (Well almost empty, they’re actually filled with dollars, and jobs, and the future.)

June 2010 Trade Numbers: We’re Back To Terrible
That was 2005, And now we’re importing shiploads of stuff again, and sending the ships back filled with cash – and what’s left of our future. The trade deficit widened to $49.9 billion in June,

The trade deficit in the U.S. unexpectedly widened in June to the highest level since October 2008 as consumer goods imports rose to a record and exports declined.
[. . .] Exports from the U.S. decreased to $150.5 billion from $152.4 billion, reflecting fewer shipments abroad of semiconductors, computers and steelmaking materials. Imports increased in June to $200.3 billion from $194.4 billion, led by telecommunications equipment, automobiles and consumer goods such as pharmaceutical preparations, televisions and furniture.
The quantity of imported petroleum increased, while the price per barrel fell to $72.44 from $76.93 the prior month, according to today’s report.

Trade Deficit Cuts Jobs And GDP
We are not just outsourcing jobs, we are outsourcing our own economic growth to others! Charles McMillion of MBG Information Services writes that, “the worsening trade deficit cut the Q2 GDP growth rate by -2.8%.”

That is, if trade and production losses in Q2 had remained at Q1 levels, all other things equal, GDP would have risen at a 5.2% rate in Q2 rather than the actual estimate of meager 2.4% growth. Today’s report suggests BEA must now revise its estimate which could show the worsening trade deficit lowering the Q2 growth rate by a full -3.0% leaving growth at just 2.2% with, apparently, worse to come.

A lot of people think it’s just “old stuff” like steel that is losing out. But look at this chart:


Note how the chart has to be extra tall to fit the huge decline in exports of advanced products. There are more charts with more bad news. (PDF)
Congress And The President’s New “Make It In America” Initiative
Congress and the President are trying to do something about it, with the new “Make It In America” initiative. CAF’s Bob Borosage in Politico today, Save American manufacturing,

More than 75 percent of Americans support a “national manufacturing strategy to make sure that economic, tax, labor and trade policies work together to help support manufacturing in the U.S.”
Not surprisingly, the Democrats’ lead initiative now is the National Manufacturing Strategy Act … It calls for quadrennial review of U.S. manufacturing policy — including assessing strategic industries, reviewing tax and trade subsidies and requiring agencies to coordinate strategies.
. . . Obama’s “new foundation” for the economy offers first steps: public investment in 21st-century infrastructure, in education and training, in research and development. Yet these, slighted in years of conservative control, are necessary but not sufficient.
To ensure products are “made in America” requires hardheaded steps to balance trade and challenging the mercantilist countries, starting with China.

AAM: “Wrong Direction” and “Giving China Benefit of Doubt on Currency Falls Short
Alliance for American Manufacturing (AAM) Executive Director Scott Paul on this morning’s latest monthly U.S. trade figures:

“The trade deficit is headed in the wrong direction, and that’s bad news for American workers. …
“The White House strategy of giving China the benefit of the doubt on currency has fallen short. The House and Senate must now step in and pass strong legislation to penalize China’s currency manipulation and bring down our trade deficit. Over the longer term, we’re encouraged that the recent focus by Congress and the Administration on ‘Made in America’ solutions to revitalize our manufacturing base and create jobs will bear fruit …
“The drop in exports is also an enormous blow to the Administration’s efforts to double American exports. … The biggest internal obstacle is the lack of an aggressive strategy to boost American manufacturing. ….”

Are we right back to the “new normal” with even more jobs and industries being shipped overseas? Or are we going to learn from the past and do something about it this time? Conservative “free trade” and “free market” nonsense just doesn’t work. It’s time to leave that stuff behind instead of trying to accommodate and appease, and all the resulting backup that brought us, keeping us from moving forwards: We need “Buy American” in procurement. We need high-speed rail and local mass transit projects. We need a huge infrastructure rebuilding and modernization effort. We need the Local Jobs for America Act. We need a national Renewable Energy Standard. We need to set a high price on carbon. We need to build out the smart electrical grid. We need to address Chinese currency manipulation and trade violations. We need to restore taxation of the wealthy. We need free education for our people. We need to extend unemployment and COBRA subsidies for the “99ers.” We need to increase the minimum wage. We need to pass the Employee Free Choice Act. We need Immigration Reform.
And this is just some of what we need. And these all just buy time until we can figure out how to restructure the economy by reforming who gets what for what and ideas of what “ownership” means, so that we can all move into a prosperous, progressive future.
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