At 08:38 14/11/2010 +0800, Michael Gurstein wrote:
The end of it all or the end of it all..
No. William Greider's article was a thorough one and covered all the bases
but America will not be able to "step away" (to use his phrase) from
globalized free trade because there are now too many entities ranged
against it (Western Europe [principally Germany]; American multinationals
in China and elsewhere; Chinese, Indian, Brazilian, Russian, Saudi Arabian
private corporations; Chinese SOEs [state-owned enterprises, only now
becoming efficient after 30 years of post-Deng Xiaoping awakening, and also
learning from their private corporations]. Both of America's pre-G20
proposals have been binned by the other 19 countries (after what were
apparently "screaming" negotiations behind closed doors). (One proposal was
an American-led, IMF gold-backed SDR world trading currency [and dropped
before the G20 met]; the other was to limit trade balances.)
We're in for a very untidy period. Whether America's $600 billion QEII
proves to be internally inflationary or whether trapped by the banks again,
it will inevitably seep into the world and have external inflationary
effects. There are likely to be all sorts of currency devaluations
ricocheting around the world. However much America tries to inflate its way
out of trouble, the rest of the world will match it -- and then some.
America will in the end be forced to try austerity (as Germany, France,
Italy, UK, Nordic countries, several more Asian ones are already doing) or
face a world that will increasingly cut it out of the world trading scene.
Whether America remains internally peaceful or not remains to be seen -- as
also whether America's best scientific research brains will start to be
recruited elsewhere (just as America recruited the cream of Europe and Asia
since the end of WWII).
As to the next (post-industrial, post-fossil fuel) era -- genetics-based
(bacterial production of hydrogen being the first new technology), and in
which American research labs are still supreme -- China is catching up
fast. It is by far the biggest purchaser of the latest American-built DNA
sequencers and has already developed its own super-computer (the most
powerful in the world) to feed them (and will undoubtedly be making their
own next-generation DNA sequencers before too long).
Keith
<http://www.thenation.com/article/155848/end-free-trade-globalization>http://www.thenation.com/article/155848/end-free-trade-globalization
The
Nation
November 4, 2010
The End of Free-Trade Globalization
William Greider
The world economy is on the brink again, facing a crisis of epic
dimensions for reasons largely obscured by the inflamed politics of 2010.
Against their wishes, the United States and China have been drawn into an
increasingly nasty and dangerous fight over currencies and trade. American
politicians, especially desperate Democrats, have framed the conflict in
familiar moral termsa melodrama of America wrongedand demand retaliation.
Other nations, sensing the risk of a larger breakdown, have begun to take
protective measures. Every man for himself. The center is not holding.
The political fray obscures the fact that the basic economic problem is
larger than any single nation and stalks the global trading system itself.
There is a huge hole in the worlda massive loss of demand. Think of the
trade wars as the largest producers fighting over an abrupt shortage of
buyers. Financial collapse and recession, with falling income, defaulting
debt and rising unemployment, made the hole. In other times, Washington
would have stepped in to impose policy solutions and create market demand
as the global system's buyer of last resort. This time, Goliath is gravely
weakened, both in economic strength and political authority.
The political push-pull zeroes in on China. Beijing is accused of playing
dirty, stealing jobs, production and wealth. Washington imposes a penalty
tariff on Chinese tires and tubular steel. Beijing pushes back with a
tariff on US poultry. President Obama once again urges China to stop
manipulating its currency to underprice Chinese exports and stymie US
goods going the other way. China once again blows off his request. United
Steelworkers ups the ante by filing a 5,800-page complaint detailing how
China is scheming to corner the global market in green technologies. Obama
promptly orders an investigation. "What do the Americans want?" asks the
vice chair of Beijing's National Development and Reform Commission. "Do
they want fair trade? Or an earnest dialogue?... I don't think they want
any of this. I think more likely, the Americans just want votes." He has a
point. But so do American politicians, who think China's hardball
industrial strategy has had something to do with America's anemic
recovery. The House, divided on everything else, voted 348-79 in September
to authorize tariffs on nearly all Chinese imports if Beijing does not
relent in its currency game.
* * *
The US public seems to agree with the harsh stance. A Wall Street Journal
poll found that 53 percent (including 61 percent of Tea Party adherents)
think free-trade globalization has hurt the US economy. Only 17 percent
think it has helped. But the trouble with Americans claiming injured
innocence is that it blinds them to the complexities of the predicament.
The fact is, the United States and China, motivated by different but
mutually reinforcing reasons, collaborated to create the unbalanced
trading system. American multinationals eagerly sought access to China's
market. The Chinese wanted factories and the modern technologies needed to
develop a first-class industrial base. American companies agreed to the
basic trade-off: China would let them in to make and sell stuff, and they
would share technology and teach Chinese partners how it's done. Not
coincidentally, US corporations also gained enormous bargaining power over
workers back home by threatening to go abroad for cheaper labor if unions
didn't give wage concessions.
Washington blessed the deal. Both parties were convinced decades ago that
improving the fortunes of globalizing banks and businesses was in the
broad national interest. The Clinton administration capitulated to Chinese
negotiators in 2000, admitting China to the World Trade Organization while
giving up legal tools that could have controlled China's appetites.
Chinese officials understand, even if many Americans do not, that they are
essentially doing what the trading system has allowed or at least
tolerated from many others. Washington grumbled when Japan and then South
Korea, Taiwan and Singapore pursued similar development strategies.
Arrogant US policy-makers assumed that these rivals would eventually adopt
the American model and become more like us. They never really have.
The problem is that when a nation of 1.3 billion successfully advances
along this road, it blows out the lights. Decades ago, when Washington
scolded Japanese officials for violating free-trade orthodoxy, they bowed
humbly and made agreeable noises. The Chinese don't bother. They are
unabashed because they have always been much more up front about their
intentions. In the early 1990s Beijing published a series of directives
for major industrial sectors, describing precisely how the state intended
to direct the rise of its industrial base. China manipulates its
currencythough so do other governments when it serves their interests
(indignant senators bash China for depressing its currency, but Washington
is doing the very same thing to the dollar through the money spigots of
the Federal Reserve). The Chinese also know that Japan suffered years of
depressed growth after Washington pushed it into raising the value of its
currency. China pirates US intellectual property, and it suppresses wages
to attract factories from the United States and elsewhere. It lures major
US multinationals by offering tax breaks and subsidiesbut it also compels
the companies to share their precious technologies with Chinese partners,
who are always majority owners.
Which brings us to the present crisis. China's exports exploded toward the
end of the Clinton years and expanded even more ferociously under George
W. Bush. So did the offloading of US jobs and manufacturing. China's wave
of new competition crashed over every industrial economy, but disruptions
were most devastating for the United States. American trade deficits
soared, peaking at close to 6 percent of GDP in 2006. Imports from China
dwarfed exports in sector after sector, including many advanced
technological goods developed in America. The goods are often made by US
companies, but not here. The US economy has been buying more than it
producesa lot moreand borrowing from foreign creditors, most heavily from
China, to do so.
"I admire the Chinese for recognizing the world economy is still a jungle,
despite all of its legal trappings," says Alan Tonelson, a conservative
trade critic at the US Business and Industrial Council. "But here's the
problem. They don't seem to understand that unless the US economy recovers
its financial and economic health, the entire world will come crashing
down. The reason is, we won't be able to serve any longer as the import
sponge that buys from everyone else."
We have reached the endpoint of globalization as we have known it. It
cannot continue as before, because the United States is essentially tapped
out. Goliath has fallen and cannot get up. Who will lend a hand? Not
China, obviously, but also not Japan and the Asian Tigers, or the European
nations. All are dealing with their own problems. All but the smallest
economies run perennial trade surpluses with the United States. Giving up
some of those surpluses means surrendering some portion of domestic growth
in order to stabilize the system. No one wants to go first. This is a
dangerous impasse, the kind that can easily slip into a general
unwindingthat is, depressionif not resolved smartly. "The world is no
longer in a common foxhole...but in many different foxholes," observes
economist Paul McCulley of PIMCO, the world's largest bond house. Japan
and South Korea devalue their currencies to protect their exports (so has
the United States). Brazil puts limits on capital inflows to stop foreign
money from destabilizing its economy. Currency war is a surrogate for
trade war, one of the few levers governments can still manipulate unilaterally.
For Americans the most ominous development is that trade deficits, after
shrinking during the recession, are expanding rapidly again. That stands
in the way of recovery and helps explain why the federal stimulus of 2009
had less punch than expected. The trap is illustrated by a few recent
statistics: the US economy expanded in the second quarter of 2010 by an
anemic annualized rate of 1.7 percent. During those same months, however,
the nation's trade deficit expanded by 3.5 percent. Do the arithmetic: the
US economy would have grown at a much healthier rate if it weren't for its
dependence on products made elsewhere. Yet getting different results will
take much more than currency adjustments. It means reforming the dynamics
of global trade and the US industrial structure, not just the bad habits
of American consumers.
* * *
President Obama, unlike his predecessors, understands the problem. He has
been trying for the past year to persuade foreign governments to
cooperate, with meager results so far. Obama told G-20 leaders in April
2009, "The world has become accustomed to the United States being a
voracious consumer market and the engine that drives a lot of economic
growth worldwide.... [But] if there's going to be renewed growth, it can't
just be the United States as the engine. Everybody is going to have to
pick up the pace." At the G-20 meeting this past June, the president was
more explicit. "After years of taking on too much debt," he said,
"Americans cannotand will notborrow and buy the world's way to lasting
prosperity. No nation should assume its path to prosperity is simply paved
with exports to the United States."
There's no easy road to peace. The target is not only China but some of
Washington's old friends, who run bloated surpluses at US expense. The
Obama administration pushed concrete measures at the meeting of finance
ministers in South Korea in October. Treasury Secretary Tim Geithner
proposed a new global rule that would require nations running trade
surpluses to shrink them to no more than 4 percent of GDP, presumably by
buying more imports from debtor countries, while debtor nations like the
United States would have to reduce deficits by the same amount, to less
than 4 percent.
Geithner's strict numerical limits were not accepted, but his proposal
represents an important first stepa US administration coming to terms with
American weakness and stepping away from the free-trade dogma that led to
the crisis. The president recognizes the global nature of the problem. But
I expect he will be compelled to take a tougher stepacting unilaterally.
He will have to act for the United States in ways that get other nations,
especially China, to take him seriously. Washington could, for example,
declare a financial emergency, enacting legislation to put a ceiling on US
trade deficits and begin a gradual process of reducing them. That would be
a signal to exporting nations and multinational corporations that the good
old days are over. But shrinking the trade deficits, important as it will
be, is not sufficient. Washington must also change the rules for how
American business and finance operate. Only in America do multinationals
get to behave like free riders, with no strings attached. They harvest
public money as subsidies and investment capital, they are protected by US
armed forces and diplomacy, and they are rescued when they get into
trouble. It is a one-way relationship, and the American public knows it.
US corporations and banks remain free to move jobs and production whenever
and wherever corporate strategy dictates, regardless of the consequences
for the economy. Government can stop this by forcing them to serve the
broader national interest. This is not as radical as it may sound. Every
other leading industrial nation does it, one way or another. They impose
limits on corporate strategy, either in formally binding ways or through
political and cultural pressure, to ensure that good jobs and the best
value-added production remains at home.
Washington can accomplish this only through unilateral action, not
free-trade agreements. It has to rewrite trade law, tax law and policies
on workforce development and subsidy. Resistance will be fierce, given the
power and influence of big-name banks and corporations, but the public
will surely support efforts to make the big guys serve the country's
well-being.
If Washington doesn't make these broad structural changes, another popular
idea will prove illusorythat US manufacturing can be rebuilt around green
technologies. China is already doing this, and is far ahead. It has 35
percent of the global market in solar panels and is poised to dominate
other green technologies. The United States, in fact, has swelling trade
deficits in this sector. American companies work both sides of the
competition, collecting subsidies on both ends.
Doubters may say that Obama doesn't have the nerve to tackle this problem.
They may be right. But the president is clearly thinking along these
lines. He is the first president in thirty years to call for restoration
of US manufacturing. This past summer he pushed modest tax measures that
give a small advantage to home-based producers. The impact was so meager
that Republicans didn't bother to object. But the GOP may also have
grasped that measures favoring US factories over foreign ones will be
wildly popular with voters. Obama repeated the message before a Labor Day
audience in Milwaukee, saying, "I don't want to see solar panels and wind
turbines and electric cars made in China. I want them made right here in
the United States of America."
The best evidence for Obama's potential comes from liberal-labor reformers
fighting the trench warfare on trade cases while advocating far more
fundamental reforms. "The president has been true to his word and very
supportive on trade-law enforcementbetter than any president since before
NAFTA," says Leo Gerard, president of the United Steelworkers. "The
president is trying to do the right thing on outsourcing, on taking away
tax breaks from multinationals."
Senator Sherrod Brown of Ohio cites a series of White House decisions on
trade and stimulus spending that saved 400 jobs in Youngstown, more jobs
in Lorain and 1,000 steel industry jobs overall. "On each case, we had to
beat the hell out of the White House," Brown allows, "but this White House
is more open to manufacturing than any in memory. When the president
focuses on the facts, he comes down on our side." Brown and Gerard hope to
build visibility and mobilize popular support that will push the president
and Congress to embrace more ambitious reforms. "They have a manufacturing
strategy, but it is not yet a manufacturing policy," Brown says.
The president's familiar style of wanting to split the difference in a
tough fight is evident on trade. Obama appointed Ron Bloom, a Wall Street
veteran close to the Steelworkers, as a special adviser on
manufacturingbut the president continues to support more trade agreements.
And Bloom, I was told, has been walled off from trade policy by Larry
Summers, the departing economic adviser. The president talks up his goal
of doubling exports but neglects to mention that imports are again
swelling. "You can't get this economy out of the ditch doubling exports,"
Gerard says, "if at the same time you are tripling imports."
* * *
Another leading indicator for potential change is that a few influential
industry leaders are deviating from the standard corporate line. Jeffrey
Immelt, CEO of General Electric, has called for the revitalization of
manufacturing and suggests that the United States can become the leading
exporter. "In some areas, we have outsourced too much," Immelt admitted in
a speech last year to the Detroit Economic Club. "We plan to 'insource'
capabilities like aviation component manufacturing and software
development." GE's strategic shift sounds shocking (and unreal to union
leaders) because the company has been the most notorious player in
offshoring assembly lines and jobs. GE's 288,000 worldwide employment is
now 53 percent foreign. The unions that represent workers at GE had more
than 100,000 members there in the 1970s; they are now reduced to about 15,000.
A more persuasive break from past dogma was expressed by Andrew Grove,
former CEO, now senior adviser, of Intel and a revered figure in Silicon
Valley. Grove wrote a blunt confessional essay for Bloomberg titled "How
to Make an American Job Before It's Too Late." The government, he urged,
must intervene to end the offshoring game his semiconductor firm and other
computer giants have played for many years. Tax the product of offshore
labor, Grove proposed, and use the money to help other US companies scale
up production at home. "If the result is a trade war, treat it like other
warsfight to win," he declared.
Grove took a shot at New York Times columnist and globalization
cheerleader Thomas Friedman, who claims "innovation" will keep America on
top. Not if US inventions do not lead to US production, Grove argued.
Friedman and other free-traders, he said, don't seem to understand that
the computer industry adheres to its own exit-to-China strategy for
dumping US workers. When a start-up is in development, investors insist
even before the product becomes a big seller that executives work out the
timing for offshoring jobs.
The US computer industry, Grove observed, employs only 166,000fewer than
in 1975, when the first PC was assembledwhile the industry in Asia employs
1.5 million workers, engineers and managers. The world's largest computer
maker, China's Foxcon, employs 800,000. They make the products Americans
know as Dell, Apple, Microsoft, Hewlett-Packard and Intel.
Union leaders suspect that the same story is playing out at GE. The
company was founded on Edison's invention of the incandescent bulb, but
this past summer GE closed its last US light-bulb factory, a highly
automated, nonunion plant in Winchester, Virginia. Old-style bulbs will
still be made in Latin America and Asia, where wages and healthcare are
cheaper, and for a time they will still be sold in the United States with
the GE label. But the company is moving on, shifting to two new green-tech
products that promise vast reductions in energy consumption. Congress is
effectively banning US production of incandescents by mandating efficiency
standards, starting in 2012.
Both of the new light-bulb technologies were invented in America. But the
new bulbs, GE said, will be made overseas, and for the usual reasons: US
workers are considered too expensive. They face the same grim choice that
has prevailed for decades: either wages get busted from $25$30 an hour to
$13$15, or the jobs disappear. That trend has been gradually eroding the
American middle class.
Stephen Tormey, representative of the United Electrical Workers (UE) at
GE, sees a shrewd corporate strategy. "I think GE saw they could make more
money with these new technologies and get subsidized by the government as
energy-efficient if they became born-again believers in American
manufacturing," he says. "I'm all for that. I will stand on the sidelines
and cheerif it's true. So far we haven't seen it. You see these little
moves here and there, but so far they are still a globalizing company."
GE is bringing some jobs home. With lots of fanfare, it has announced new
moves to restore jobs at various US plants, sometimes to make products
like more expensive, energy-saving home water heaters. But union officials
are not impressed. They read GE's vaguely worded promises and produce a
list of plant closings and job losses. "Press releases do not create
jobs," says Chris Townsend, UE's Washington representative.
GE is a brilliant example of how a globalizing company manages its
worldwide supply chain, moving elements of production based on costs and
market demand. Divided loyalty comes with the territory. GE assembles wind
turbines in South Carolina and China. It harvests tax breaks and subsidies
from Washington as well as Beijing. Which side is GE on? Its own, and it
will go wherever profits are highest. But this race to the bottom
undermines standards in both rich and poor countries. The downward
pressure on wages, and the obsessive search for lower prices and greater
profits, destroys aggregate demand for the entire system. It feeds the
deflation that threatens to bring down the world economy.
* * *
Multinationals drive the destructive cycle but are also its prisoners.
They cannot quit on their own without losing out to other companies. Only
governments, acting together and individually, have the power to reverse
the cycle before it is too late. The US government can confront these
negative forces by altering bottom-line incentives for multinationals
based here. It can do this through the tax code, by levying a stiff
penalty on corporations that continue to offshore more production than
they create at home.
Public subsidies are another leverage point. Instead of competing with
other nations to provide the biggest subsidies, Washington could
disqualify companies from any form of subsidy unless they agree to accept
concrete performance terms reflecting national loyalty. The obvious means
of enforcement is a staple device of American capitalismthe enforceable
contract. When GE gets capital and other financial support from taxpayers,
it makes no promises about how long the jobs will stay at home or even if
jobs will be created. The government should get it in writing: if the
company is unwilling to make such commitments, it won't receive any money.
If GE decides to break the promise, the contract will make the company
return the money or surrender the security bond required up front.
Government, in other words, should mimic practices that are routine on
Wall Street and in corporate finance.
If Washington also adopts sterner measures to reduce its trade deficits,
the discipline will alter strategic decision-making by firms like GE. A
collar that steadily closes the trade gap would create risks for
offshoring companies and capital investment abroad, since foreign
production would lose its assured access to the American consumer. A
border tax on social costs would provide a similar way to defend American
standards from free riders overseas. If, for example, the United States
decides it must raise costs for domestic producers to reduce pollution or
hydrocarbon consumption, foreign factories should be required to pay an
equivalent border tax on imports if their country of origin does not
impose similar costs on production. An emergency general tariff would be a
more extreme version of the same principle.
All these suggestions are deeply disruptive to global commerce, and, yes,
many would raise prices for Americans. But the country's predicament is a
historic emergency that cannot wait for market solutions. The United
States must, in effect, decide that its role as Goliath is over. It's time
to act like a nation again rather than as the global overseer. If Barack
Obama doesn't find the nerve to act, maybe the next president will.
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Keith Hudson, Saltford, England
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