Fixing America's Economy and Jobs Problems

This article appears on my blog thanks to guest author Ken Davis. --WW.

Fixing America's Economy and Jobs Problems

By Kenneth Davis, Balanced Trade Associates, Inc. and Former U.S. Assistant Secretary of Commerce

Virtually every American senses our economy is sick and our country is in a decline, but reading the news media or listening to our politicians gives very little insight into the causes or the possible solutions.

Meanwhile, is it good that President Obama is trying to win Congressional "Fast Track" authorization to negotiate another big Free Trade treaty with much of Southeast Asia and Japan? That treaty would be called the Trans-Pacific Partnership (TPP), and opponents say “It’s like NAFTA on steroids - the worst example of how we got into the economic mess we are in!” TPP is definitely not a good idea for America --now, or ever.

Let's first look at what’s wrong through our annual trade deficits. The trade liberalization that began in the Nixon administration has deepened, leading to NAFTA and a dozen other Free Trade treaties, with trade deficits every year since 1976, deepening in a curve as seen in the graph above (“Trade Surplus / Deficit as Percent of GDP”). Over the last 10 years, the U.S. has averaged a total trade deficit to other nations of over $700 billion every year, for a total of $8 trillion of added national debt.

Next consider manufacturing employment. The graph above, “Percent of Employment in Manufacturing in the United States,” just published by the Federal Reserve Bank of St. Louis, shows that in 1970 over 26% of American jobs were in manufacturing, dropping to just over 10% today. Looking directly at the number of jobs, the Information Technology and Innovation Foundation published a March 2012 report stating "In the 2000s, U.S. manufacturing suffered its worst performance in American history in terms of jobs. Not only did America lose 5.7 million manufacturing jobs, but the decline as a share of total manufacturing jobs (33 percent) exceeded the rate of loss in the Great Depression."

The bright side of things is that the public finally seems to be waking up to how harmful our Free Trade policies and treaties have been over the past four decades. Now we’ve given up acceptance of the false claims by Wall Street and our big multinational companies that all trade liberalization is good for the U.S. and the world. Yes, we want to participate fully in global trade, but we know we must also preserve America’s rich market against massive import competition from predator nations, especially China.

But all is not rosy yet. Our leaders in Washington still haven’t realized the severity of our trade problems. Can our trade negotiators really believe that other nations will agree to reduce their trade surpluses to help us eliminate our trade deficits? Will foreign trade negotiators act against their own best interests? Of course not! China says to us “Don’t ask us to solve your trade deficit problems! Take your own actions to fix your problems!”

Right they are! We should be taking steps to cut the excessive flow of imports right now! There is still time to rebuild our domestic industry that’s vitally needed for national security, good jobs, and a strong economy!

Some die-hard theorists will say that putting any limits on imports is bad because it’s “protectionist.” That became the prevailing U.S. ideology in the early 1970’s during the early years of “globalization.”  Why were we the only industrial nation in the world that felt that way?  Probably partly because we were so rich that many felt we could be extra generous, but more because our national financial leaders wanted to dominate the rest of the world’s growth prospects.  One big U.S multinational CEO recently told me: “We’re global now.  We don’t care what happens to U.S. domestic industry. If we lose business here, we’ll more than make it up abroad!”   He didn’t like it when I responded: “You’ve got to be kidding!”

Even the World Trade Organization gives any Member Nation the right to reduce the flow of imports to restore its balance of trade. Warren Buffett saw it ten years ago in his 2003 Fortune Magazine article entitled “Our trade deficits are selling America out from under us. We’ve got to stop that now, and here’s how to do it”.  That led to his draft “Balanced Trade Restoration Act of 2006” which would have authorized the use of Import Certificates as required import licenses. The U.S. would determine the total amount of certificates to be issued each year. That way, reasonable reductions in imports can be made each year until our trade is balanced.

At current levels of about $2.3 trillion of U.S. imports each year, a 10% reduction of imports per year for three years would eliminate our current annual trade deficits of about $700 billion annually.  We’d still be the world’s biggest importer, and we’d have a thriving, growing U.S. market for the U.S. and our trading partners instead of one that’s failing rapidly.

That’s the only way we can restore balanced trade – fix it by our own unilateral action - other nations aren’t ever going to do it for us in negotiations or Free Trade treaties.  That’s expecting too much of any competitive nation.

Fortunately, we aren’t helpless.   We can indeed "fix it ourselves!" by acting now.  Time is wasting.  It’s time for President Obama to act to save America and his legacy for his presidency.  We have draft legislation ready for Congress and for him --and an implementation team ready to help.