Thought Leader -- Are We Running Out of Time on Trade Issues?

Oct. 15, 2009
The manufacturing sector needs to see some relief in the next few years if the U.S. economy is to grow, says Peter Morici.

If there is one issue that is paramount to improving the fate of U.S. manufacturers, it is the trade issue with China, says Peter Morici, professor of international business at the Smith School of Business, University of Maryland, and the former chief economist at the U.S. International Trade Commission. "Our problems with China are macroeconomic, not microeconomic. There are unfair subsidies that need to be addressed by trade laws," Morici explains.

Morici has been an outspoken critic of China's trade policies, and he spells it out clearly in a recent op-ed titled "To Fix the Economy, Fix China Trade." He explains that the trade deficit with China is largely caused by an artificially undervalued yuan and Chinese protectionism.

While he points to the 35% tariff imposed on tires in September as well as the 31% duty on Chinese carbon or alloy tubular steel products as encouraging, he warns that it's not nearly enough.

"The most significant thing that the administration can do is to address the currency problem, which creates a 40% subsidy," he says. "If that's not fixed, the manufacturing sector simply cannot survive. If it is fixed, we will have a renaissance."

Morici believes the U.S. must get serious and hold China accountable. "If China won't re-evaluate or won't redirect their manufacturing subsidies, we should impose a tax to fix the problem." He also is concerned that at a fundamental level, China's current policies and other subsidies will so distort trade and destroy prosperity for the Western world that they may wholly undermine confidence in the World Trade Organization as a viable institution.

Ultimately it is a question of growth. Morici says that President Obama won't be able to achieve the growth that is needed to ensure high-paying jobs and benefits as well as pay for health care reform if the country doesn't deal with the trade issue with China. Without the necessary income, he says, the cost of health care reform will overwhelm Americans.

When asked how quickly the U.S. needs to move to address unfair currency and trade policies, Morici answers one to two years. "While the policies might be viewed as future corrections, they are in fact a necessity for today."

The policies being put forth with regard to green manufacturing are not sufficient, Morici claims. While the Obama administration has made the creation of green jobs the centerpiece of its plans to save the manufacturing sector, Morici doesn't buy it. He says the notion that we can create 5 million jobs is a fantasy. He doesn't agree with the number of jobs envisioned or the ability of one industry to adequately support a large manufacturing base. "The U.S. can't be a boutique manufacturer of green technology, as it is unable to support the large number of manufacturing jobs needed," he says.

He also points out that battery technology is being developed through "an Asian mercantile trade system, which means that the U.S. is losing future opportunities as well." The major technology shift away from fossil fuels is "all going to happen in China," Morici says, unless the administration plays hardball now.

Peter Morici is a professor at the Smith School of Business, University of Maryland, and the former chief economist at the U.S. International Trade Commission.

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