I just came across this great opinion piece co-written by two of the best economists around: Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and Dean Baker, a co-director of the Center for Economic and Policy Research. Their central thesis: our trade deficit deserves more attention than our fiscal deficit. I tend to agree – in part because smarter trade policy can simultaneously lead to debt reduction anyway.
On a number of other occasions, I’ve argued that Obama’s economic team should take a page from the Bill Clinton playbook and much more actively embrace a free trade agenda – especially because it doesn’t appear that either government gridlock or slow growth are about to disappear anytime soon. Toward that end, Bernstein and Baker make the case for three extremely compelling policy changes:
“First, we could pass legislation that gave the government the right to treat currency management as a violation of international trading rules, leading to offsetting tariffs. We could also tax foreign holdings of United States Treasuries, making the usual tactic of currency managers more expensive. And we could institute reciprocity into the process of currency management: If a country wants to buy our Treasuries, we must be able to buy theirs (which is not always the case now).”
What do they mean by “currency managers” and why does it matter? Essentially, currency managers are the governments of nations like China and Japan that buy up most of our debt. Right now, we’re allowing these countries the opportunity to secure their own futures based on what has traditionally been the world’s most stable currency: the US dollar. Yet, at the same time, we’ve repeatedly failed to require a level playing field – a policy choice that has led to trade imbalances that are neither fair nor operate according to free market principles.
Instituting reforms along the lines suggested by Bernstein and Baker would significantly help make dollars relatively less expensive than foreign currencies, thus providing US manufactuerers a much greater ability to compete based on the merits of their products rather than remain shackled by what really amounts to a carefully disguised system of global price-fixing.
Obama has shown himself to be a whole lot more open to free trade than many in the business world had initially expected. But for a President still desperately trying to climb out of some extremely deep holes, the time has arrived to substantially amp up his pro-trade agenda – many elements of which could even be instituted without Congressional approval.
Respectfully, let’s see some action, Mr. President.