Editor’s Note: Michael Stumo is CEO of the Coalition for a Prosperous America (CPA). Follow him on Twitter @michael_stumo.
It’s not a stretch to say that President Trump has been a fervent champion of economic nationalism or that he’s actively confronted China’s predatory trade practices. As president, Trump has imposed 25 percent tariffs on a broad swath of imports from China. He’s also issued executive orders to increase “Buy America” requirements and invoke the Defense Production Act to rebuild domestic supply chains during the coronavirus pandemic.
[Michael Stumo | July 10, 2020 | The Hill]
These are sensible steps, and they’re firmly in line with what Trump pledged in 2016.
As the 2020 election approaches, former Vice President Joe Biden is staking out similar territory. It’s smart campaign politics following Biden’s 2019 gaffe, when he said China was “not competition” for the U.S.
Biden appears to be making amends. His campaign just released a blueprint intended to address shortages of “critical products America needs in times of crisis.” Essentially, it’s a Trump-like manifesto to “rebuild U.S. domestic manufacturing capacity.”
The overlap with Trump is striking. Like Trump, Biden is now preoccupied with ensuring that the U.S. “has the critical supplies it needs for future crises and its national security.” His plan not only calls for using the Defense Production Act to “mobilize the domestic industrial base” but also looks to use federal purchasing to “support manufacturing capacity for products designated as critical to U.S. national security.”
These are needed steps, and Biden wisely recognizes that the United States must produce pharmaceuticals and other health care components at home. Similarly, he laments the tax code provisions that have “encouraged companies to locate pharmaceutical production in low-tax countries.” However, he still prioritizes international supply chains rather than domestic jobs and innovation in these critical sectors.
This is at least a cosmetic turnaround from the Biden, who supported the North American Free Trade Agreement (NAFTA) in 1994 and urged “normalized” trade with China in 2001. But Biden is missing some key challenges — and would be wise to adopt a more realistic approach to global trade.
For starters, there’s no sense that Biden sees America’s staggering international trade deficit as a key hurdle. In 2019, the U.S. goods deficit with the world totaled $854 billion. This represents a massive, ongoing transfer of jobs, wealth and productive capacity to other countries, particularly China. Instead, his blueprint aims to “open new markets to U.S. exports,” a retread of the free trade line from the Clinton and Obama offshoring years.
Boosting exports is a noble goal. But the sad truth is that other countries aren’t seeking to buy U.S. products. Part of the problem is the limited purchasing power of consumers in developing countries. But even the “allies” with whom Biden wants to “engage” are not necessarily America’s friends. Export powerhouses like Germany and Japan continually work to increase exports at the expense of U.S. manufacturing. In fact, America’s trade deficit with Germany clocked a record $68 billion in 2018, and notched an almost identical $67 billion in 2019. The U.S. trade deficit with Japan has averaged an equally massive $68 billion for the past five years.
The goal of boosting exports is an elusive prospect, something President Obama learned with his failed goal of doubling exports in five years. Instead, administrations should try to make headway in the one market that truly matters — the United States.
America’s manufacturers should be selling at home. But they’re stymied by a major hurdle — an overvalued U.S. dollar. In recent years, the dollar has risen substantially, and is now overvalued by as much as 27 percent. This makes imports artificially cheap in the U.S. market, and also makes U.S. exports extra expensive for overseas consumers. Unless Biden is prepared to tackle the dollar’s ongoing rise, his desire to “open new markets to U.S. exports” will simply fall flat.
Realistically, addressing currency misalignment should be a top priority. But equally urgent is the need to decouple from China. Biden is justifiably concerned that the United States not be “dependent on critical supplies from countries like China.” But Beijing has continuously demonstrated its intent to erode America’s economic and geopolitical strength. And so, Biden should announce his support for decoupling from China and admit that engagement has failed. The jobs of tomorrow will come from robotics, aerospace, computers and semiconductors. And China will continue to steal its way to the top unless America’s companies move operations back home.
It’s encouraging to see Joe Biden getting on board with a more realistic appraisal of national economic strength and geopolitical rivalries. But his strategy must embrace a 180-degree turn from the liberalized, utopian trade views of the preceding 20 years. His focus should be on rapidly reducing America’s massive trade deficit to grow jobs and industries at home rather than abroad. Doing so is the only realistic means for ensuring future U.S. prosperity. It’s also wise election year politics.
Read the original article here.