Besides stopping TPP, the focus of my post earlier this week, Hillary Clinton is responding to Trump on trade with proposed measures to counter offshoring by US companies. Once again I cite her recent economic policy speech in Detroit:
Right now, when a corporation outsources jobs and production, it can write off the costs. We must stop that, and we must make them pay back any tax breaks they received from any level of government in our country.
In the same speech, Clinton has repeated her proposal during the primary to enforce existing trade rules against foreign countries that "cheat" on them to the detriment of American businesses and workers:
As President, I will stand up to China and anyone else who tries to take advantage of American workers and companies. And I’m going to ramp up enforcement by appointing, for the first time, a chief trade prosecutor, I will triple the number of enforcement officers, and when countries break the rules, we won't hesitate to impose targeted tariffs.
What these two proposals have in common is that neither involves any change or renegotiation to existing trade rules. At the same time, punishing offshoring without running afoul of current WTO prohibitions on domestic content requirements will require some careful drafting, if offshoring means not only relocating jobs elsewhere, but replacing domestically sourced products with products imported from overseas production facilities.
Clinton assumes that enforcement shortcomings are due to inadequate vigilance in Washington rather than faulty procedures, remedies and doctrines at the WTO, for example. Perhaps she is boxing herself a little too much in the corner of defender of the status quo of international trade law; arguably, somewhat of an overreaction to Trump's crazed threats to tear up existing legal arrangements wholesale.
One issue on which Trump has been vocal is America's trade deficit; arguably, Clinton needs a clear response. Should the trade deficit matter or not? The standard neoliberal free trade line is that concern with trade deficits (or surpluses) is mostly just economic ignorance. This notion is well-articulated by American Enterprise Institute analyst Mark Perry, in a Los Angeles Times oped some months back:
Let's start with two basic economic principles. First, countries don't engage in trade with each other — only businesses and consumers do. Second, when individuals engage in a voluntary market exchange, both parties — the buyer and the seller — are almost always made better off, because both parties get something they want. Trade is win-win, not win-lose as so many politicians these days would have us believe....when American businesses and consumers voluntarily purchase more products from China than Chinese businesses and consumers buy from us, it does lead to a U.S. trade deficit with China. But the trade deficit can't accurately be referred to a “loss,” because it's based on millions of mutually agreeable individual exchanges that took place between a willing seller and a willing buyer.
But one of Hillary Clinton's biggest backers in the corporate world, Warren Buffett, no ignoramus when it comes to the laws of supply and demand, has taken a quite different view:
We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits. At a point, so it was claimed, the spree of the consumption-happy nation would be braked by currency-rate adjustments and by the unwillingness of creditor countries to accept an endless flow of IOUs from the big spenders. And that’s the way it has indeed worked for the rest of the world, as we can see by the abrupt shutoffs of credit that many profligate nations have suffered in recent decades.The U.S., however, enjoys special status. In effect, we can behave today as we wish because our past financial behavior was so exemplary–and because we are so rich. Neither our capacity nor our intention to pay is questioned, and we continue to have a mountain of desirable assets to trade for consumables. In other words, our national credit card allows us to charge truly breathtaking amounts. But that card’s credit line is not limitless.The time to halt this trading of assets for consumables is now, and I have a plan to suggest for getting it done. My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur. We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties–either exporters abroad or importers here–wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.
Mr. Buffett's plan (first set out in 2003) has now been endorsed by Nobel Prize-winning economist and former Bill Clinton administration economic official Joseph Stiglitz in his new book The Euro (the immediate context there being the Greek crisis):
governments would provide to any exporter a chit, a "token" (in this case, electronically recorded) the number in proportion to the value of what was exported; to import [a single unit of currency[ worth of goods, there wold be a requirement to pay, in addition a [single unit of currency] worth of chits or "trade tokens." There would be a free market in chits, so the demand and supply of chits would be equal; and by equating the demand and supply of chits, one would automatically balance the current account.
As Stiglitz recognizes (in a footnote) the trade chits proposal may run into problems under existing WTO rules, which strongly disfavor any form of balancing of exports and imports (even though on this plan there would be the advantage, articulated by Buffett, of non-discrimination among countries and products, and no particular economic actor would be required to balance their imports with exports). While the US probably couldn't invoke the balance of payments exception to Article XI of the GATT (as Stiglitz rightly suggests Greece might well), Article XX (a) public morals is a different story. Trade deficits can undermine fundamental social values or interests. As Stiglitz explains, trade deficits threaten employment: "A high level of imports weakens aggregate domestic demand.Unless their is an investment boom-for example, a real estate bubble-to sustain employment the government has to spend more."
The GATT rules were drafted assuming the Gold Standard and the managed adjustment of persistent national trade deficits and surpluses. Today we live in a different world; the Bretton Woods mechanisms for dealing with imbalances are simply dysfunctional. It seems wrong that GATT rules should preclude new ways of addressing this fundamental policy challenge.
The Stiglitz/Buffett proposal could allow Hillary Clinton to open a serious conversation about the trade deficit, and how to deal with it-countering the zero-sum perspective of Donald Trump while at the same time facing the issue directly and candidly.
