Plenty Can Be Done To Solve America’s Trade Vision Deficit Disorder (TVDD)

At a time when our country is fixated on a protracted political process passionately promising to cure all our ills, this would be an excellent time for our presidential candidates to put forward their vision to solve the most critical economic issue of our time, our degenerative trade deficit. Unfortunately they appear to suffer from Trade Vision Deficit Disorder (TVDD), or are simply too busy (I personally subscribe to the former). We must take it upon ourselves to provide the remedy.

Unlike other seemingly impossible challenges we face, our trade deficit is something we can correct in a relatively short period thus creating millions of well-paying jobs. It is as simple as establishing an environment where American exporters are allowed to compete.

1.)  We the people must demand our candidates understand trade, be able to articulate a comprehensive strategy in dealing with our global competitors and have the guts to fight.

Unfortunately this election cycle is a huge disappointment. Barak Obama has cut and pasted the AFL-CIO anti-trade positions to his websites and routinely included their talking points in his speeches.

NAFTA is by far the most beneficial trade legislation Congress has ever passed. Obama is ardently against the Free Trade Agreements with Colombia, Panama and South Korea already signed but awaiting Congressional approval. 2007 will be known as the year that Democrats lost their way on trade.

Over on the Republican side John McCain rarely mentions trade and when he does his comments are so elementary our competitors from Beijing to Berlin are standing on their seats smugly shouting “four more years.” Although he supports free trade, there is no vision, passion or understanding of the issues. It is this sort of knee-jerk reaction that has gotten us into the huge mess we now face.

2.)  We must rid ourselves of trade policy derivations from the Marshall Plan era.

Half century old Marshall Plan export economics has set us on course towards $1 trillion trade deficits stretching as far as one can see.  Ridding ourselves of the Marshall Plan mentality that permeates the mindsets our political and academic elite is an enormous task. We have unilaterally disarmed and unconditionally ceded our once envious export prowess to our competitors and adversaries with devastating effect on millions of our citizens.

3.)  We must make Trade Promotion Authority(TPA) permanent either by a Constitutional Amendment (highly improbable) or an Act of Congress (very achievable).

Article I of the U.S. Constitution grants Congress sole power “to regulate commerce with foreign nations.” The Constitution grants the president no trade specific authority whatsoever. There is no sphere of government policy where the primacy of Congress could be clearer. Congress reins supreme on trade unless and until it decides otherwise.

Congress is a decentralized institution, particularly vulnerable to pressure from special interest groups and lobbyists. So it does what comes naturally once the politics of benefit seeking spins out of control, it delegates responsibility. If it did not, the result would be a high level of trade barriers and tariffs (resembling many of our most important trade partners) to the benefit of certain groups and to the detriment of the nation as a whole.

In 1934, Congress began delegating specific trade authority for predetermined periods of time to the president.  Since 1974 Congress has granted every president authority to negotiate trade agreements for Congressional approval on an up or down vote.

In 1994 the president’s Trade Promotion Authority (TPA) lapsed. It was not restored until 2002. It passed Congress by a single vote, 215 to 214. It was the one of the most hotly contested and partisan pieces of trade legislation ever. It expired June 30th, 2007.

With the over-the-top demagoguery that is now commonly practiced in Congress, Trade Promotion Authority (TPA) will not be renewed at the very earliest until the next administration takes office. Having a weak presidency unable to negotiate trade puts us at an overwhelming disadvantage in dealing with our competitors.

4.)  We must insist upon comprehensive Free Trade Agreements(FTA) with our most important trade partners.

China and Japan alone are responsible for over 60% of our merchandise trade deficit. American exporters are also at a tremendous disadvantage in Brazil and India. Our trade deficit will not be reversed until we deal with its root causes.

The global reality is that free trade amongst countries rarely exists. Where free trade does exist is between 50 of the United States-and it has been wildly successful. Free Trade Agreements work because they bring us much closer to the kind of trade that exists amongst the states. They are comprehensive and not only deal with eliminating tariffs on manufactured and agricultural products but open up service markets and government procurement. They regulate labor rights, set safety standards, protect the environment, defend against intellectual piracy and instill due process. In short, they level the playing field.  They must be pursued vigorously and immediately.

90% of our trade deficit is from countries with which we do not have Free Trade Agreements. The average duty on products entering the United States is less than 3%, whereas the average duty imposed by a World Trade Organization (WTO) member is 30%. We do not need WTO, but we do need more Free Trade Agreements.
5.)  Create the Department of Global Trade.

Our command structure is a convoluted mess due to the split authority between the USTR (United States Trade Representative) and Department of Commerce. This split provides the USTR responsibility for “policy,” “coordination” and “negotiations” while providing the Secretary of Commerce “nonagricultural operational trade responsibility.”

We must replace the USTR-Department of Commerce two headed monster with a Department of Global Trade. The Secretary of Commerce would become the Secretary of Global Trade possessing real power over a portfolio that offers opportunity for important policy leadership. Unlike today, the Secretary of Commerce would have complete authority over all facets of trade including strategy, negotiations and enforcement.

6.)  Forget about trade sanctions.

Our sanctions only hurt American manufacturers and workers while denying our adversaries nothing. We have eager European and Asian competitors tripping over themselves to fill every purchase order and contract from which we walk away.

In the past fifty years the United States has gone “nuts” over sanctions.  We have sanctioned more than 80 countries over 175 times. If we include “soft” sanctions such as denying export financing through the EXIM Bank the number would be much higher. Our sanctions threaten two thirds of the world’s population. Over half of the sanctions established in our country’s 231 year history have occurred in the last ten years.

Of course all good people support human rights and don’t want the “bad guys” to get dangerous weapons. However our sanctions are totally out of control. They have robbed the jobs (and lowered the wages) of hundreds of thousands of Americans without having any impact on the targeted countries. If they are to be used, sanctions should be targeted against weapons programs and little else.

Why do we continue down a road of such arrogance and assured failure? Too often we fail to realize that our power has some very real limitations. A better solution is to let Americans freely export thereby traveling abroad taking with them our values, culture and ideas. By allowing Americans to engage with the world, the only losers would be tyranny, poverty and ignorance.

The next time we hear a member of Congress throwing a temper tantrum about some evil in the world let us make sure that we get one simple truth right: that it will be the American worker who pays the price for sanctions. Unless sanctions are airtight and multilateral they have absolutely no chance to succeed.

7.)  Get tough on Intellectual Property Protection and Counterfeit Goods.

Counterfeit products produced and sold freely at markets in China and exported around the world cost Americans an estimated 750,000 jobs a year and American businesses $250 Billion. The bulk of the world’s pirated material comes from China. If China, for whatever reason, can not close this down, then the Chinese Government must make restitution to US companies and workers being cheated because of their ineptness to govern. We must declare war on Intellectual Property theft and provide the resources to fight it.

8.)  We must radically rethink our involvement with the World Trade Organization (WTO).

It is time to stop wasting energy, resources and goodwill to conclude the multilateral Doha Round of the World Trade Organization negotiations which are doomed to failure. The WTO talks are at an impossible impasse over the EU (held hostage by France) and Japan’s inability to give up the “opiate” of agriculture subsidies and a block led by Brazil and India unwilling to agree on meaningful Intellectual Property Rights (IPR) protection.

It is much more practical and rewarding to negotiate with one trade partner at a time instead of the 149 members of WTO all at once, each having veto power. Groups are often formed to thwart American initiatives. The WTO has reached the critical mass to be self sustaining and will not be going away. However there is very little reason to believe it will ever be much more than it is today. The WTO is the trade equivalent to the United Nations.

9.)  Take Back Our Trade Sovereignty.

Once upon a time the United States possessed a feared and effective weapon. Section 301 of the Trade Act of 1974, as amended, is the principal statutory authority under which the United States may impose trade sanctions against foreign countries that “maintain barriers, policies and practices that violate, or deny U.S. benefits under trade agreements or restrict, burden or discriminate against U.S. commerce”.

Today, in contrast, the threat of Section 301 has all but disappeared.  We have surrendered our trade sovereignty to the World Trade Organization (WTO). The United States is no longer allowed to directly apply Section 301 to pressure trading partners into eliminating barriers to U.S. exports and other unfair practices. U.S. trade enforcement is now in the hands of the WTO’s Dispute Settlement Body (DS which essentially takes the U.S. government out of deciding its trade interests. This is tantamount to handing over national security to our feeble friends at the United Nations.

10.)  Get Rid of Agricultural Subsidies.

The true cost of farm subsidies that our tax dollars are supporting should cause outrage among the American people.  The negative impact that our farm subsidies have abroad can not be understated. They clearly distort world trade, deepen poverty and undermine our credibility.

American agribusiness exporters routinely sell their products below the cost of production with the American taxpayer making up the difference. It is impressive to witness at foreign trade shows, the pervasive presence of the U.S. Department of Agriculture and American food companies exhibiting their products under its banner. Many of the products being sold are costing the American taxpayer every time an order is placed. The companies benefiting from these subsidized transactions are some of the biggest corporations in the United States.

It is a misconception that farm subsidies exist to stabilize the incomes of poor family farmers who are at the mercy of unpredictable weather and uncontrollable price fluctuations.  Eligibility for subsidies has nothing to do with low incomes or poverty alleviation, but by the crop that is grown. Growers of corn, cotton, rice, soybeans and wheat receive 90% of all farm subsidies. Most subsidies go to large corporate farms simply because of how the program is designed and administered.

There is an undeniable “plantation effect” happening in the United States. The number of farm operators is rapidly shrinking while the average size of a farm is greatly increasing. These mega-farms employ thousands of migrant workers and tenant farmers that are being paid near poverty wages with limited access to healthcare.

President Franklin Roosevelt created farm subsidies to aid farmers barely staying alive during the Great Depression. This was a necessary and noble cause, however like many government administered programs, it has become perverted. The intension was never to be paying millions of dollars to millionaires.

Unfortunately the present farm bill is only accelerating the transformation of farm subsidies into corporate welfare programs with most of the funds going to highly profitable corporations and celebrity millionaire farmers. The family farmer is rapidly becoming extinct while the American taxpayer continues to be fleeced like an apathetic lamb.

To illustrate the impact this has overseas, consider the following. Subsidized U.S. food products being imported to Jamaica are cheaper than homegrown Jamaican crops. This makes it impossible for the dirt-poor farmers to survive. If they are not competitive in their own market, there is no way they can hope to export. Gripping poverty has a firm headlock on them thanks to farm subsidies.

With the U.S. Government guaranteeing American farmers a minimum payment for commodities such as corn, rice, soybeans and sugar, it encourages over production in the U.S.  This drives down market prices forcing even higher subsidies paid by taxpayer money and creating surpluses that are dumped around the world and make it impossible for local farmers to compete in their home markets.

11.)  Fairly distribute U.S. government supports recognizing the contributions of manufactured goods to our economy and security.

Whatever funding the American government does provide to promote exports goes to the U.S. Department of Agriculture (USDA). The USDA gets approximately seven times more funding to promote agricultural exports which represent just 9% of our overall exports than the Department of Commerce (DOC) receives to promote the other 91%. To add further to this absurdity, much of our agricultural exports are subsidized by U.S. tax payers and sold below the cost of production.

By logging onto FASonline , you can view the many taxpayer funded programs offered by the USDA’s Foreign Agricultural Service (FAS). Although the exact amount is buried deep inside the USDA budget, FAS receives millions of dollars. The DOC equivalent, Market Development Cooperator Program (MPDC) has zero funding and is provided no assistance from the U.S. government whatsoever.

12.)  The United States is the only industrialized country that taxes its citizens based on nationality rather than their residence.

This means our European and Japanese competitors do not pay income taxes to their home countries while working overseas. This is a significant incentive for them to relocate overseas to assist their producers in penetrating foreign markets.

I have witnessed the tremendous benefit ex-pat communities bring their home country manufacturers. America must provide income tax incentives, like our competitors, to those willing to be the front line soldiers of American exports. The present Foreign Earned Income Exclusion that Americans overseas are subject to is insufficient and outdated.

13.)  The Foreign Corrupt Practices Act (FCPA) is a silly, archaic law that is a real impediment for American companies competing overseas.

It is a law that our European and Japanese competitors do not have to contend with. FCPA, enacted by Congress in 1977, makes it illegal for U.S. companies to pay fees to foreign government officials in order to obtain business or gain some advantage.

The trigger for FCPA was the Lockheed Scandal whereby the American aircraft manufacturer paid various Japanese government officials in the course of trying to sell its aircraft. Some of these funds found their way to then Japanese Prime Minister Kakuei Tanaka and eventually forced him to resign from office.

Though I don’t subscribe to paying bribes to foreign government officials, this is a law we do not need. It should be up to U.S. companies overseas, fighting for American exports, to police themselves. Something as simple as paying a “facilitation fee” to a foreign customs officer holding goods hostage desperately required to complete a contract, is against U.S. law.

We must always remember in most other countries there is a way to compete and survive in many countries that is very different from the U.S. Do we want our exporters to bring home business that American workers desperately need and at the same time become criminals in American courts?

14.)  Our U.S. Export Assistance Centers(USEAC) throughout the United States and our Foreign Commercial Services Offices at our Embassies overseas must be provided resources needed to promote and defend our exporters.

We must continue to invest in and build further our infrastructure that promotes American exports. America’s back bone has always been its small businesses and entrepreneurs. The world is a big and daunting place. The U.S. Export Assistance Centers and the Commercial Sections of our Embassies overseas are an important resource in helping American exporters reach potential customers in every where.

Our competitors have armies of lawyers and trade specialists working feverishly to clear away barriers targeted against their exports. The U.S. Department of Commerce who is responsible for enforcing our trade agreements and promoting American exports is woefully understaffed. Gross violations impacting thousands of jobs go unchallenged allowing foreign governments to trample American interests with not even the slightest resistance.

Quality trade education must be made available that is predictable, affordable and convenient. A glowing example of the U.S. Government and the private sector working together for the good of the nation is the Florida District Export Council’s Export University program. Hundreds of students have passed through its courses. It is a program that must be rolled out nationally.

15.)  The EXIM Bank and SBA (Small Business Administration) are valuable tools and must be expanded upon.

Over 70% of American exports are done by SME’s (Small and Medium Enterprises). They are therefore essential to solving the trade deficit.

Product financing is a major component of any purchasing decision. Our European and Japanese competitors are notorious for offering soft payment terms subsidized by their home governments. This many times makes the difference in winning large export orders that employ thousands of workers.

Each $1 that American taxpayers have invested in the SBA’s export finance program has yielded over $500 in export sales. This is probably the single most successful export promotion program, dollar for dollar, in the entire U.S. government.

The EXIM Bank and SBA programs need to be made more accessible with increased barrowing limits and less restrictions. These programs are the life-blood of American exporters.

16.)  Rewrite the tax code so it does not discriminate against U.S. manufacturers and exporters.

Our manufacturers pay a disproportionate share of taxes that fund our schools, support our defense and build our roads. We must rid ourselves of an archaic and convoluted income tax system and move to a simple consumption tax that spreads the burden equally over American made and imported goods. Like our competitors, we must provide tax incentives and rebates to our exporters.

Fifty years of successive Republican and Democratic administrations without a comprehensive trade vision has resulted in an infrastructure that is unable to compete globally.

This is not the time to point fingers or play partisan politics. It is time for Americans of all stripes to come together.

It starts with a vision.