SIGN UP - IT'S FREE!
SEARCH FSM
| National Debt Clock |
A million seconds pass in 12 days.
A billion seconds pass in 31 years.
A trillion seconds pass in 31,688 years!
March 13, 2009
Exclusive: Prudence over Ideology in Trade Policy
On March 11th, the House Oversight and Government Reform Committee held a hearing on how the Troubled Asset Relief Program (TARP) is being administered. The Treasury is handing out the $700 billion appropriated by Congress, but is not asking the hundreds of banks that have received funds how the money is being used. The objective of the program was to pump money back into the American economy and get credit flowing again to help the United States recover from the recession. But some of the banks have been sending the TARP money overseas instead.
Citicorp made $8 billion in loans to Dubai public sector entities in December. Citigroup initially received $25 billion in TARP funds in October 2008, followed by another $25 billion through two other TARP disbursements. The U.S. government now owns 40% of Citicorp, but is not telling the firm how to use its money. Citigroup also spent $3.6 billion to buy the Spanish toll road operator Itinere Infraestructuras which holds concessions on toll roads in Spain, Chile, Portugal, Brazil, Costa Rica, Ireland and Bulgaria.
In November, Bank of America announced it would exercise its option to invest $7 billion in the China Construction Bank (CCB), the third largest bank in China whose majority owner is the Beijing regime. Bank of America already owned nearly 11% of CCB, but wanted to up its stake to 19.1%. Bank of America hopes to share in the profits made by CCB, which is expected to benefit from the large stimulus program the Chinese government has announced to fund infrastructure projects. TARP has provided Bank of America with $15 billion.
Members of Congress, as well as the public, were outraged by this diversion of government funds to overseas projects when the U.S. economy is in crisis. To prevent these kinds of “leaks” in the $787 billion stimulus package, Buy America provisions were added mandating that American-made goods be used in federally funded infrastructure projects. Yet, Congress and the Obama administration have not addressed the largest “leak” from the economy which threatens to cancel out the effect of most of the bailout money so far provided, the trade deficit.
Between 2005 and 2008, the U.S. trade deficit averaged $706 billion per year. This was the largest international transfer of wealth in history, as American corporations and retailers moved production capacity and jobs overseas, supported by an enormous outflow of consumer spending fueled by debt. Foreign governments want this enormous U.S.-funded stimulus package for their economies to continue. There will be pious condemnations of “protectionism” at the G20 finance ministers meeting in London this weekend aimed at the United States. But as former U.S. Trade Representative Carla Hills told a meeting of the Inter-American Dialogue March 10th, 14 of these 19 nations have raised trade barriers since the last G20 meeting in November. They are acting to protect their interests, while opposing any effort by America to correct its debilitating deficit.
The G20 include twelve of America’s top trading partners: Brazil, Canada, China, France, Germany, Italy, Japan, Mexico, Saudi Arabia, South Korea, the United Kingdom and the European Union (which double counts the individual European member states in the G20). Among these, the U.S. ran a trade deficit with all but Brazil in 2008.
Carla Hills knows these numbers, and knows what other governments are doing to keep the imbalance in their favor. Yet, she still called for the United States to lead by example away from “protectionism.” The world is not, however, going to follow a nation whose policies have led to disaster. The global economic crisis has its origins in the United States, with the bad behavior of corporations being allowed, and even encouraged, by bad government policy. Hills is indulging in ideology, not reason.
The great conservative thinker Russell Kirk, whom I had the privilege of talking with on several occasions, spoke of ideology as the kind of “political fanaticism” prudent conservatives must oppose. In Enemies of the Permanent Things, Kirk defined ideology as “an alleged science of politics, dogmatic and often utopian, closely allied with the interests of a particular class or political sect.” His main focus was socialism, but he was quite aware that there was ideology at the other end of the spectrum as well. He debunked libertarians too, particularly the followers of Ayn Rand.
Hills ideology is “free trade” a doctrine she believes fits all people at all times regardless of how the world may change over time. It is designed to favor transnational corporations rather than national communities. Like the socialists, free rraders cling to their beliefs no matter how often their notions fail in the real world. They do not understand that prudent policy must change to meet new challenges in a dynamic world.
There was a particular reason free trade theory developed in England at the turn of the eighteenth into the nineteenth centuries in the writings of Adam Smith, David Ricardo and the other classical economists. As Lord Shelburne, Chancellor of the Exchequer (1782-3) argued, “With more industry, more enterprise, with more capital than any other trading nation upon earth, it ought to be our constant cry, let every market be open, let us meet our rivals fairly, and we ask no more.” This is the kind of “fair” fight an. NFL linebacker expects to have with a 90-lb. weakling. As long as England could maintain a generational lead in the Industrial Revolution “free trade” made sense at it suppressed the development of rival capabilities. No wonder other nations called this the “imperialism of free trade” and sought to combat it.
By the late 19th century, every other major economy had adopted protectionism in order to bolster its own economic progress. This included the United States. By 1886, Lord Penzance was warning his countrymen, “The advance of other nations into those regions of manufacture in which we used to stand either alone or supreme, should make us alive to the possible future. Where we used to find customers, we now find rivals....prudence demands a dispassionate inquiry into the course we are pursuing, in place of a blind adhesion to a discredited theory.” Unfortunately for England, it did not change course and went into long-term decline, being surpassed by both the U.S. and Germany before the outbreak of World War I.
The United States did not find “free trade” attractive until after World War II when its industry was dominant, its capital markets rich, and its technology generations ahead of anyone else. But that is no longer the case. Today, where we used to find customers, we now find rivals. The control of markets to support American jobs is crucial, and there is no market overseas that can match what the U.S. has at home.
No one expects U.S. exports to suddenly expand by $700 billion to balance the trade account, not in a world where trade is declining. But Americans can take back enough of the domestic market that has been lost to imports to restore balance and recover the millions of net jobs lost due to past deficits. It is time to discard a failed ideology and recover the lessons of our own, and world, history. Nations build their prosperity and security through their own efforts. They cannot trust the “invisible hand” of academic theory or foreign benevolence to do it for them.
FamilySecurityMatters.org William Hawkins is a consultant specializing in international economic and national security issues.
Reader Comments: Submit Your Comment (0) | Sign Up for FSM Updates!
