NDN Blog

Thinking Hard About the Trade Deficit

George Bush has managed to set another record – Our trade deficit hit a record high in 2006 of $763.6 billion.  That’s up about 7 percent from the previous year and up 25 percent from 2004.  The country’s 2006 deficit in manufactured goods was actually $836 billion, but some of that was offset by a $72.5 billion surplus in services.

 A number like $836 billion, especially written in red ink, can be daunting, so let’s take it apart and see in what exact ways it matters.  It’s certainly not good for the overall economy to purchase $836 billion more in goods from other countries than we sell to other countries, but it’s also not necessarily bad.  It’s hard to posit that it reflects a collapse in the competitiveness of U.S. manufacturing companies, since manufacturing accounts for about the share of our GDP as it did 20 years ago, and America’s global market share in manufacturing actually rose over the last 10 years from 20 to 22 percent – while Europe and Japan’s global market shares feel sharply.  And our companies’ global market share in high-tech manufacturing went up even more. The critical issue here is that we measure trade flows by the value of what passes across our border in either direction, and American manufacturers are more highly globalized than Europe’s.  So one-third or more of our manufacturing imports are actually shipments from the foreign subsidiaries and affiliates of U.S. manufacturers.

 That makes the $836 billion number less troubling from the perspective of the competitiveness of U.S. companies.  But it leaves U.S. manufacturing workers in the lurch.  The number of manufacturing workers is way down – down 3 million since 2000.  But that’s also more complicated than it may seem.  Some of those losses reflect technology, with the workers that have remained earning more, because the technology makes them more productive.  A lot of it is also probably domestic outsourcing designed to cut the costs of health care and pension benefits, shifting a whole range of services from cleaning crews to lawyers from in-house to sub-contractors.

 There are more manufacturing jobs in America’s future, and it’s mainly in the technologically-based aspects of overall manufacturing and the manufacture of the most advanced, high-technology products.  It’s time for serious, progressive efforts to provide American workers the training and skills to fill those jobs, so five years from now we don’t have to import them from India and other places under special visas.   Let’s also focus on the service surpluses, a good share of which comes from royalty and licensing payments for America’s most highly-competitive export, our intellectual property.   So it’s also time for serious, progressive efforts to expand the access of lower and middle-income workers and their children to the scientific and technical education that can equip to take part in creating and applying new ideas.

 There is one unequivocally scary aspect of the huge trade deficits that have emerged under this administration: We finance them by borrowing that much from other countries, especially China, Japan and the Gulf states. That means that every year, our lenders get to take home the profits, interest and dividends earned on their new holdings in the United States. If this administration were running $100 or $200 billion budget surpluses, as the last Democratic administration did, instead of $200 or $300 billion budget deficits, we could finance $300 to $500 billion of our trade imbalance ourselves.  And that ultimately would make America a lot richer, since the returns, interest or dividends which all that money earns year after year would stay here instead of flowing to Beijing, Tokyo and Riyadh.

But that would require that the Bush administration know what it’s doing in economic affairs, something that has been consistently beyond their capacity since they took office.

Council of Foreign Relations Issues Major Iraq Report

As House Democrats move to debate President Bush’s escalation of the war, Steven Simon of the Council on Foreign Relations has issued a thoughtful report outlining the actions the US should take in Iraq after the surge:

The United States should...make clear now to the Iraqi government that, as the results of the anticipated surge become apparent, the two sides will begin to negotiate a U.S. military disengagement from Iraq,” says a new Council Special Report. “The proposed military disengagement would not be linked to benchmarks that the Iraqi government is probably incapable of fulfilling....The U.S. drawdown should not be hostage to Iraqi performance.”

The report’s author, Hasib J. Sabbagh Senior Fellow for Middle Eastern Studies Steven N. Simon, says the surge is a fait accompli and its results will be known very soon: “the surge is going to take place regardless of public or congressional opposition. Thus, the issue is what happens after the surge. Since General David Petraeus has said that he expects the results of the surge to become apparent quickly, the ‘day after’ realities should be thought through now.”

Disengagement “would entail withdrawing the bulk of American forces from Iraq within twelve to eighteen months (that is to say, over the course of calendar year 2008); shifting the American focus to containment of the conflict and strengthening the U.S. military position elsewhere in the region; and engaging Iraq’s neighbors, including Iran and Syria, members of the UN Security Council, and potential donors in an Iraq stabilization plan,” Simon writes.

Bi-partisan Plan to Eliminate the Deficit

Recognizing the new political realities of divided government, the Brookings Institute has issued a bipartisan plan to reduce the deficit. Collaborating on the plan are former Congressmen Charlie Stenholm (D-TX) and Bill Frenzel (R-MN), as well as Brookings scholars Isabel Sawhill and William Hoagland. They outline their proposal in an Op-Ed piece in the NYT:

On spending, we would put a hard cap on all appropriations that freezes spending at fiscal 2008 levels. This would allow one federal program’s financing to increase only if another program’s budget were cut. We also propose accelerating the increase in the retirement age to 67 from 66, improving the way Social Security benefits are indexed for inflation and making other modest adjustments in the major entitlement programs. These cuts to spending, however, would save only about half of the money needed to balance the budget in 2013. Further spending reductions are unlikely to garner much Congressional support and could even compromise national security. To make up the balance we propose to increase revenues — not by raising income tax rates but by dealing with some of the flaws in the current tax system.

The major reform would be to broaden and simplify the tax base by turning almost all itemized deductions into 15 percent credits against taxes. We would also place a cap on how much of employer-paid health insurance premiums could be excluded from taxes.

House Debating Anti-Surge Resolution

I blogged about this yesterday, and now the debate has begun.  The House resolution is non-binding and is expected to pass easily.  The NYT has more:

The nonbinding resolution, two simple clauses that also express support for the troops, is expected to pass with overwhelming Democratic support but also with a bloc of votes from Republicans increasingly disenchanted with the administration’s Iraq policy.

“I’m just not convinced that deploying 20,000 additional troops is going to resolve anything favorable for us,” said Representative Howard Coble, Republican of North Carolina, who estimated that 20 to 25 Republicans would vote for the resolution, although other estimates ran higher.

Watch it live on C-span

A New Plan to Slow Carbon Emissions

NDN's good friend Garrett Gruener co-authored an op-ed in the LA Times today, which offers an innovative, market-based plan to deal with Carbon emissions.  One more sign that there are a lot of great ideas coming out of the modern progressive movement.

The longer we wait to take action on global warming, the more it will cost us in the long run. So it makes sense to adopt a tax on carbon emissions now. The trick is to design a "global cooling tax" that a majority of Americans will want to pay. We propose a tax that will hit energy hogs hardest. But under our scheme, whether you use a little or a lot, you would be able to invest your tax dollars directly in clean technologies that would lower your energy bills.

Read the entire op-ed here

New America Foundation Event Tomorrow: U.S.- Iran Relations Collision, Stand-off, or Convergence?

NAF is hosting a day of of programming on U.S.-Iran relations tomorrow.  Check it out:

Start: 02/14/2007 - 9:30am
End: 02/14/2007 - 3:00pm
628 Dirksen Senate Office Building
Washington, DC, 20510
United States

See map: Google Maps

Agenda

9:30 am - Coffee & Registration

10:00 am - Welcoming Remarks

  • Steven Clemons
    Senior Fellow & Director, American Strategy Program, New America Foundation
    Publisher, www.TheWashingtonNote.com
  • Trita Parsi
    President, National Iranian American Council

Ruse or Opportunity? The Provenance of Iran’s Spring 2003 Negotiations Offer

  • Flynt Leverett
    Senior Fellow & Director, Geopolitics of Energy Initiative, New America Founadtion
    Former Senior Director for Middle East Affairs, National Security Council
  • Col. Lawrence Wilkerson
    Former Chief of Staff, U.S. Department of State
  • Trita Parsi (moderator)
    President, National Iranian American Council


10:30 am - Iran’s Nuclear Challenge – Debating the Technical Dimensions

  • David Kay
    Senior Fellow, Potomac Institute for Policy Studies
    Former IAEA/UNSCOM Chief Nuclear Weapons Inspector in Iraq
  • Bruno Pellaud
    Chairman, IAEA Experts Group on Multilateral Approaches to the Fuel Cycle
    Former Deputy Director General and Head, IAEA Department of Safeguards
  • Maurizio Martellini
    Secretary General for Landau Network - Centro Volta
    Consultant on Non-Proliferation, Italian Ministry of Foreign Affairs
  • Joseph Cirincione (moderator)
    Senior Vice President for National Security and International Policy
    Center for American Progress

12:00 pm - Luncheon: A Consideration of U.S. Options Toward Iran

  • Steven Clemons (Introduction)
    Senior Fellow & Director, American Strategy Program, New America Foundation
    Publisher, www.TheWashingtonNote.com
  • The Hon. Jane Harman (Keynote pre-lunch)
    Chairperson, Subcommittee on Intelligence, Information Sharing, and Terrorism Risk Assessment
    Committee on Homeland Security
    U.S. House of Representatives
  • Francis Fukuyama (Keynote post-lunch)
    Bernard L. Schwartz Professor of International Political Economy
    School of Advanced International Studies, Johns Hopkins University

1:45 pm Iran’s Pretensions and a Turbulent Middle East

  • Thomas Donnelly
    Resident Fellow, Defense & Security Studies, American Enterprise Institute
  • Daniel Levy
    Senior Fellow & Director, Middle East Policy Initiative, New America Foundation
    Senior Fellow, Century Foundation
    Former Senior Advisor to Israel Prime Minister Ehud Barak
    Lead Israeli Drafter, Geneva Initiative
  • Dafna Linzer
    National Security Correspondent, Washington Post
  • Trita Parsi
    President, National Iranian American Council
  • Bahram Rajaee (moderator)
    National Iranian American Council
  • 3:30 pm Adjournment

Globalization from the Ground Up - Republicans wrong on IP policy

Having formally left NDN at the end of last year, I am now travelling round Asia for a while before returning home to Britain. And, well, given I used to work with Rob on the Globalization initiative, I thought I’d offer a few occasional thoughts on globalization from the ground. This is the first of these, and hopefully not the last. For what its worth, this is posted from Bombay, India.

NDN rightly raises the issue of IP protection, and the problem of its constant flouting in developing countries. The problem here is simple. It is not in the long-term interest of developing countries to flout IP regimes. But, crucially, it is definitely in their short term interests. China does not want to pay for copies of Windows Vista, even if it understands in the long-run that growth is positively correlated with respecting IP rights. The trick, then, is what strategy should the rights holding countries (US, EU and Japan) prosecute to try and get the rights abusing countries (India, China, others in Asia, Brazil, etc) to get to the point in their development when they see that protecting IP is in their immediate interests. This point is roughly where Singapore is You know this because it is impossible to find counterfeit good in Singapore, while they are abundant – almost comically so – in neighbouring Malaysia, and Thailand. And, of course, in China.

And this is where it gets interesting. Because at the moment the US is following the wrong strategy. It is demanding that the developing countries just stop it: obey the rules, and get with the programme. This is clearly not going to work, as the US and its IP-holding allies have no powers of enforcement. Instead, it is clear that different strategies need to be followed for different regions. And here is the interesting thing: the private sector really gets this, even if the government doesn’t.

A case in point is the front page of this morning’s Times of India, India’s most prestigious broadsheet. On page 1 there is a big Microsoft advert. The gist of it says that: if India wants to be a modern country, it has to play by the rules. Accpetance into the west, the advert implies, will only come by not buying pirated software. This, very cleverly, taps into the Indian phobia about not being accepted as a modern country. India fears not being seen as a serious player, and frets that it isn't taken seriously.

So far, so obvious. But in China, that strategy would fail. China doesn’t care what people think about it. She is a vastly more confident civilisation. So instead, clever companies follow a different tack. One example: some turn a blind eye to some IP infringement, and instead sell their software with added “training” packages. The Chinese have a real thing for education, partly routed in Confucian values. And so while they will not pay any money for the software, they will pay for the training. In the long-run, the bet is that by getting the Chinese to pay for some of their software, they will gradually converge with the Western rights-respecting norm.

So, bottom line: The Republicans are following the wrong strategy on IP protection. Democrats should follow the more nuanced approach of the private sector. This might involve talking a zero-tolerance game. But in the end that is an empty gesture without the right incentives to get countries into line. And here, all the Presidential aspirants have to learn about globalisation from America’s business leaders.

McCain fears a repeat of the Tet offensive

From the AP, via Time:  

"By the way, a lot of us are also very concerned about the possibility of a, quote, 'Tet Offensive.' You know, some large-scale tact that could then switch American public opinion the way that the Tet Offensive did," the Arizona senator said.

What does this mean? Hasn't American opinion already gone south? Is he admitting that the war is lost? What does this mean? Senator McCain has some explaining to do.

The Decider Isn't Watching

President Bush was interviewed by C-Span today, and he didn't express much interest in hearing what the Members of the House have to say in their potentially 36 hour-long debate over Iraq policy.  Specifically, they'll be debating this resolution, rebuking the President's surge/escalation plan. 

Click on the picture to watch the interview (the question on the House debate is early in the interview) or read the transcript below.

Q The House this week, three or four days, 36 hours of debate and a resolution that is likely to be very critical of your policies. First of all, will you be watching the debate? And will it at all influence your policies in the future?

THE PRESIDENT: In terms of watching the debate, I've got a lot to do -- I'm not exactly sure what hours they'll be debating, but I've got a pretty full day, I mean, like, I started this morning at 6:45 a.m. and I've had meetings up until right now. So I haven't been watching anything.

Q But this will start tomorrow.

THE PRESIDENT: You know, I've got a full day tomorrow. (Laughter.) I mean, it's not as if the world stops when the Congress does their duty. I'm receiving foreign guests. It just depends on what my schedule looks like. Secondly, look, I already know what the debate is. I hear a lot of opinions. A lot of people don't believe we can succeed in Iraq and, therefore, I presume, want to get out. That would be a disastrous course, as far as I'm concerned.

“Lo que los inmigrantes piensan de los inmigrantes”

The Washington Hispanic’s María Elena Salinas writes on “What immigrants think about immigration.” The article centers on a study performed by Bendixen and Associates, who recently conducted a poll for NDN of Cuban-Americans in South Florida,  which reveals that the majority of legal immigrants are pro-immigration. Significantly, 77% of the participants in Bendixen’s study are registered voters in the U.S., and are not necessarily happy with the way that either party is handling the immigration debate.

Para nuestros lectores hispánicos:

María Elena Salinas del Washington Hispanic escribe sobre “Lo que los inmigrantes piensan de los inmigrantes.” El artículo se centra en un estudio realizado por Bendixen y Asociados que muestra que la mayoría de inmigrantes legales están a favor de la inmigración. 77 por ciento de los participantes son electores registrados en los Estados Unidos, y a muchos no les gusta la posición de cualquier partido político sobre inmigración.

…800 personas de 43 países… participaron en una encuesta conducida por Bendixen y Asociados en nueve idiomas para determinar cómo inmigrantes legales en este país observan el debate migratorio y el papel de los indocumentados en el país.

El estudio demuestra que la gran mayoría, 67 por ciento para ser exactos, sienten que está creciendo un sentimiento antiinmigrante en EE.UU. y más de la mitad siente que esto les afecta directamente a ellos y sus familias.

Uno de los argumentos más fuertes que escuchamos en contra de programas de trabajadores temporales es que los indocumentados le quitan las plazas de empleo a los estadounidenses y residentes legales. Pero la encuesta de Bendixen muestra que el 81 por ciento cree que eso no es cierto. Es más, 73 por ciento cree que los indocumentados de hecho ayudan a la economía como mano de obra barata.

El debate de inmigración podría tener una repercusión política en ambos partidos. El 77 por ciento de los participantes en la encuesta de Bendixen son votantes registrados y no necesariamente le dan buenas calificaciones a ningún partido político por su manejo de tema migratorio.

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