With America’s economy continuing to plod along in a sluggish recovery, policymakers are searching for ways to spur U.S. economic growth. With the U.S. running massive trade deficits, we’ve realized in recent years that in order to grow America needs to increase its exports (hence the Obama Administration’s National Export Initiative, which seeks to double U.S. exports from 2010 levels by 2015), in part by encouraging the opening of markets throughout the world to freer trade. Having real access to foreign markets is crucial—it may mean the difference between a decade of stagnation or robust growth. Right now we are poised to make this essential leap forward with the Trans-Pacific Partnership (TPP), a 12-nation trade agreement that includes Australia, Canada, Japan, and Mexico as some of the major players. If enacted, the agreement would tie nations together that comprise 40 percent of the world’s gross domestic product. But before policymakers approve the TPP, the United States needs to make sure certain critical provisions are addressed. Some of the most important issues involve intellectual property (IP) protection.
IP is fundamental to America’s economy. With 40 million workers, or 30 percent … Read the rest
After already slashing R&D funding, the Sequester is about to deliver another kick in the teeth to American competitiveness: it’s going to sharply reduce our ability to measure it. This one comes courtesy of the Bureau of Labor Statistics, which announced last month that the sequestration has forced it to eliminate its International Labor Comparisons (ILC) program, a neat little database that adjusts foreign data to a common framework, allowing you to compare the traded sector health and competiveness of the United States against that of other countries.
This may not sound like much, but in the nerdy world of competitive analysis economics, it’s huge. No one else provides this data to the same extent as ILC. The OECD does a bit,[i] but their data are rife with warnings about the perils of cross-country comparison among their indicators. Moreover, the OECD has little-to-no data on the big boys such as China and India, which renders its data useless for any “big picture” comparisons of our competitive health. Other organizations, such as the UN Industrial Development Organization, provide limited competitiveness data that is vastly incomplete.
In contrast, the ILC … Read the rest
Amidst the furor over the Sequester there is another critical policy issue being debated and it concerns the U.S. government’s role in the International Monetary Fund (IMF). The Obama administration is seeking Congressional authority to change the voting process at the IMF, and in particular, to give China a much larger role. But the last thing the U.S. government should be doing is strengthening the ability of China to shape IMF policy, especially given its unrepentant, mercantilist practices.
Established after WWII, the IMF was charged with overseeing the international monetary system and encouraging member countries to eliminate exchange restrictions that hindered trade. As a result, under IMF rules, each member country has agreed not to engage in “protracted, large-scale intervention in one direction in the exchange market.”
These are nice words but in practice they have been rendered largely meaningless. The IMF has proven unwilling to take action to curtail currency manipulation or similar egregious actions China and other nations have engaged in to distort global trade, hurt the U.S. economy and advance their domestic economic interests.
Case in point, the IMF’s Executive Board concluded its 2010 Article IV consultations … Read the rest
Withdraw India’s GSP Preference If It Continues to Impose Localization Barriers to Trade on Foreign Enterprises
Recent months have seen India introduce several disconcerting localization barriers to trade (LTBs) that discriminate against foreign companies. The Indian government already has imposed LTBs in government procurement contracts, and has further proposed far-reaching local content requirements on even private procurements of electronic goods. Most recently, on January 21, 2013, one news report indicated that India was preparing to exclude foreign information and communications technology (ICT) vendors from participating in the country’s $4 billion national optical fiber network project that will bring high-speed Internet connections to rural areas throughout India.
This follows the Indian Ministry of Communications and Information Technology’s February 2012 announcement of a preferential market access mandate for electronic goods (the PMA Mandate), which if implemented would require a large percentage of high-tech goods sold in India to be manufactured there. A specified share of each product’s market—anywhere from 30 to possibly even 100 percent—would have to be filled by India-based manufacturers, with the local content share for each product rising over time. One of the goals of the PMA Mandate would be to have 80 percent of the computers and electronics sold in India be manufactured … Read the rest
Last month, the United States International Trade Commission voted to uphold tariffs on solar panels imported from China. The Commerce Department had imposed the tariffs earlier this year in response to China’s heavy subsidization of domestic solar PV manufacturers. However, while the move is welcome, it is important to recognize that is not a magic fix and the fight against Chinese green mercantilism continues.
To be sure, the tariffs are well-justified, as they can simultaneously help level the playing field, discourage China from employing unfair trade practices, and encourage clean energy innovation. But they may be too little, too late. Since the tariffs apply solely to panels made of Chinese-produced solar cells, Chinese companies can avoid them by assembling panels with cells produced elsewhere. ITIF Senior Analyst Matthew Stepp details the result at Forbes:
By shifting its way through loopholes in the tariff ruling, China is rerouting its manufacturing … Read the rest
One rebuttal out commonly used against those of us worried about the large and persistent U.S. trade deficit is that a trade deficit implies a “capital account surplus.” In other words, a trade deficit must be offset by inflows of funds, and those funds are sometimes (although far from always) used to finance investment in the U.S. economy. One big part of these inflows is foreign purchase of U.S. debt, such as corporate securities or Treasury bonds that finance government spending. The other big part is foreign direct investment (FDI), which is the inflow of foreign funds used to control (i.e. own) business assets within the United States.
While the economic benefit of the financing of U.S. debt by foreign entities is hotly debated, the inflow of FDI is often touted as a sign of continuing U.S. economic strength, given that, at first blush, the influx of foreign dollars appears to support investment in companies in the United States and thus million of American jobs. It is important to note, however, that there are in fact two kinds of FDI, and each has different consequences for the American economy. Read the rest . . .
In May, the Department of Commerce moved to impose “anti-dumping” tariffs on heavily subsidized Chinese solar PV manufacturers. Now comes the news that the Department has reached a similar decision on Chinese wind-energy tower manufacturers and a group of 20 or so European solar panel manufacturers has filed a formal complaint with the European Commission, the European Union’s lead trade body, accusing Chinese solar manufacturers of dumping their products in the EU at prices below cost as well. The group, led by Germany-based SolarWorld (the same company that spearheaded the anti-dumping trade claim against China in the U.S.), is seeking retaliatory tariffs as a result. These developments have sparked concerns over a potential trade war between the U.S. and Europe and China. But tariffs are well-justified in fighting green mercantilism and, by encouraging innovation, could be greatly beneficial to the clean energy industry in the long-term.
The Wall Street Journal notes that the “vast majority” of the jobs in the American solar industry are in “sales, marketing, design, installation, engineering construction and maintenance of solar projects,” jobs which benefit from cheap Chinese solar panels. As such, many solar developers and … Read the rest
Information technology (IT) theft is rampant worldwide, especially in emerging economies. As the Business Software Alliance’s 2010 Global Software Piracy Study found, 78 percent of software installed on Chinese computers is pirated, as is 83 and 87 percent of the software installed on Vietnamese and Indonesian computers, respectively.
Most of the attention on victims of software or other IT intellectual property (IP) theft focuses on the economic loss incurred by firms producing IT software or hardware. But there is another subtler yet equally damaged set of parties—all those firms who have fairly purchased IT software and products and must reflect that in the price of their products whom must compete against foreign firms that have illegitimately procured IT inputs. As ITIF has noted, this is the piracy subsidy that thieves of information technology IP enjoy, and it severely damages U.S. producers, especially the small- and mid-sized enterprise (SME) manufacturers whom account for 98 percent of U.S. manufacturing enterprises. These SME manufacturers have a difficult time competing against foreign firms that unfairly achieve competitive advantage by using large quantities of stolen IT to reduce their operating costs and thus reduce the … Read the rest
On May 21, 2012, the Senate Committee on Armed Services released a disturbing report on the extent to which counterfeit electronic parts had infiltrated the U.S. defense supply chain. The report, which looked at just one part of the defense supply chain from 2009 to 2010, documented 1,800 cases of suspected counterfeit electronic parts being deployed on a wide range of weapons systems, including anti-submarine aircraft and helicopters, cargo planes, and missile defense systems such as the Terminal High-Altitude Missile Defense (THAAD) system. Regarding THAAD—a short- to intermediate-range missile defense system designed to shoot down ballistic missiles (think SCUDs in the Gulf War)—the investigation found that the mission computers that controlled the missiles contained suspected counterfeit memory devices, which if they failed while deployed would have comprised the entire missile defense system, placing the lives of U.S. service members (or even U.S. or foreign citizens) at risk.
The Senate’s report found that the overwhelming majority—at least 70 percent—of the suspected counterfeit parts originated in China. This conclusion was not surprising. While the Senate’s report was limited to assessing counterfeit electronic parts in the defense supply chain, a broader report by … Read the rest
So, I want to do something new here that I haven’t done before: offer criticisms of a McKinsey Global Institute report. This is new for me because I have great respect for MGI’s work, including the work of colleagues Lenny Mendonca and James Manyika. But after reading their recent report, “Trading Myths: Addressing Misconceptions about Trade, Jobs, and Competitiveness,” I felt compelled to offer some thoughts on where they got it wrong.
First, their overall mission is not misguided. They point out important realities such as the developed world as a group being able to compete with the developing world when it comes to manufacturing; that services exports are growing in importance, that not all manufacturing jobs have been lost due to off shoring, and the pulling back from global trade engagement would be a mistake. I agree.
But even though I agree with these overall themes, the problem is that too many people will likely read the McKinsey report and come to exactly the wrong conclusion, especially about the United States. For it is one thing to compare a large group of developing countries, but the reality … Read the rest