Economic Policy Institute

Seeking a Trade Rule Enforcer

Leo Gerard — Mon, 26 Sep 2011 12:09:58 -0400

Leo Gerard will be addressing the Oct. 3-5 Take Back the American Dream conference about the "Contract for the American Dream" and how we can "Stop Outsourcing the American Dream." Click here to register.

America is being played.

The U.S. allowed China to join the club of trading partners in the World Trade Organization (WTO) in 2001 under the condition that China observe club rules.

Over the past decade, however, China has profited immeasurably by ignoring, flouting and circumventing the rules barring market-distorting practices. Among the most destructive of these violations is China’s deliberate undervaluing of its currency, which makes Chinese exports to the United States artificially cheap and U.S. exports to China artificially expensive.

This nurtures Chinese industry and poisons American manufacturing.

In the trade contest with China, the referees have been absent or silent or completely craven on the issue of currency undervaluation, even as it kills U.S. factories and jobs. American workers need a trade rule enforcer. With unemployment above 9 percent, the situation is desperate. American workers can’t be played anymore.

Just last week, the Economic Policy Institute (EPI), a non-partisan think tank, issued a report showing that the trade deficit with China cost the United States 2.8 million jobs since the WTO allowed China into the trading club. Every congressional district in the U.S. lost jobs as Chinese exports to the United States overwhelmed U.S. exports to China.

The trade deficit is the difference between the value of Chinese exports to the United States and U.S. exports to China. It was $84 billion the year China entered the WTO. Last year it grew to $278 billion – a 230 percent increase.

EPI also determined that China’s currency manipulation is a major cause of the trade deficit. The report explains that China has aggressively bought U.S. dollars and other foreign exchange reserves to depress the value of the yuan. Smart move, but prohibited under WTO rules.

Without this deliberate market interference, the yuan would have risen in value over the years as China’s productivity soared. But a stronger yuan would have increased the cost of Chinese products in the U.S. and decreased the cost of U.S. exports to China. That would have quashed Chinese exports and invigorated American exports, lowering the trade deficit.

The currency manipulation is not surprising considering China’s other routine trade-distorting and rule-violating practices. These include giving government subsidies to factories that export. WTO rules permit governments to subsidize manufacturers that sell only within their own countries. But subsidized products can’t be exported because the government aid artificially lowers prices, which wrongly propels them ahead of unsubsidized products on the international market.

Developing countries often violate the rule anyway. They game the system. Everyone wants a leg up. It has served the Chinese economy and the Chinese people well. Progress for third world workers is to be celebrated. But it’s unjust when a country accomplishes it by defying rules it pledged to follow.

The United States has repeatedly imposed tariffs on China for exporting improperly-subsidized products. For example, my union, the United Steelworkers, filed a case seeking relief from subsidized Chinese passenger and light truck tires sold in the United States. Both the U.S. International Trade Commission and the U.S. Department of Commerce determined China breached the trade rules, and President Obama imposed tariffs on imported Chinese tires for three years. When China appealed the tariffs, the WTO concluded that Obama was right.

That’s enforcement.

And the result is that tire companies now are spending hundreds of millions to expand U.S. operations and hiring hundreds of U.S. workers.

But when it comes to currency manipulation, the U.S. government is all threats and no enforcement.

The U.S. Treasury Department has considered officially designating China a currency manipulator, a finding necessary before commencing sanctions. But it never did. The U.S. house and senate considered legislation but failed to pass it. And Obama asked China to allow the value of its currency to float up naturally. In June of 2010, China said it would.

But it hasn’t.

It’s more than a year later, and maybe another hundred thousand U.S. jobs lost. Washington seems to be listening only to greedy reactionaries who contend sanctions will spark a trade war.

They’re wrong. Every time the USW wins a trade case – including the tire case -- the reactionaries have wailed that the tariffs will prompt a trade war.

China won’t do it because the value of Chinese exports to the United States is four times that of American exports to China. China faces four times the risk in a trade war. The greedy reactionaries consist mainly of multi-national corporations that have outsourced production and jobs to China and are concerned only with profits and totally unconcerned about the U.S. economy and unemployment.

Another EPI study released earlier this year showed that if China and other Asian countries properly valued their currencies, as many as 2.25 million jobs would be created in the United States and the U.S. budget deficit would decline by up to $71.4 billion per year.
More jobs; lower debt – that’s why a bipartisan group of U.S. senators and congressmen introduced legislation last week to enable the U.S. Treasury Department to more easily declare a country deliberately undervalues its currency and to punish manipulators.

There can’t be any more dawdling or cowering or negotiating on this. American workers need enforcement now.

Political Corruption: GOP Embraces the Ken Lay Way

Leo Gerard — Thu, 02 Dec 2010 09:40:30 -0500

The GOP has adopted the Ken Lay principles – that is obfuscation, false statements and feigned innocence. Republicans are obfuscating about the real reason for their opposition to extending unemployment benefits, the way Enron CEO Ken Lay concealed the truth about billions in losses his corporation racked up.

Lay assured Enron workers the corporation was strong – five weeks before it failed. When the nation’s 7^th largest corporation collapsed into bankruptcy in 2001, Lay walked away, by his own estimate, with $20 million. By contrast, Enron’s 4,000 workers and creditors left with debts. The employees lost their jobs and pensions, and the creditors lost $65 billion.

Lay cooked the books. A jury, and a judge in a separate case, convicted him of it in 2006 – finding him guilty of fraud, conspiracy and false statements. He obscured Enron’s massive losses with accounting hocus-pocus then lied about it so pervasively and persuasively that in February of 2001, ten months before the bankruptcy, Fortune magazine awarded Enron first place for innovation and second for management quality.

Republican acolytes of the Ken Lay way contend that the federal budget deficit prohibits spending $65 billion to extend emergency unemployment insurance for a year. But, at the same time, they insist the deficit doesn’t constrain extending tax cuts to the richest 1 percent at a cost of $61 billion for the year 2011. It’s masterful. And as corrupt as Ken Lay.

In the past 60 years, Congress has never terminated emergency unemployment benefits when joblessness was this severe. The highest point at which Congress ended the program previously was 7.2 percent, and that rate was declining. Now, unemployment is stuck at a rate significantly higher -- 9.6 percent. There are 14.8 million unemployed workers, five jostling for every single job opening. They subsist on unemployment checks averaging less than $290 a week, which for too many is insufficient to forestall foreclosure because it’s half of what an average family spends for necessities.

Despite that six-decade precedent, Republicans blocked extension of unemployment benefits on Tuesday, then on Wednesday announced they’d vote on no measure until they got renewal of the Bush tax cuts and a resolution continuing funding for the federal government. As a result, 800,000 jobless Americans lost those small, family-preserving checks. Republicans are holding them hostage, with a ransom demand of tax cuts for the nation’s richest 1 percent. If the GOP doesn't get what it wants, 2 million will lose unemployment insurance by year's end.

Like Ken Lay, Republicans mouth right-sounding words. They claim they care about creating jobs and improving the economy. All the while, just the way Lay covertly defiled accounts, the GOP kicks the economy in the stomach.

The non-partisan Congressional Budget Office (CBO) ranked unemployment insurance as among the best economic boosters and job creators. CBO determined it generates as much as $1.90 in economic activity for every government dollar. Similarly, a study by the Economic Policy Institute showed that extending the benefits for a year would create as many as 488,000 jobs, which, ultimately, would reduce the cost of benefits because those workers would pay taxes rather than seek food stamps.

Republicans swear that the way to create jobs is to extend the Bush tax breaks for the nation’s richest – people earning more than a quarter million dollars a year. The GOP slyly says those words over and over, hoping repetition will spin them into truth. Like Ken Lay’s assertion that Enron was strong as it disintegrated, the GOP tax cut talking point defies truth.

The CBO concluded that extending tax cuts for the rich was among the least effective economic stimulators. It calculated that extending unemployment insurance would revive the economy up to 19 times as much as extending tax cuts for the nation’s wealthiest 1 percent. In addition, those tax breaks didn’t achieve promised job creation during the Bush administration. Since Harry Truman, no president but George H.W. Bush and Gerald Ford, both one-termers, generated fewer jobs than the 3 million George W. Bush did over his eight years. Even one-term “stagflation” President Jimmy Carter produced more than three times as many jobs as George W. Bush.

Again, aping Ken Lay, Republicans are engaging in accounting fraud. Professing deep concern over the budget deficit, Republicans say they’d extend unemployment insurance for a year if Democrats would cut federal spending by $65 billion to pay for it. They don’t acknowledge any parallel requirement to cut federal spending by $61 billion to pay for extending tax cuts for the rich for a year.

Just like Enron furloughing 4,000 while Ken Lay and fellow executives stole away with millions, Republicans would take food from the mouths of the unemployed while bulking up the deficit to appease the rich who feast on Almas caviar and White Alba truffles.

That’s corrupt accounting.

And it makes sense. It comes from the party of Ken Lay, who flew George H. W. and Barbara Bush on an Enron plane to George W’s inauguration. You can betcha Republicans won’t take responsibility for the personal and economic devastation caused by their decision to continue moving wealth from the middle class to the rich, just like Ken Lay denied responsibility for Enron’s bankruptcy – right up to his death -- which occurred at a Colorado resort as he awaited sentencing.

Lewin Findings on Hacker-EPI Health Plan: Good News for Obama and Clinton

Roger Hickey — Sun, 17 Feb 2008 14:33:01 -0500

Last week, the Economic Policy Institute released an important analysis of Jacob Hacker’s Health Care for America (HCFA) plan by the respected health economics team at the Lewin Group. As you can read in the EPI press release, Lewin found that HCFA would cover everyone in America, while saving the U.S. economy over a trillion dollars over the next decade. And the efficiencies achievable primarily through Hacker's public health insurance plan would save enough money that, after modest premiums from employers and individuals, the new system would cost the US government only $50 billion more than what we are paying now for a system that leaves millions uninsured or badly insured.

A year ago, just as EPI was publishing Hacker’s HCFA plan, CAF had already gone to work, engaging everyone who would listen in public and private educational discussions about the Hacker-EPI approach -- including Presidential candidates from both parties. After a year-long dialogue, we can see how Hacker’s work has become the template for both Barack Obama’s and Hillary Clinton’s health care plans. And just as importantly, our allies in the labor movement, public interest and community action networks are coming together around basic health care principles that are based on Hacker’s model for health care for all. More on this soon – here at this website and at the Take Back America conference.
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