Last week (Jan 6, 2013) I accompanied Ken Davis (former Assistant Secretary of Commerce, former VP & CFO of IBM) in a meeting with Congressman Jim Himes in his Stamford office. Our agenda was to urge Mr. Himes to recognize the crisis of America's huge chronic trade deficits, and to urge him to vote NO on the impending Fast Track legislation, and NO on the NAFTA-style "Trans-Pacific Partnership" and US-EU "Transatlantic Trade and Investment Partnership" Free Trade treaties that Fast Track is aimed at.
Mr. Davis and I are grateful to Mr. Himes for giving us his time for this discussion. Despite any differences we describe below, we give him credit for knowing trade is an important issue for our country, and for hearing us as part of giving this issue serious personal attention.
After the meeting Mr. Davis commented to me that it may be hard to change the Congressman's tendency to favor Free Trade treaties (Mr. Himes voted "YES" on all 3 FTAs that came to a vote during his tenure in Congress: with South Korea, Colombia and Panama), because General Electric and other globalized corporations are among his biggest campaign contributors. But Mr. Davis also expressed hope that "he's smart, so he may realize he’ll have more clout if he’s a key vote in killing TPP and Fast Track. Then he can join the good guys working for the public interest."
Watch Patch for my future articles following up on Mr. Himes as the debate and vote on these Free Trade treaties develops. The rest of this article recounts our discussion with Congressman Himes in his office last Monday.
Why Trade Deficits Matter
Mr. Davis began the discussion by showing Congressman Himes a chart of the history of our balance of trade from 1960 to 2009. It shows a small surplus until the late 1960s and ballooning chronic deficits since 1976. Click this link for a pdf copy of that chart:
Mr. Davis asked why nobody in Washington cares or talks about the trade deficits. The Congressman responded that is not true, though he didn't name any individual, just said some economists have talked about it. Congressman Himes said the trade deficit is not the focus so much as the number of jobs.
At that point I gave Mr. Himes a copy of NAFTA at 20, the report by Ben Beachy at Public Citizen, which showed that, contrary to the arguments made before FTAs are signed, the FTA treaties in the NAFTA style have actually resulted in huge net job losses for the USA. Click this link for a pdf copy of NAFTA at 20:
Mr. Davis explained that America has lost $8+ trillion of national wealth to other nations since we dropped our overall balanced trade practice in the 1970’s at the start of globalization. He said the trade deficits amount to a huge debt, which Mr. Himes disputed, claiming they only result in foreign holdings of dollars, not actual debt. The Congressman argued that our trade deficits aren’t really losses or debts, but just paper transactions that may shift either way between trading nations. Mr. Davis replied the end result includes huge foreign holdings of US Treasury bonds, which are indeed debt. I added that, because we are not manufacturing enough, these piles of dollars in foreign countries aren't buying our exports but rather end up coming back to America to buy out our companies and other assets like mineral rights.
Does it hurt our economy that the trade deficits end up funding the foreign buy-out of American companies? According to James Jackson in his report Financing the U.S. Trade Deficit, published by the Congressional Research service, the answer is YES: "an important feature of claims by foreign investors on U.S. assets is that some or all of the profits or returns on the assets can be repatriated to the home country of the foreign investor, thereby reducing the returns that otherwise would remain in the U.S. economy." (1)
Mr. Himes never agreed with us that the trade deficits amount to a growing debt, but he did say he worries such large foreign holdings of the dollar will ultimately reduce its value, and said it would be especially troublesome if the drop in value were rapid. We explained to Mr. Himes that, whatever his definition of debt might be, the vast trade deficits result in foreign holders of dollars using that money to buy US companies, which results in technology transfers and moving offshore of the profits and control of formerly US companies. We also explained that the annual US trade deficits averaging over $500 Billion represent US demand being satisfied by foreign operations, meaning all the jobs and factories and tax base built by that demand is lost to our country, and could be added to our country if we adopt a new trade policy that ends our trade deficits.
Free Trade is NOT a National Economic Strategy
Mr. Davis said you would not be able to find any CEOs of multinational corporations who put the interests of our country first, and recounted several personal discussions he had with CEOs (or their staff) of large multinational corporations where it was flatly declared that their concern is with advancing the interest of the company and that they could have no loyalty to any particular country because they operate in so many countries. Congressman Himes replied that "the CEO's are in a tough position" because their job is to "maximize shareholder value" in a globalized economy.
I replied that precisely because the CEOs do not act in the interests of the USA but rather in the interests of their globalized corporations, it is the job of Congress to "change the rules" so that our country is run in the interests of our citizenry rather than companies that have no loyalty. Mr. Davis added it is in the interests of the rest of the world that the American economy not collapse.
Mr. Himes asked how much of our chronic trade deficits are due to energy imports, and all agreed that, whatever the proportion, it has declined recently. (2) I said that developing US-made renewable energy technologies can serve not just to reduce our trade deficits by replacing energy imports, but can also be one of the advanced manufacturing specializations that should be at the center of reviving American manufacturing. Mr. Himes said he's "not in favor of autarchic trade," that he is in favor of "managed comparative advantage," and that he believes overall that more trade and more open economies results in higher efficiency and more wealth produced. I replied that none of the other countries beating us in trade take a laissez-faire approach like the US, but rather have deliberate national economic strategies. To give an example of how badly the US is failing in such strategy, I told him that in the last 2 years, my own company Made In USA Solar LLC has lost 4 formerly US-made brands of solar equipment that are now either off-shored or bankrupt.
Congressman Himes said he wants more trade because he wants to see our own multinational corporations like Boeing increase their exports, which creates American jobs. Mr. Davis pointed out that to enter foreign markets like China, for example, the host country requires not just investment in their country (building factories and R&D labs) but also joint-ventures with their state-owned companies, which entails transfer of technologies that were developed with US support that was public and private, direct and indirect.
Mr. Himes did not agree that the TPP was written by 600 representatives of globalized corporations, and rather than argue the point I told him we will send him documentation of that fact. Click this link for a copy of that documentation: "Himes Letter: 600 corporate lobbyists writing our trade policy":
Mr. Davis pointed out that most of the chapters of the TPP were not really about trade, but rather "investor protection" provisions (allowing corporations to sue countries for there regulation of labor or environment), patent extensions, and revival of internet restrictions that were originally proposed in the Stop Online Piracy Act (SOPA) that failed to pass Congress.
Mr Himes countered that organized labor had some input into the drafting of the TPP. I said this input was minimal and mostly in the form of complaint rather than adopted text in the actual treaty. In the compilation of news articles I sent Mr. Himes the next day, the Washington Post had this to say about organized labor's input:
"AFL-CIO, the umbrella organization representing 57 unions, has not taken an official stance on TPP, but is concerned with how the agreement could affect workers’ rights in all the participating countries. Previous U.S. free trade agreements have led to lower wages and safety standards and weakened collective bargaining power, said Celeste Drake, a trade policy specialist at AFL-CIO. In April, the union federation’s representatives met with staffers from Congress, the Labor Department and the Office of the U.S. Trade Representative and flew in workers from Peru, Mexico and Canada to talk about how their working conditions worsened after trade agreements were reached between their country and the United States." (3)
Mr. Himes was unfamiliar with the Buffet Plan for achieving balanced trade, and requested we send him Buffett's 2003 Fortune Mag article. (4) I sent the text and video versions to him the next day via email to his aide. At the end of our meeting, Mr. Davis gave the Congressman a copy of J.R. Martin's book Selling U.S. Out (5), and a copy of his own article "Our Worst Scandal of All --The US Trade Deficit," originally published by Economy In Crisis on their website. (6)
1) Jackson, James K. (2012-11-16). Financing the U.S. Trade Deficit (Kindle Locations 214-216). Congressional Research Service. Kindle Edition.
2) According to Ben Beachy's report for Public Citizen, NAFTA at 20, (linked above): "Although oil accounts for a substantial portion of the trade deficit with Canada and Mexico, the oil share of the trade deficit with Canada and Mexico actually declined from 77 percent in 1993 to 55 percent in 2012." That report is available here:
3) Trade deal draws lobbying from businesses, unions" by Catherine Ho, Published: Washington Post, May 26, 2013:
4) "America's Growing Trade Deficit Is Selling The Nation Out From Under Us: Here's A Way To Fix The Problem" by Warren Buffett and Carol Loomis:
See the 3-minute video version here:
5) Selling U.S. Out by J.R. Martin, Beaver's Pond Press (2012):
6) "Our Worst Scandal of All: The US Trade Deficit" by Ken Davis, published online by Economy In Crisis: