Politicians on both sides of the aisle here have been devoting almost all of their energy and attention to two things: the battle over the president’s plan to take the health care sector under the government’s wing, and the battle over competing plans to solidify the current fragile economy recovery.
The first of these fights is drawing to an end, with a victory for the president – victory defined as getting a bill, any bill, through congress. The second is settling down into an argument over whether the $787 billion stimulus package “created or saved” 1.7-2 million jobs, as White House economists claimed last week, or is responsible for the rise in the unemployment rate to double digits, as Republicans concerned about the recovery-dampening effects of soaring deficits and rising taxes contend. The president seems likely to win that one as well, at least to the extent of pushing a supplemental stimulus through congress, bringing total stimulus spending to around $1 trillion. Barack Obama shares Gordon Brown’s preference for profligacy over prudence, or as they might put it, for investment over retrenchment.
Attention will now turn to trade. Although last year China’s exports fell as world trade declined due to the recession, they rose 18 percent in December. This prompted Chinese customs agency economist Huang Guohua to tell audiences for CCTV, the government television network, “We can say that China’s export enterprises have completely emerged from their all-time low exports.” Throw in the Google controversy that has focused attention on China’s attitude towards the rules of the game, and the stage is set for a brawl.
Indeed, China has replaced Germany as the world’s largest exporter. And it plans to continue feeding its products into world markets in increasing quantities so as to provide jobs for a work force that is already sullen, and just might become mutinous. The authorities have decided that continuing to stimulate domestic demand, as they did to reduce the impact of the recent recession, runs the risk of creating an asset-price bubble. So they are increasing bank reserve requirements and reducing the availability of credit. Better to rely on exports than risk an over-heated economy.
Britain, too, is counting on export growth to help lead it back to more prosperous times. The pound is weak, and likely to remain so. The government is proudly running extraordinary deficits, the Tories have offered no coherent alternative plan, and the Bank of England continues to print money -- “quantitative easing” is the preferred term.
The strong euro notwithstanding, several euroland countries, most notably Germany, are also looking to export-led growth because domestic consumers are more inclined than ever to keep their wallets in their pockets, and their handbags snapped shut.
All sensible policies from the point of view of the nations that aspire to fill the shelves of America’s shops with their consumer goods, and the floors of America’s factories with their machine tools and other products. Which is one reason that the U.S. trade deficit is again on the rise. After falling by more than 15 percent early last year, as consumers kept their plastic sheathed and slowing factories’ need for supplies fell, imports both of industrial supplies and consumers’ goods rose, driving November’s trade deficit up by 9.6 percent.
So much for economic data. Now to the politics. Other countries might be counting on selling more of their output to the world’s consumer of last resort, the U.S., but if so they are not considering the problem faced by President Obama and congressional Democrats. They have poured billions – no, trillions – into programs to revive the economy. The indicators of success – rising share prices, more profitable banks, Intel’s robust profit report – are of more interest to economists than to politicians. All that matters when they face voters – or at least all they believe that matters – is the job market. 17.3 percent of all workers are now looking for jobs, too discouraged to do so, or working part-time, and the average period of unemployment is lengthening. In many instances workers’ woes are compounded by the fact that their houses are worth less than the outstanding mortgage – negative equity – or that their homes are being repossessed. All of this makes even those with jobs very nervous about their own futures despite the fact that the rate of job losses has declined sharply.
This situation in the jobs market feeds into popular – some say, populist – outrage at the scale of bankers’ bonuses. Never mind that most banks have repaid their government loans, with interest – the banks would have been out of business had the taxpayer not saved them. Now that same taxpayer watches his job opportunities shrink and bankers’ bonuses grow.
Obama has decided to respond to the populist uproar by imposing a new tax on banks. But that is the lesser part of his problem. The greater part is the shortage of jobs. Voters are not interested in talk of “it could have been worse,” or of jobs being a lagging indicator – that is for professors with tenure and economists safe in their federal government offices. They want jobs. Now.
Under these circumstances it is highly unlikely that the administration will stand idly by while imports flood into America. Countries relying on export-led growth are counting on creating jobs in their countries by selling goods to Americans, unemployed – as politicians see it – because imports are displacing made-in-America goods. In short, they are counting on exporting not only goods and services to America, but unemployment.
Politicians can relate to fears of job loss, especially when they face the electorate with their own jobs on the line. Remember: The Democratic party, in control of the White House, the House of Representatives, and the Senate, owes its position in good part to the financial support of protectionist-favoring trade unions, and of the armies of supporters the unions marshal to get out the vote for Democrats. Then ask whether the export-led growth strategy of so many countries is likely to survive the protectionist wave that is already noticeable in Obama’s decisions to levy taxes on imported steel, provide favorable financing for domestic automakers, and refuse to press for new trade agreements. “No” is certainly one of the available answers.
Irwin M. Stelzer, a contributing editor to The Weekly Standard, is director of -economic policy studies at the Hudson Institute and a columnist for the Sunday Times (London).