Trade deals negotiated in ignorance?

If the Senate learned right before a ratification vote that America’s chief arms control negotiator knew little about arms control, any treaty this official concluded would be dead on arrival.  Ditto for a peace treaty produced by a diplomat demonstrably short of knowledge about the adversary.  Why, then, do both the House and Senate seem so gung ho about three trade agreements handled by a U.S. Trade Representative who recently revealed major misconceptions about both America’s international commerce and its domestic economy?

Anyone doubting that this description applies to Ron Kirk should read an interview that President Obama’s chief trade envoy gave to Tim Robertson of the California Fair Trade Coalition in late August.  Even allowing for impromptu nature of the exchange, several of Kirk’s answers to Robertson’s questions about the pending trade deals with Colombia, South Korea, and Panama, make painfully clear that America’s trade policy point man is largely unaware what kinds of products the United States imports and, at least as important, what kinds Americans make.  Consequently, it’s hard to imagine him knowing whether the provisions he agreed to in these deals and trade-offs he accepted will help or harm America’s faltering economy – the acid test of U.S. trade policy.

Like President Obama and the rest of his team, Kirk has usually treated imports as if they didn’t exist.  Even though America’s purchases from abroad subtract from gross domestic product and therefore reduce employment, Kirk’s assessment of trade policies and their effects has focused almost solely on their potential to increase exports.   

Yet while speaking with Robertson during a northern California trip, Kirk wandered still further into economic fantasy-land.   According to Kirk, the import-boosting impact of recent and prospective trade agreements is of little consequence – along, by definition, with the follow-on effects on levels of growth, employment, and debt.  His stated reason?  Because so many U.S. imports are either products that Americans don’t make at all, don’t make enough of, or shouldn’t want to make.

In the trade envoy’s words, “[T]he reality is about half of our imports, our trade deficit is because of how much oil [we import], so you take that out of the equation, you look at what percentage of it are things that frankly, we don't want to make in America, you know, cheaper products, low-skill jobs that frankly college kids that are graduating from, you know, UC Cal and Hastings [don't want….”]

Continued Kirk a few minutes later, “The fact that we're importing goods and we're exporting does not necessarily equate to a job, that's not a one-to-one match, it depends on what you're importing, again if you're importing goods that you either don't make in America or don't want to make in America, you're gonna be importing those anyway.”

But Kirk clearly needs a crash course in U.S. import flows.  For example, although U.S. oil imports are up in both value and volume this year so far, they represent only 16.60 percent of the country’s total foreign purchases and only 11.41 percent after adjusting for inflation.  Oil’s share of the overall U.S. trade deficit is higher.  But even its 58.81 percent share of the overall 2011 trade gap in pre-inflation dollars and especially its 42.9 percent of the deficit in real dollars means that America’s other imports so far this year are on track to top exports by more than $200 billion annually.

America’s Trade Representative also evidently needs to bone up on the composition of the domestic economy.  Literally thousands of the goods and services the nation imports are entirely available from U.S.-based producers and providers, and therefore compete with domestic counterparts.  Detailed government figures on availability don’t exist, but at the very least hundreds of these goods and services, representing huge shares of American import flows, seem quite abundant here at home.

For example, Kirk apparently views as excessive oil’s 16.60 percent share of U.S. current-dollar imports.  But computers and electronics products – a category including semiconductors, advanced telecommunications gear, and electro-medical devices like MRI machines – represents 12.83 percent of U.S. imports.  Americans of course make plenty of those.  Transportation equipment – containing aerospace and automotive products alike – comprises 9.56 percent.  This country makes lots of those goods, too.   Ditto for chemicals (including pharmaceuticals), which make up 7.69 percent of all Americans’ foreign purchases, and non-electrical machinery (e.g., machine tools, power-generation equipment, farm and construction equipment, etc.), which account for 5 percent of exports.  

Therefore, contrary to Kirk’s emphasis on products the nation doesn’t make, a huge share of U.S. imports competes head to head with American output.  Moreover, the U.S. Business and Industry Council’s analysis of the latest available (2009) data reveals that, in many cases, imports hold large and rapidly growing shares of the U.S. market. For example, the import penetration rate in one key machine tool category has reached nearly 96 percent, in autos and light trucks more than 77 percent, for computers just over 63 percent, for semiconductors and construction equipment about 40 percent each, and for pharmaceuticals some 33 percent.

And although the list of products that Americans “don’t want to make” is obviously more subjective than the above import and import penetration figures, it’s hard to imagine that Kirk’s definition includes any of the aforementioned goods.

Toward the end of the interview, Kirk somewhat patronizingly advised Robertson to “go back and re-examine your underlying premise, because I think that's a faulty one….”  Far more important would be for Congress to reexamine its seeming enthusiasm for trade deals apparently rooted in stunning levels of ignorance.

Alan Tonelson, is a Research Fellow at the U.S. Business and Industry Council, a national business organization representing nearly 2,000 small and medium-sized domestic manufacturers.