Many observers of US trade flows took heart from the substantial reduction in the trade deficit that took place in 2009. The reason is pretty straightforward: We didn't import as much oil or as many goods and services since our economy was mired in recession. Plants weren't turning out goods and thus were not consuming energy. And millions of unemployed and discouraged workers were not driving to their old jobs. Consumers were saving for a change -- instead of spending their latest withdrawal of home equity on the latest Toyota (smart move). However, the fall in the deficit does not mean that our manufacturing base -- that great generator of jobs and wealth -- is somehow in better shape. It isn't. The great danger here is that the President and his men will decide they don't have to do anything about the 30-year hole that we've dug for ourselves with ill-advised trade policies. In fact, they appear to have decided that already. Where there is no vision the people perish.

 

President Obama is bereft of good ideas and sound approaches to job creation. His economic team, headed by Larry Summers, did much to destroy the nation's industrial base through ill-advised trade deals in its last iteration in the Clinton administration. They are doing no better this tme around. Not only is there not a fundamental re-thinking of trade policy, but there is also a misplaced emphasis on increased exports. One wonders why, if all the trade deals so far were supposed to reduce the trade deficit but actually quintupled it, the Obama econ crowd would think that they are going double exports in five years and hold down imports. The question they should be asking themselves -- and that lawmakers and ordinary citizens alike should be asking them -- is this one: Why didn't the past 20 years of trade policy work as advertised? Why did imports increase so much more than exports? Why did our trade deficit grow so substantially? Why did the policy elites of both parties allow our manufacturing base to be hollowed out? Until we get good answers and correct our mistakes, pursuing the same policies will only lead to the same results. We can't go on issuing bonds and printing money indefinitely -- without real domestic wealth-creation as a basis -- or an historic economic collapse will result.

 

The Obama administration's roadmap to economic health is seriously flawed and will lead the nation to the brink of economic disaster. The new budget provides money in selected areas to stimulate economic growth. But Obama's policies completely miss the big picture of mercantilist and protectionist economies in East Asia and Europe. Government seed monies for, say, green manufacturing or light rail are no answer to sustained foreign government policies and across-the-board subsidies to build entire industries. Unemployment will not drop significantly nor real wages rise substantially until macro issues like foreign VAT export rebates, direct and indirect subsidies, tariff and non-tariff barriers, and currency manipulation, inter alia, are addressed directly -- and either dismantled quickly or countered at the U.S. border.