Looking for some bipartisan solutions to America’s economic problems?
Well, I just read a great book on U.S. economic policy that is definitely worth checking out:“Seeds of Destruction” written by Glenn Hubbard and Peter Navarro. Hubbard is the former head of the Council of Economic Advisers under George W. Bush and is now dean of Columbia Business School. Navarro, a Democrat, is a business professor at the University of California, Irvine and author of ”The Coming China Wars.”
Here are some excerpts of a chat I recently had with Navarro. (Later this week, I will post my interview with Hubbard.)
What’s wrong with the policy ideas coming out of Washington?
The Democrats are infatuated with the idea of using fiscal and monetary policies to spend our way to prosperity. And the Republicans have long been infatuated with the idea that the only way you can get to where we need to go is to cut taxes. And both of these solutions either don’t work or are too simplistic or both.
How must our economic approach to China change?
We identify a set of mercantilist and protectionist policies that China engages in to gain a competitive advantage, not just over American manufacturers, but manufacturers throughout the world. And our whole policy thrust is constructive trade reform with China. I think the big ones are the export subsidies they continue to engage in despite [World Trade Organization] prohibitions, the undervalued currency is certainly a big one, the intellectual property issue, and of course when you are competing with a nation that has very lax environmental and health and safety standards, that is difficult as well.
So if you are going to engage in trade reform on the mercantilist side, you need to deal with all of those things. At the same time, there are protectionist measures that China now engages in, things like non-tariff barriers such as forced technology transfer as a condition of entry into a market, and things like forced offshoring of research and development — all of which are prohibited under free trade rules.
What has gone wrong with the U.S.-China policy?
My own view is that the Bush administration wasn’t watching China because of their free market ideology. And the Obama administration thinks they need China’s money to finance their budget deficits. I think that is a really bad bargain. At some point, the White House has got to acknowledge that these are really important issues and that simply relying on China to voluntarily go forward isn’t working.
So what should we do?
If I were Tim Geithner, I would fly over without any public announcements or press at all — a secret mission to China — and sit down with the “powers that be” over there and say, “Look, for both political and economic reasons, we can no longer tolerate this, but we do not want to confront you publicly on it. And unless you deal with this, then we are going to have to take these steps. We don’t mean to impugn your honor or integrity, but that is what is going to happen. And then I would go back home and see what happens, but not breathe a word of that to the press.
And if they don’t play ball?
Brand them a currency manipulator. And as I have written before, all you need is simple bill in Congress that says we will trade with anyone that abides by rules of free trade and leave it at that. Don’t mention China or anyone else. There is a legitimate difference between taking measure for self defense vs. engaging in protectionism. If China dumps goods in the U.S. that are substantially below costs and countervailing duties are imposed, that is not protectionism. That is self defense. A lot of Republicans seem to not quite understand that free trade does not mean export subsidies and an undervalued currency and things like that. And Democrats, with things like “buy American,” drive me nuts, too.
Many economists contend that China needs to consume more and move beyond export-driven growth. Does China see it that way?
The people in power have seen China prosper with these “beggar-thy-neighbor” policies. But what we are advocating is in as much their interest as ours.
Were there any areas of sharp disagreement while co-authoring the book?
We began at the outset seeking a middle ground, and I think once you’ve analyzed the problem, the solutions become, if not obvious, then kind of evident and it makes it easier to figure out what to do. We really never had a substantive disagreement on anything.
By James Pethokoukis, Money & Politics columnist for Reuters.