Economics, U.S. Economy

Obama’s confusion over American excellence

President Obama’s trade policy is a mess. It seems he doesn’t know precisely what he wants. On the one hand, we see very positive signs, like this, from the State of the Union:

Congress should make sure that no foreign company has an advantage over American manufacturing when it comes to accessing finance or new markets like Russia. Our workers are the most productive on Earth, and if the playing field is level, I promise you – America will always win.

He apparently realizes both that the United States is a giant in global trade, and that when unfettered by bad policy, U.S. companies will succeed. He even hints at one of those bad policies and says that it should be repealed. I agree. As I wrote:

…the U.S. will continue to trade with Russia under its current terms because U.S. policymakers have failed to resolve the real sticking point in Russian trade: the Jackson-Vanik Amendment. Despite brokering broad-scale bilateral agreements on market access and garnering small-scale compromises on auto parts, meat exports, and intellectual property, U.S. policymakers are rejecting Russia’s moves to open markets to U.S. producers, placing the U.S. at a competitive disadvantage … U.S. exporters will have substantially more items taxed at substantially higher rates than the rest of the world when Russia becomes part of the WTO … If we wish Russia to become more free market, we must offer them the opportunity to compete in free markets. Barring market access through trade barriers, particularly when the rest of the world embraces Russian trade, is counterproductive and denies the benefits of trade both to U.S. citizens and to Russians vying for more freedom.

But more often, his trade policy is confused and protectionist. Obama has proposed plans to engage in industrial targeting as a means of bolstering U.S. exports and creating jobs. But as Solyndra should remind us, and as AEI’s Matt Jensen notes today:

Globalized supply chains make the hard task of picking industries to support near impossible. Industrial clusters are becoming less prominent and less valuable. As business coordination costs fall due to improved communication technologies, the sub industries, like the manufacture of parts and components, are separating geographically from the headquarters, R&D, and distribution. A hollowed-out industry is not worth as large of a subsidy, and the proper industries to target will be harder to identify.

What’s more, as industries break down into their sub-industries, it is more likely that a new firm will play a larger role in a sub-industry. Specialized workers and inputs will cluster around that firm, and knowledge spillovers will begin to occur across departments. While no bank is big enough to move an entire industry to a more efficient location, it might be able to move a sub-industry. Where capital markets work, governments should not meddle.

No one can predict the future. The next communication or transportation revolutions will likely change the world as much as the internet revolution has, and policy-makers should not waste money predicting which industries will be valuable, and which will still cluster.

Americans don’t need help succeeding; they need the freedom to compete. If Obama wants to create jobs and boost exports, he should put his money where his mouth is: level the playing field and rely on American productivity and ingenuity to win.

One thought on “Obama’s confusion over American excellence

  1. What is it that makes American workers “the most productive on Earth”? Does Obama think that Americans are more industrious than people who do 60 hours a week for less than a dollar an hour? Does he think that Americans are smarter than people in other countries, even though students in about 20 other nations rank higher than American kids? Is there some element of culture or policy that’s impossible for other nations to copy? Maybe he’s counting on magic – “God bless America, to the exclusion of all other nations”.

    A little later in the SOTU speech, Obama bemoaned China’s disrespect for intellectual property. Long patent and copyright terms are some of the most anti-business, anti-freedom regulations there are! They shut down innovators and dynamic new business for the benefit of a few dinosaurs and an army of lawyers. Talk about a barrier to market entry.

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