U.S. Trade Policy and Declining Manufacturing: Where do we go from here?

U.S. Trade Policy and Declining Manufacturing: Where				never exceeded a three-to-one ratio. U.S. imports
do we go from here?				from China exceed exports by five times.
Paul Crist, August 14, 2010				The Chinese government has also been remarkably
The U.S. economy and the manufacturing sector in				good at using pilot projects to speed development,
particular, face both short-term and long-term				and this, too has benefited its export industries.
challenges. There is debate about whether				China is able to try laws and policies out in one city
government can or should play a role in addressing				or to invest in an innovative manufacturing process in
those challenges, and if so, what are the fiscal,				one place, and then pick what works for promotion
industrial, regulatory, and trade policies that would				elsewhere (often called "picking winners"). Few
benefit the stakeholders, which essentially include all				other political systems work in that way, but in China
U.S. citizens in one way or another.				it is very easy to do. It has led to uneven
I should acknowledge at the outset a bias toward				development across China, but has allowed for rapid
thoughtfully considered government interventions to				development and scale up from low and medium skill
guide the economy and trade in ways that benefit				manufacturing to now competing globally in
American workers and allow them to participate in				higher-technology sectors.[4]
the gains that accrue from their labor. There are				China is not alone in its effective protectionism and
economic reasons for my bias that have nothing to				use of non-tariff barriers to U.S. exports. Subsidizing
do with either socialist or altruistic impulse. That bias				domestic producers, minimum import pricing,
in no way means that I favor protectionism or a				advertising restrictions, import licensing requirements,
retreat from global trade, or that government				rebates of domestic taxes to exporters, and many
intervention in the economy is always desirable, but				other barriers are added to the more obvious trade
there are, I believe, issues and stakeholders that get				barriers engaged in by many countries. But China is
too little consideration and solutions to structural				the leader in promoting exports and blocking imports,
economic problems that are given short shrift in the				especially in its trade relations with the U.S.
name of conservative ideological orthodoxy.				Returning to the general theme of currency
There is ample evidence that without adequate and				valuations on trade competitiveness, the effects of a
well-designed regulatory intervention in domestic and				global currency architecture that keeps the dollar
global markets, capital and political power tends to				overvalued cannot be overestimated. As long as
migrate upward and become concentrated at the top				the U.S. dollar remains the global reserve currency,
of the economic ladder. We see that phenomenon in				strong demand for dollars will keep the value at a
country after country, most recently in the U.S.				level that makes U.S. exports uncompetitive on global
Concentrated wealth becomes problematic when it				markets. By most measures, the dollar is now at
undermines social cohesion and a sense of shared				least 10% overvalued.
purpose.				There are a number of potential ways to address
The wealth/income gap is at the core of social and				exchange rates that negatively affect U.S.
political stress and instability in most developing				manufacturing (both over-valuation of the dollar and
countries, and the U.S. is now experiencing the pangs				volatility). One option would be an orderly shift
of disequilibrium once confined to so-called "poor"				toward a new reserve currency system based on
countries.				the IMF's special drawing rights (SDRs). SDRs are
As inequality increases, it can begin to undermine				denominated in dollars, but the nominal value is based
demand for goods and services. The wealthy may				on a basket of major currencies, including Japanese
consume a great deal, but there are simply not				yen, U.S. dollars, Euros, and British pounds. The
enough of them to maintain aggregate domestic or				concept could be expanded to include other
global demand. Further, at the extreme, even those				currencies, not least the Chinese renminbi. The shift,
at the top may suffer negative economic effects if				implemented over time and in coordination with
insufficient demand results in their capital being				international partners, would be a positive long-term
inefficiently allocated to producing goods and				solution to excess global demand for U.S. dollars.
services, assuming international markets are not				Such a shift would necessarily be measured and not
soaking up domestic demand shortfalls.				without challenges. At present, SDRs make up only
Despite what conventional trade and economic				about 4%of global reserves, and to become the
theories suggest, there are benefits to large				principal reserve asset, the supply would have to
countries in maintaining a diverse economic base that				grow tremendously, to about $3 trillion. The IMF
includes a broad manufacturing sector. Not				would have to take on the characteristics of a world
everyone in a large country is suited to higher				central bank, which is sure to be controversial,
education and high-skill employment. The				especially in the U.S., which has veto power over
alternatives for non-college-educated workers ought				SDR issuances, and will not be anxious to relinquish
to go beyond low-paid service sector jobs.				the prestige associated with the dollar as reserve
Comparative advantage theory may be great on				currency.
paper, but societies have more complex goals that				Another option would be for the U.S. to adopt a
trade theory alone cannot address.				more coordinated approach to exchange rate policy
Comparative advantage may also have lost some of				involving target zones, but retaliation by trading
its relevance in a highly globalized world where the				partners, intent on maintaining exchange rate
factors of production, labor, capital, goods, services,				advantage over the dollar might result in uncontrolled
and information can cross national borders quickly and				growth of money supply in multiple countries, kicking
easily.				off an unacceptable period of high global inflation.
There are always losers and winners when countries				A tax on all cross-border currency flows would help
move toward free trade. That part of the theory				dampen speculative currency movements, and could
seems enduring. But decades of evidence				have the additional advantage of raising much-needed
worldwide make clear that the political will to				funds for global health and development initiatives.
compensate the losers rarely if ever exists, despite				Such a tax would not be precluded by a move to an
the fact that the gains to the winners are more than				SDR-type reserve currency.
adequate to do so. Most economists acknowledge				Fundamentally, the time has come to ask if there is a
that trade has played a significant role in the				net benefit to the U.S. of having the dollar as the
increasing income inequality which has characterized				global reserve currency. We have to consider
the past two decades in the U.S.				whether there are longer-term benefits to rebuilding
Increasing "financialization,"[1] accompanied by				a domestic manufacturing/industrial base and creating
declining industrial output in large, mature empire				job growth in low- and mid-skill economic sectors that
economies has also, I believe, played a historical role				is being impeded by an overvalued dollar.
in their decline.				The McKinsey Global Institute (MGI) recently released
So there are political and economic factors that				a study examining the costs and benefits to the U.S.
support arguments for thoughtful trade management				economy of the dollar as reserve currency. They
and interventions, in order to preserve economic				found that the net financial benefit was between $40
sustainability, diversity, and an efficient distribution of				billion and $70 billion—or 0.3% to 0.5% of U.S. GDP.
income and wealth that enhances a well-functioning				In the first half of 2009, the dollar appreciated by
capitalist system.				about 10% due to its safe-haven role, and the
Finally, my firm opinion is that global trade, as				cost-benefit became less positive to mildly negative.
practiced today, inadequately accounts for the power				The estimated range was between a net benefit of
of large, multinational corporations whose allegiance is				$25 billion and a net cost of $5 billion.
to shareholders (the owners of capital) regardless of				The as the global reserve currency, U.S. is able to
where the headquarters office is domiciled. U.S.				raise capital more cheaply owing to large purchases
trade in particular is characterized by labor and				of U.S. Treasury securities by foreign governments
environmental arbitrage by U.S.-based multinationals				and government agencies. Those purchases have
with no real national allegiance. Political leaders who				reduced the U.S. borrowing rate over the past few
routinely support globalization without questioning the				years and are worth about $90 billion to the U.S. But
motives of multinational players are either corrupted				without a yawning trade deficit, and with
by their influence, or insufficiently versed in the				re-development of a vibrant manufacturing sector, it
current realities of international trade flows between				is likely that U.S. international borrowing needs could
the U.S. and its major trading partners.				be reduced by more than the estimated net financial
On the question of government intervention in the				benefit.
economy, I take issue with so-called "free market				So long as the dollar remains the reserve currency, it
conservatives"[2] who oppose what they see as				will be a magnet for official reserves and for global
government meddling in private sector investment,				liquid assets, keeping it overvalued by between 5%
production, and decision making. "Free market" and				and 10% according to MGI researchers. And that
small government ideology has dominated American				means that U.S. exports cost more on world markets
policy for a generation. The resulted has been a				while imports are too cheap in U.S. domestic markets.
broad retreat from worker and environmental				That has a short-term benefit for consumers, but
protections and benefits; an enormous increase in the				represents a long term detriment for U.S.-based
income gap; disastrous consequences in the financial				manufacturing, and for the U.S. fiscal position.
sector that plunged the world into the worst				U.S. policymakers therefore need to ask, "Is it more
economic recession since the 1930's; and a less				important to the U.S. economy, and to U.S.
diverse and more fragile economy than we had in the				manufacturers and workers, to be able to borrow
postwar era.				cheaply, or to compete on world markets and create
Domestic industrial production and employment has				jobs?" MGI estimates that exporters and
continued a long decline, even as industrial sector				manufacturers are losing about $100 billion per year,
deregulation accelerated and unionization plummeted.				and that employment in these sectors is reduced by
Deregulation and lax oversight of the financial sector				nearly a million jobs.
contributed to financialization of the U.S. economy in				The Europeans seem to recognize the long-term
recent years. The development and trade in complex				downside of their currency becoming an alternative
financial instruments helped the financial sector grow				or secondary reserve currency. In a November 2009
substantially as a percentage of GDP.[3] And in due				interview with Le Monde, European Central Bank
course, the casino mentality on Wall Street, combined				president Jean-Claude Trichet said that the euro was
with monetary and housing sector policies that were				"not designed to be a global reserve currency."
furiously trying to prop up consumer spending as				Some economists see the renminbi as eventually
wage growth stagnated, resulted in the current deep				supplanting the dollar as the global reserve currency,
economic downturn.				but that is unlikely to happen for many years,
There is an inadequate sense of urgency to seek				perhaps not before 2050. The renminbi is now plays
equitable solutions to the structural problems				only a minor role in international exchange, owing to
confronting the U.S. economy. The gutting and				liquidity and convertibility issues. If it were to play a
outsourcing of regulatory oversight in many U.S.				larger role, it would appreciate, undercutting China's
economic sectors led to environmental degradation				export-led growth policy.
and worker exploitation (both of which have				If the world's two main reserve currency issuers
long-term costs not apparent on annual corporate				increasingly see little national economic benefit to
balance sheets). A broken immigration policy has				continuing that role, the time has come for a global
served the economic interests of politically influential				summit to find an innovative solution such as
business sectors while sewing social, economic, and				adoption of SDR as a reserve currency. Failure to
cultural divisions. Tax, monetary, and trade policies				do so will result in a period in which an unmanageable
have favored the richest and most politically powerful				global financial system is characterized by volatility
Americans, exacerbating the growing income and				and speculative capital flows. Such a period would be
wealth gaps while putting middle class workers under				extremely difficult for businesses and national
increasing pressure (and this has in turn put more				economies, with exchange rates frequently out of
price pressure on multinational firms, forcing them to				line with economic fundamentals. American workers
be peripatetic searchers of ever-cheaper labor, and				will likely bear the brunt of global currency instability
further exacerbated already large trade imbalances).				as credit becomes increasingly dear and business
Political posturing on all these issues must give way				activity further contracts.
to unified, strong leadership.				Policy Prescriptions to Rebalance Global Trade
Given this extensive list of complex economic and				Trade deficits, gains from trade, and exchange rate
trade issues, what are the policy prescriptions that				fluctuations only matter insofar as they affect real
might best revitalize American capitalism? All of				people, positively or negatively. U.S. workers have
these issues are deeply interrelated, and it would				paid a steep price for U.S. globalization policies, while
take a book to adequately deal with all of the				multinational businesses have been big winners.
important questions. But it is possible to identify a				Thus, new approaches should be based on an
few specific areas where change could have				analysis of how past and current approaches have
profound and lasting positive effects.				failed U.S. workers. The outsize influence of
				business interests in trade policymaking bears
U.S. Trade Policies Have Failed American Workers and				significant responsibility. It is no coincidence that the
Led to Structural Imbalances in the Economy				Dow Jones Industrial Average of stock prices for the
Trade policy and trade agreements are rightly a				largest U.S. firms soared from the mid 1980's to
prime target for criticism: manufacturing competition				2000, as global trade flows dramatically increased.
from low-wage, low-regulation countries is unfair to				Even since 2000, and despite high volatility and the
U.S. workers, exploitive of foreign workers and labor				financial crisis that began in late 2008, stock prices
migrants, and injurious to the global and local				have held up remarkably well and corporate profits in
environment.				2010 are at record levels while wages remain
Solutions to reviving the U.S. economy in ways that				depressed and unemployment is unacceptably high.
benefit working Americans and stimulate				U.S. multinational corporations have clearly prospered
environmentally benign industrial production involve				under the current global trade regime.
more than trade policy, but trade policy has played a				U.S. trade policymaking has long been dominated by a
central role in creating the problems we now face,				powerful center-right coalition of corporate business
and a refocusing of trade policies can also play a				interests. Republican business conservatives,
central role in renewal.				supported by center-right Democrats have ensured
Growing trade deficits since the 1980's have been				that investor rights have received top priority, while
associated with declining real wages, especially for				workers, consumers protections, and the
non-college educated Americans that make up nearly				environment have been largely ignored. Through
2/3 of the workforce. Manufacturing sector workers				trade agreements like NAFTA, and WTO rulemaking,
have been shifting to lower-wage service sector				U.S. firms have been provided tremendous support
jobs, in retail, healthcare, and other low-skilled				for outsourcing labor abroad.
services as manufacturing jobs migrated overseas.				Just one example of how this has played out for U.S.
To keep consumer demand buoyant as wages				manufacturers: Mexico now exports more vehicles (a
stagnated, ever greater downward pressure was put				high-technology sector) to the U.S. than the U.S.
on prices, driving demands from U.S. multinationals for				exports to the rest of the world. The number one
new bilateral and multilateral agreements that opened				Mexican exporter of vehicles is a U.S. firm: Chrysler.
investment and trade access to low wage, low				US multinationals initially used foreign plants to serve
production cost countries. Initially, production				foreign markets, but over time, that has changed.
offshoring was confined to low-skill, low technology				Now those foreign plants largely serve the US
sectors, but over time, more technology intensive				market. U.S. firms export intermediary goods for
manufacturing has followed the march overseas.				assembly abroad, and re-import value-added finished
Of the top eight trade deficit industries, the second				goods in a purely labor arbitrage arrangement.
largest deficit after oil & natural gas is in motor				Trade agreements have promoted multinational
vehicles and parts, which is not a low-technology				business interests in many ways, including through
industry by most measures. There are also large				limits on trade related investment measures,[5]
deficits in computers, office machines and parts; in				intellectual property rights enforcement with binding
steel and alloys; and in televisions and other electronic				dispute settlement mechanisms, and by bringing
equipment. Only three of the top eight trade deficit				services trade into the WTO.
industries (apparel, leather goods, and toys) are in				These and other business-favored trade rules have
categories usually considered by economists to be				fostered tremendous growth in foreign investment
low-technology.				that has accelerated the impact of trade on workers
Meanwhile, the total surpluses produced in our top				throughout the developed and developing worlds.
eight net surplus industries have on average				Globalization has also allowed U.S. multinationals to
amounted to less than half of the deficits of the top				escape regulatory systems that were implemented
eight net deficit industries in recent years. And while				after the 1930's. Those systems brought stability,
most of our top eight surplus industries involve high				environmental protections, and broadly shared
technology production, three are in the (sometimes				prosperity in the U.S. and to a lesser extent globally.
subsidized) commodity sector: agricultural grains, meat				As globalization has proceeded, economic competition
packing products, and cigarettes. These sectors do				has become a race to the bottom in environmental
not generate many high-wage jobs.				protection, wages and labor standards, and consumer
In several of the net surplus industries that do				protections.
involve high technology and high wage production				The time has come to build a new coalition for trade
(aircraft, chemicals, construction machinery, scientific				management that is center-left…giving more
instruments, and engines and turbines) there has not				attention to workers, the environment, and
been sustained growth since the late 1990's. Further,				consumers. Trade management and international
the U.S. is also an importer in all of the high				trade agreements must focus on the following:
technology industries where we manage to maintain				- Priority must be given to a global trade environment
a surplus. Other countries are rapidly expanding their				that fosters a high and rising standard of living for all
capabilities in these sectors. How long will the U.S.				Americans, and for working people around the world.
maintain surpluses even in high technology production				A domestic manufacturing base is an essential
without fundamental changes in policy?				component of a diverse economy that achieves
The scale up in foreign countries of auto, aerospace,				broadly shared high living standards. This is true for all
energy, biotechnology, and other high technology				countries, but the U.S., after decades of
industries provide evidence of longer-term workforce				manufacturing-sector decline, should make this the
benefits to maintaining low and medium-skilled				top priority.
manufacturing jobs. At least some of those				- Domestic tax policies and a domestic industrial policy
workers will, over time, acquire the skill and training				aimed at manufacturing jobs creation must be a part
required for higher-skilled manufacturing jobs and				of this new approach. Most national governments
engineering innovation.				intervene to affect the structure of national
Highly productive human capital is the result of many				economies and affect outcomes. The U.S. has a
things, including an effective education system, good				long professed opposition to market interventions by
public health, and continuing skills development…the				government, but in fact, U.S. policies intervene in
benefits usually associated with economic				many ways, often benefitting the interests of
development. Thus, it may be no coincidence that				influential multinational businesses. Active and
even U.S. manufacturers in high technology sectors				coherent intervention, with input from management,
are increasingly relying on imported labor to meet U.S.				labor, political leaders, and others, should be brought
based manufacturing workforce needs. After all,				to bear in the promotion of specific industries in
we've been exporting the low and medium skilled				which high-wage jobs can be fostered and where the
jobs that are the training ground required to meet				U.S. can compete internationally on a more level
the workforce demands of our own high technology				playing field. Attention should also be given to
sectors. And immigrant workers, even highly skilled,				easing the challenges faced by workers, firms, and
are often willing to work for lower wages in return				communities affected by structural economic change.
for U.S. employment.				- Chronic U.S. trade deficits must be addressed,
Globalization has accomplished the goal of lower				particularly deficits related to trade with China, Japan,
consumer prices, but the long-term economic				Mexico, and Europe. Trade deficits are the effect
consequences of cheap imports and stagnant				of policies that have encouraged the offshoring of
domestic wages in an increasingly service-oriented				U.S. manufacturing and negatively affected U.S.
economy has begun to become clear. When wages				workers. The structural causes of these deficits
eventually fail to sufficiently support domestic				vary among trading partners, and the solutions will
consumption, even in the face of cheaper prices,				vary somewhat in each case.
economic contraction is inevitable. Consumers can				- The deficit with Europe is mostly a factor of slow
only use the equity in their homes as an ATM for so				growth on the continent that will have to be dealt
long. And if exchange rates and trade agreements				with mainly by European leaders.
hamper exports, the contraction in consumption				- The problems with China and Japan are more
coupled with trade deficits present a complex				complex, and involve exchange rate manipulation
dilemma for policymakers.				(addressed earlier… consideration should be given to
To be sure, America has enjoyed substantial				adoption of a new global currency reserve regime
aggregate gains from growing trade. Overall, U.S.				based on the IMF SDR model); and systematic
GDP growth has been moderate to strong right				discrimination against U.S. imports (negotiations should
through mid 2008. And it may yet resume post				work to remove non-tariff barriers, using a carrot
recession. But the benefits of that growth have not				and stick approach).
been shared with American workers, and the current				- The deficit with Mexico stems from wage and
downturn has exposed deep structural challenges to				consumer demand differentials, and proximity to the
our economy.				U.S. market. A regional "Marshall Plan" to assist
The time has come to re-think our approach to global				economic development in Mexico and the Western
trade and the economy on many levels. In some				Hemisphere is long overdue. Economic development
cases, renegotiation of key portions of existing				and poverty reduction in Latin America would address
agreements is called for. Fortunately, growing				the twin problems of resistance to labor and
political pressure for change is limiting further				environmental standards, and over-reliance on U.S.
expansion of trade policies that have cost an				consumers as the market of first and last resort.[6]
estimated 1 million manufacturing jobs during the past				The U.S., in coordination with other advanced
decade. There is an emerging consensus that the				economies, must gradually reduce the value of the
U.S. needs to take definitive steps to rebuild a				dollar. As noted earlier, the surest, most sustainable
domestic manufacturing base, to address the				way to do this is to gradually replace the dollar as
problem of wage disparities, and to take steps to				the world's reserve currency.
level the global trade playing field.				Advanced economies must develop new incentives
				for developing countries to raise labor and
Exchange Rates, Trade Barriers, and the Dollar as				environmental standards, and to adopt alternatives to
Global Reserve Currency				export-led growth. Too many countries are
Exacerbating the challenges resulting from U.S. trade				competing for access to the only open market in the
policies of the past several decades are complex				world, and the U.S. can no longer afford to be the
trade barriers, export-led growth policies among key				market of first and last resort.
U.S. trading partners, and a global currency				For the global marketplace to benefit the broadest
architecture that is unfavorable to U.S. exports.				possible number of stakeholders, cooperation and
There is little argument among economists that China				coordination among global policymakers, business, and
manages renminbi exchange rates to promote				workers is essential. The genie is out of the bottle,
exports and limit imports. But exchange rate				so to speak, and retreat from globalization is neither
controls are just one of many forms of non-tariff				an option nor desirable. The market has outgrown
barriers to imports and export-led growth policies				the bounds of the domestic regulatory state in
pursued by China. With China trade accounting for				important ways. Issues that are causing significant
about three-quarters of the total U.S. non-oil goods				frictions, imbalances, and inequities must be resolved
trade deficit, China should be the primary focus for				soon, and the way forward must be based on
U.S. efforts to right trade imbalances. But progress				inclusion and broad participation in decision making,
will not be easy.				implementation, and benefits.
The Chinese government announced recently that it
would allow its currency to fluctuate slightly, but
there is no concrete evidence of progress.
Between the June announcement and August 2010,				[1] Financialization can be defined as an economy that
the currency only appreciated by about 1 percent.				increasingly depends on financial transactions to
Despite lack of progress, the U.S. Treasury				support GDP growth, while manufacturing and
Department declined to designate China as a				industry moves to low-cost overseas markets. The
currency manipulator. With the renminbi undervalued				British Empire in the second half of the 19th century
by as much as 40% according to some analysts, U.S.				is a prime example. London became increasingly a
manufacturers and workers are paying a steep price				financial and trading center, while manufacturing
for Chinese intransigence on this issue.				moved increasingly to the British colonies. By the
A number of bills to deal with Chinese currency				early 20th century, the empire was substantially
manipulation are pending in congress, in the absence				weakened.
of firm action from the Obama administration.				[2] A misnomer, since our economy is by no means
These include the Currency Exchange Rate Oversight				free and unfettered, but is in fact skewed to
Reform Act of 2010 in the Senate (18 cosponsors);				support the owners of capital in subtle and profound
and the Currency Reform for Fair Trade Act in the				ways.
House (133 cosponsors). Both bills are in committee,				[3] Financial sector profits accounted for 25% of all
with passage still uncertain. Many Members consider				corporate profits, even in the recession year of 2009.
trade issues to be under the purview of the				In 2008, finance, insurance, real estate, rental, and
Executive, with Senate ratification of trade				leasing accounted for 21% of the entire private
agreements. But several trade deals remain pending				economy. Some would argue that these percentages
in the Senate, owing to growing anxiety over many				are too high for an economic sector that "doesn't
trade issues including Chinese currency manipulation.				really make anything except money." That may be
The large portfolio of U.S. government securities held				an unfair mischaracterization of the financial sector,
by China complicate the relationship, but for the				but it bears considering what percentage of the
foreseeable future, China will rely on access to U.S.				economy we think ought to be centered on finance
markets as much (and perhaps more) as the U.S.				and financial services.
relies on China to buy U.S. debt. The relationship is				[4] "Picking winners" has long been opposed by U.S.
not as asymmetrical as some fear. Chinese leaders				political leaders, who believe that the market can
have their own challenges with development, and rely				better allocate resources to the most competitive
on high rates of economic growth to maintain political				technology innovations, but there is evidence that in
support.				capital-intensive, high technology industries, it can lead
Chinese government control over economic				to long-term economic benefits. The European
resources and activities, particularly in the banking				aerospace consortium that builds Airbus commercial
sector, have also helped China to pursue and				airliners grew from a conscious decision to enter the
export-led growth strategy. Where a banking				market and subsidize the industry until it became
system is controlled or heavily directed by the state,				profitable.
national savings can be assembled and funneled into				[5] The measures adopted by governments to
development and infrastructure that either directly or				attract and regulate foreign investment, including
indirectly supports an export led national policy.				fiscal incentives, tax rebates and the provision of land
China is not the first country to pursue growth using				and other services on preferential terms. In addition,
government control over banking and financial				governments impose conditions to encourage or
decision making. Germany pioneered the model in				compel the use of investment according to certain
the late 19th century, and many of the East Asian				national priorities. Local content requirements, which
countries have done the same thing in the 20th				require the investor to undertake to utilize a certain
century. Over time, these other countries decided				amount of local inputs in production, are an example
they needed to move beyond that model in order to				of such conditions. Export performance requirements
promote economic diversification, and China may yet				are another example; they compel the investor to
follow that same path over time. But for now,				undertake to export a certain proportion of its
government control is an important driver of China's				output. Such conditions, which can have adverse
export led growth policy.				effects on trade, are known as trade-related
Related to, but quite different from, government				investment measures or TRIMs.
control and decision-making is the issue of trade				[6] Such a plan would involve development aid
barriers driven by private sector exclusionary policies				targeting key institutional capacity building, debt relief
toward imports. Japan has its Keiretsu and South				where called for, and would require meeting
Korea has Chaebol. Both are systems of				benchmarks in key social standards. Japan and China
interwoven banking, business, and management				could do the same in Asia, and Africa would need
relationships within different companies or				broad, multilateral assistance. A U.S.-led hemispheric
subsidiaries. These are closed systems that favor				"Marshall Plan" would foster regional integration,
transactions within and between members, keeping				stimulating demand for high-wage, high-skilled exports
outsiders out even when outside players are				from North America, which can be used to help the
competitive. Chinese private-sector business				rest of the hemisphere grow develop more rapidly.
practices and trade policies, in many ways, are				U.S. policy must foster global growth, because slow
modeled on those of Japan and South Korea. But at				global growth will pull imports to the U.S. while
its most extreme, the U.S.-Japan trade imbalance				reducing demand for U.S. exports.

Global Trade

U.S. Trade Policy and Declining Manufacturing: Where do we go from here?