Is Herman Cain Any Good on Trade? You Try and Figure it Out
By Ian Fletcher
Maybe Herman Cain, the latest boomlet in the Republican presidential race, will be elected president. Or maybe his fifteen minutes of fame have just arrived.
Either way, it behooves us to see what he thinks about America's trade mess.
There are some encouraging signs. For a start, here's what he wrote in his column about China earlier this year:
China's economic dominance would represent a national security threat to the USA, and possibly to the rest of the world.
Look at the facts. China has a billion more people than we do. They aspire to have a greater military might than we do. They currently hold over 25 percent of our national debt. And they have a different view of human rights and how to maintain peace in the world.
It would be na´ve to think that China would not be tempted to flex its worldly might if it were bigger than us economically and militarily. And it would be equally na´ve to think we could influence their actions on currency or anything else with diplomacy or two verses of Kumbaya.
Appeasement is not a strategy. As Ronald Reagan proved, strength is the strategy. Both the Bush and Obama administrations have shown that appeasement just buys the Chinese more time to talk until they can equal us in size and might.
So far, so good. He seems way beyond the "let's all hold hands and do business together" nonsense that the Obama administration, and half his Republican rivals (notable exceptions being Mitt Romney, maybe, and Buddy Roemer, for sure) believe in.
But keep reading, because there's a problem. He goes on to say:
Our China strategy should be two simple words. Outgrow them!
There is no doubt that we can outgrow China, but right now we lack the leadership with the courage to propose and implement aggressive economic growth strategies.
Now with all due respect to Mr. Cain and our beloved U.S. economy, this is preposterous.
China has been averaging growth nearing 10 percent a year for three decades now. The U.S. has never grown that fast, ever, except for exceptional periods like 1941 to 1945, when we ramped our economy out of Depression by the brute force of military spending.
Even in our own glory days of the late 19thcentury, when we were the new industrial big boy on the block, our economy didn't grow that fast. We grew faster than the 1-3 percent we expect today, but not as fast as China is growing now.
The basic reality is that China grows as fast as it does mainly because it is a developing country that can grow simply by catching up to the technological standards of the already-developed nations. Every time someone in China moves from toiling in a medieval rice paddy to working in a modern factory, their output doubles. Every time someone in China is the first member of their family to go to college, their output goes up.
But 99% of the U.S. population is already living in the modern world economically, so these easy gains aren't an option for us.
Every other developed nation is in the same boat. This is why Germany's growth slowed after the Wirtschaftswunder ("economic miracle") of the 1950s and 1960s, when the nation was recovering from the economic primitiveness imposed by the B-17. It's why Japan's growth slowed after about 1990. And it's why even China's growth will slow one day.
There's absolutely no mystery here, and it's dangerous nonsense to imagine that the U.S. could somehow match China's growth rate if only we tuned our economic engine a bit better. Sure, we can do better than we're currently doing. But matching Chinese growth is a fool's errand.
So why does Herman Cain want to try? Reading a little further in his column supplies a plausible answer:
We need to lower corporate tax rates, starting with dropping the top rate from 35 percent to 25 percent. We are the only nation on the planet that has not lowered its corporate tax rates in more than 15 years. And people wonder why so many jobs have left the USA. It's not just cheaper labor in more business-friendly nations. It's also taxes!
We must lower the capital gains tax rate to zero. Suspend taxes on repatriated foreign profits. Give every worker in America a 6.2 percent raise and every business a cost break by suspending the payroll tax for a year. Then! Make the tax rates permanent until they are lowered again in the future to remove this veil of uncertainty hanging over our economy.
Yes, these are aggressive proposals. It's going to take aggressive leadership in the White House to get it done. It won't be easy. But I don't avoid doing what's right just because it's going to be difficult to achieve. That's not in my DNA.
We can outgrow China because the USA is not a loser nation. We just need a winner in the White House.
Aha! So it's all really a pitch for lower corporate and capital gains taxes! Supposedly, if we cut taxes enough (and perhaps, to be fair, do a few other things he doesn't mention here), we can outgrow China.
Sorry, but this is delusional. If Cain really means it, we are in economic Dr. Strangelove territory here.
Granted, America needs reasonable tax rates to prosper. Excessive taxation is an economic drag, and Republicans are entitled to embrace a Republican definition of what "excessive" is. But the idea that we can tax-cut our way to double-digit compound growth is absurd, and peddling this nonsense to push corporate tax cuts is either extremely cynical or an insult to the intelligence of the American voter.
Now let's look at what Cain has said specifically about trade. He has reportedly said:
Uncle Sam has got to stop being Uncle Sucker. We don't need "free trade" where other countries get rich at our expense, but "fair trade" where everyone plays by the same rules and everyone benefits.
Hmm... This sounds good, but we've still got a number of problems here.
For a start, he says he's against free trade. That's good. But "fair" trade where nations behave according to "the same rules" is a bit of a problem-for the simple reason that it's extremely unlikely to happen with nations that view trade as adversarial and don't share our conceptions of fairness.
Who's going to decide what's fair and enforce it on a nuclear power with three trillion dollars in its bank account?
The standard answer here is "the WTO." But we tried that. The whole history of the WTO since its founding in 1995 is one long object lesson in the impossibility of global free trade based on shared rules of fairness.
Far better to demand of our trading partners something like reciprocity, which is an arithmetical concept independent of political culture or shared values. Even the Soviets understood reciprocity when it was backed up with credible power.
Cain exhibited the same frustrating mix of sense and nonsense in an interview at the Conservative Political Action Conference:
Interviewer: On free trade, do you support NAFTA, do you support CAFTA, do you support these free trade agreements? Where do you stand on trade?*
Herman Cain: There are parts of NAFTA and CAFTA that I support, but I am sure that there are parts that I don't support, so I can't give you a specific answer. Basically though, I do support free trade agreements that are done correctly, where we don't give away more than we gain.
And the reason is because we truly are in a global economy. It doesn't make sense to be protectionist in a global economy the way we have.
Secondly, the fact that we've lost so many jobs to other countries... One of the ways to help with jobs in our own economy is to have good free trade agreements with our friends. Not these one-sided ones, but good trade agreements with other countries around the world.
So, bottom line, where does Herman Cain stand? I honestly can't tell, because there's enough wiggle room in the above statements to drive a container ship through.
If interpreted the right way, they constitute a formula for serious reform of NAFTA and our other trade agreements. Cain seems to understand, for one thing, that mutual gains from freer trade are not automatic, but depend on successful U.S. negotiating.
If interpreted the wrong way, they constitute an Obama-style formula for pretending to be serious about trade reform while not being so.
I'm especially worried about that line about we can't be protectionist because we're in a global economy. The fact of a globalized economy doesn't, on its own, settle anything about protectionism vs. free trade.
Mr. Cain, you're showing a few signs of promise on this issue, but also a lot of signs that give pause. Speak up, and let us all know where you really stand.
Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America's trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn't Work: What Should Replace It and Why.
* The views of Opinion writers do not necessarily reflect the views of NewsBlaze
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