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Current Trade Deficit:    
Obama's Trade Fantasyland: Lack of Exports to Mercantilist East Asia Is America's Fault
Alan Tonelson
Thursday, November 26, 2009
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Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).
Sarah Palin has drawn howls of derision from sectors of the commentariat for remarks like her claim that Alaska’s proximity to Russia gave her “very significant” foreign policy experience as governor of the state.  But after some of his remarks on U.S.-Asia trade this week, much more – and better deserved – criticism should be directed toward President Obama.

Consider his November 23 contention that Asian countries “want our [export] products,” and that American sales to the region are subpar “partly because we just haven't been as aggressive as we need to be.” These remarks rank among the most egregiously inaccurate, manipulative, misleading, and downright whacky statements ever to come out of any recent free trade-loving White House.  

The President’s assessment is all the less excusable because he’s just back from a week-long trip to the region – and apparently learned nothing.  His views, moreover, are all the more disturbing because, unlike Palin, he’s running American economic and trade policy, as well as the rest of the government.

If the Asians really are interested in buying U.S. exports, they have a funny way of showing it.  U.S. goods exports to Pacific Rim countries – the vast majority of total U.S. exports – were indeed up about 75.50 percent from 1998 to 2008, before plunging 24.9 percent on a year-on-year basis so far in 2009.  During the same period, however, U.S. goods exports to the world as a whole grew faster – by 84.31 percent – and their 2009 fall-off was only negligibly greater (25.0 percent).

Asia’s appetite for American products looks even less impressive upon digging below the surface.  After all, the region has been the world’s fastest-growing for years.  Therefore, its purchases of U.S. goods should be increasing considerably faster than those by other countries, not more slowly.

Worse, much of what Asia imports from the United States is not consumed in Asia.  It consists of intermediate goods of various kinds – chiefly parts and components of finished goods – that are further processed and assembled and then often shipped right back to the United States.  The Asian “customers” for these products are Asian factories, many of which are performing work once done in the United States by domestic companies and American workers.  

Another big chunk of Asian imports from the United States consists of capital equipment that builds and equips the factories and infrastructure systems making up the export bases of these export-oriented economies.  So Asian imports from the United States on average do much less to promote American production, growth, and employment than many other foreign purchases of U.S. products.  

Nowhere is this pattern more pronounced than in U.S. trade with China.  American goods exports to the PRC skyrocketed by more than 380 percent between 1998 and 2008, before slumping 14.9 percent on an annual basis so far in 2009.  But throughout this period, the share of China’s economy made up by domestic consumption kept falling, while the shares made up of exports and investment (much of the latter export-oriented), kept rising.  

In other words, many U.S. (and other countries’) exports to China are the type that generate much bigger import flows here – surely one major explanation why the U.S. merchandise trade deficit with China rose just over 375 percent from 1998 to 2008, before falling by roughly 15 percent on an annual basis so far this year.  By contrast, the total U.S. goods trade deficit has plummeted 38.35 percent this year – more than twice as fast.  

Import concentration is another measure of how closed Asian markets remain.  Not surprisingly, an enormous, diverse economy like America’s sells a wide variety of good around the world.  The top five American exports from 2005 through 2008 averaged only between 17.64 percent and 19.44 percent of total U.S. goods exports during that period.  

The figures for U.S. sales to Asia are significantly different.  The top five American goods exports to the Pacific Rim countries averaged between 26.63 and 28.21 percent of all U.S. goods exports between 2005 and 2008.  For Korea and China, American export concentration has been even higher.  For the former, it has ranged from 25.03 percent to 36.14 percent during those years.  For China, the recent range has been 35.68 percent to 40.42 percent.

Look at exactly where American exports are concentrated, and the full meaning of these figures becomes clear.  The top U.S. sellers to Asia consistently are semiconductors, aircraft, aircraft parts, waste and scrap material, basic organic chemicals, and soybeans.  In other words, more than any other region, if Asian countries don’t make or grow something themselves, or don’t want to make or grow it, or can’t make or grow enough, they’ll gladly buy it from Americans.  If they can supply their own needs adequately, they’re clearly much less interested.  

So when these countries become more proficient in high-value sectors like aerospace and microelectronics – in large measure through extorting the technology from gullible multinationals – look for U.S. exports of these goods to stagnate and even dwindle markedly.

For those skeptical of numbers, try these authoritative assessments of Asian market openness, especially in the three major countries visited by Obama, from his own U.S. Trade Representative’s Office.  According to USTR, after making noteworthy progress on this front for a few years after joining the World Trade Organization, “since 2006, China is trending toward a less open trade regime with diverse new measures that signal new restrictions on market access and foreign investment....”  Worse, these new measures come on top of ongoing major Chinese trade barriers, like “the lack of effective [intellectual property rights] enforcement,” “industrial policies that limit market access for non-Chinese origin goods and foreign service providers, and “arbitrary” customs practices that keep out agricultural products.

USTR also sees a similar picture in Japan, where “a number of regulatory and other business environment issues...have served to...hinder access for U.S. products and services....”  These include “many tariff and nontariff barriers against trade in the agricultural sector,” similar obstacles that limit U.S. companies to “far less than 1 percent of projects awarded in Japan’s massive public works market, valued at $163 billion in 2008,” (and this despite Japan’s membership in the WTO government procurement agreement!), and “a variety of nontariff barriers” in the automotive sector.

As for Korea, “particularly high tariffs” block many agricultural imports, “certain standards, technical regulations, and conformity assessment procedures...appear to have a disproportionate effect on imports,” the Korea Development Bank and other government institutions reportedly “have contributed to overcapacity in certain Korean industries and have allowed Korean companies to compete unfairly with U.S. companies,” and high tariffs and “a range of nontariff  barriers” have kept the country’s automotive market slammed shut.

Moreover, Obama could have and should have found these assessments just as easily as the data cited above.  Both come from U.S. government departments in the Executive Branch, which he heads.  In fact, why didn’t trade rep Ron Kirk brief Obama on these Asian barriers contained in USTR’s Latest annual study of trade barriers?  Hadn’t he read the report himself?

Palin’s detractors – who seem quite numerous in the Obama camp – often claim that what drives them batty about her, and largely persuades them that she’s completely unready for prime time, is not simply a background in public policy they consider too skimpy, but also her alleged refusal to acknowledge this limitation.  A few more Obama remarks like the claim that Asian countries “want our products,” and the charge that American producers bear significant blame, should convince many of his countrymen that similar conclusions apply to him.

Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).