Made in America?

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Consider President Barack Obama’s three favorite words: Made in America — words which he hopes will help propel him to a second term in the White House, come Nov. 6. While the politics of economic patriotism may play well in certain parts of the American heartland, the fundamental economics are a different story. Thanks to complex global supply chains, labels like Made in America, Made in China, or Mexico, or wherever, have become increasingly misleading. Obama is hardly the only politician not to recognize the fundamental economic fact of modern manufacturing life: that workers who make things in the United States couldn’t do so without access to key raw materials and component parts found outside U.S. borders. But if the president’s Republican opponents catch on to the game — which may be possible, if the economically literate Mitt Romney wins the GOP nomination — Obama could end up looking like a man whose economics learning curve remains steep.

Nobody raised questions about the president’s economic literacy last week, when he took his Made in America campaign theme on the road. On Feb. 15, Obama addressed an enthusiastic crowd including some 400 members of the United Auto Workers union who make padlocks for Master Lock. Co. in one of Milwaukee’s most blighted neighborhoods. In his State of the Union address last month, the president had praised the 91-year-old iconic Master Lock — well-known for its Super Bowl commercials showing a tough lock withstanding a bullet — for having moved about 100 jobs back to Milwaukee from China. In Milwaukee last Wednesday, Obama drew cheers when he declared, “It’s time to stop rewarding companies that ship jobs overseas, and start rewarding companies that are creating jobs right here in the United States of America.” Two days later, Obama flew to Boeing’s plant in Everett, Washington, where he boasted that “the world’s most advanced commercial airplane” is made, referring to the new 787 Dreamliner. “And companies like Boeing,” the president added, “are realizing that even when we can’t make things cheaper than China, we can make things better. That’s how we’re going to compete globally.”

When smaller concerns like Master Lock create new jobs, not in China, but in the U.S., Obama explained, the economic benefits extend beyond the corporate bottom lines. “[I]t’s also good up and down the supply chain, because if you’re making this stuff here, that means that there are producers and suppliers in and around the area who have a better chance of selling stuff here.” And when Boeing makes its Dreamliners in Washington State, the entire U.S. economy gets a boost, thanks to “nearly 11,000 small, medium and large supplier businesses,” Obama added. “Boeing has suppliers in all 50 states, providing goods and services like the airplane’s ground-breaking carbon fiber composite aircraft structure from Kansas, advanced jet engines from Ohio, wing components from Oklahoma, and revolutionary electrochromic windows from Alabama.”

To hear the president, the American economy is a self-sufficient island, where the most productive workers in the world make things to sell to envious foreigners. But in today’s world of complex international supply chains, the operating economic realities have left such traditional political rhetoric behind.

To see why, let’s first look at what could be called the political economy of Milwaukee. Continue reading →

Obama’s “21st Century” Trade Policies

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The main themes of President Barack Obama’s international-trade strategy for the November 6 presidential election are now fully established. It’s all about the 21st Century, where the buzzwords are American jobs, U.S. exports, and more American jobs. He doesn’t want America known for “buying stuff from other nations,” Obama told representatives from a dozen-plus corporate luminaries including Ford Motor Co. and Intel Corp. who assembled in the East Room of the White House on Jan. 11. “I want us to be known for making and selling products all over the world stamped with three proud words: ‘Made in America.'”

If economists would immediately retort that the president’s language was the stuff of 17th and 18th century mercantilism, practicing politicians could shoot back that hey, campaigns are not academic seminars. In that vein, the nation’s Politician in Chief furthered his plea for economic nationalism in his Jan. 24 State of the Union address, where he asked Congress to help him give tax breaks aiming at bringing back lost manufacturing jobs to US shores. More broadly, Obama will be vigorously asserting that on his watch, he has succeeded in restoring America’s traditional claims to international economic leadership. Toward that end, he will ignore his lack of focus on what should have been top priority — the truly big-money stakes involved with the World Trade Organization’s Doha Round of multilateral trade liberalization talks, which the White House has helped kill. Instead, Obama will keep touting how he managed to obtain congressional passage of three small-by-comparison trade pacts last year— with South Korea, Colombia, and Panama — that had been negotiated by predecessor George W. Bush, but had become trapped in Washington’s gridlock. Obama has also positioned himself as an an advocate of government efficiency: a reformer who is fighting for lean-and-efficient bureaucracies, pitted against an entrenched Congress and corporate lobbyists. And looking to a second term in office, Obama will advertise his focus on forging deeper ties with dynamic, forward-looking Asian-Pacific economies in a region which he asserts Bush had neglected (and which conveniently encircles China, a trading partner that the president misses no opportunity to say doesn’t “play by the rules”).

The forward-looking Asia-Pacific part of the Obama campaign strategy was clearly on display before a high-powered audience of Washington insiders who packed a conference room on K Street the morning of Jan. 4 at an event organized by the respected bipartisan Center for Strategic and International Studies. Keynote speaker Michael Froman, the deputy national security adviser for international and economic affairs, smoothly spoke of US leadership in the so-called Trans-Pacific Partnership negotiations. The TPP negotiations are designed to liberalize trade with promising Asia-Pacific countries including Singapore, New Zealand, Australia, Malaysia and Vietnam, Froman said. After the Obama administration came into office in 2009, the White House had studied the gridlock and “determined that we needed a new, 21st century approach to trade,” Froman said. “When we launched TPP,” the White House top international economic aide added, “we developed entirely new texts that reflected US interests and the competitive realities of the region…we pushed our limits and forced ourselves to try to think a bit outside the box about traditional issues.” US Trade Representative Ron Kirk and his team of trade negotiators, Froman related, “have now led 10 rounds” of TPP negotiations, boasting how in 2010 “we welcomed” emerging tiger-cub economies Malaysia and Vietnam into the trade pact.

But a close examination of what has really happened on the Obama watch strongly suggests that the White House claims to economic leadership in the TPP negotiations should not necessarily be taken at face value. For openers, the United States isn’t even a member of the trade pact. Moreover, the issues that are at the core of the White House negotiating strategy are straight out of an 18th century fascination with the mercantile world of high tariffs. It’s the same old story: sugar, steel, cotton, clothes, shoes, and a few other coddled farm lobbies. Moreover, even a cursory look at Obama’s proposals to “streamline” what he says are inefficient federal trade agencies reveals an absence of policy prescriptions truly aimed at bringing official US trade policies into line with 21st century economic realities.

Here’s the story, beginning with the White House assertions of enlightened 21st century “leadership” in the Asia-Pacific negotiations. Continue reading →

Troubles along the U.S-Canada Border

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It was all smiles on Feb. 4, 2011, when President Barack Obama and Canada’s prime minister, Stephen Harper, met at the White House. We have a “shared vision” to ensure that important border-security and trade issues receive top-level attention at the highest levels in both Washington, D.C. and Ottawa, the two leaders announced in a joint statement. The United States and Canada are “woven together like perhaps no other two countries in the world,” Obama enthused to reporters.

What a contrast with the rampant narcotics- and people smuggling along the the southern U.S.-Mexican border, which has become an open sore. More than $1 billion in goods crosses the 4,000-plus mile border every day. Canada is America’s number one export market. The United States exported more than $204 billion in U.S. goods were exported to Canada in 2009 (compared to $69 billion in U.S. goods exported to China that year), according to the most recent figures released by the Office of the U.S. Trade Representative. And the U.S. is Canada’s top destination, with 2009 exports of manufactured goods to the United States reaching $225 billion. That amounted to nearly three-quarters of all Canadian goods’ exports. As Harper stressed at the Feb. White House press conference, “We are true friends.”

But my, how the closest of friends can sometimes treat each other. Behind the smiles, there are awkward tensions over trade, and also very troublesome security issues along the U.S.-Canada border that Obama and Harper prefer to gloss over. This article focuses on three otherwise unrelated controversies that go beyond the normal tit-for-tat spats that inevitably crop up between even between the closest friendly nations. First, even though the U.S. enjoys its own preferential trade agreement with Canada (the North American Free Trade Agreement), the Obama White House has worked behind the scenes in the ongoing Trans-Pacific Partnership negotiations to exclude the Canadians from preferential access to other lucrative markets in Asia — a game that Ottawa also knows how play. Second, since 9/11 there have been increasing complaints from American importers and Canadian exporters over overly-stringent U.S. border controls that threaten jobs on both sides of the border. While the complaints began when George W. Bush sat in the Oval Office, they are intensifying in this third year of the Obama presidency.

But by far the most serious concerns involve organized criminal activities along one particular 12-mile stretch of the U.S.-Canada border that runs through 28,000 acres of the sovereign Akwesasne Mohawk Indian Territory. On the New York side, the Mohawks are in the United States; the northern part of the reservation is in parts of Ontario and Quebec. To evade high Canadian taxes on cigarettes, contraband cancer sticks are smuggled into Canada through this 12-mile hole in the border. Some come up from U.S. tobacco states like the Carolinas, but mostly the illegal smokes seem to come from factories right on the reservation itself. Beyond cigarettes, much of the ecstasy that floods the streets of New York and other East Coast cities also flows through the same smuggling routes. So much, that Canada has become the number one U.S. supplier of ecstasy, according to official reports. In return, American gangs such as Hell’s Angels have become Canada’s top supplier of cocaine, along with assault weapons. Asian triads and Eastern European mafias also look to this border hole to smuggle in drugs, prostitutes and other illegal aliens. While this is bad enough, it gets even worse. Terrorist organizations like Al-Qaeda and Hezbollah are also known to be familiar with the Akwesasne smuggling routes. The risk of terrorist activities is “high,” as a recent investigation by the Government Accountability Office noted.

To be sure, U.S.-and Canadian law enforcement and intelligence officials are trying as best they can to manage the mess. But evidence of strong leadership at the highest political levels is scanty at best. Despite their glowing assurances to the contrary that were uttered at the White House two months ago, it does not appear that either Obama or Harper is really focused on what it would take to plug the 12-mile hole in the border. Their biggest mutual failure: Neither leader has thought to reach out to help empower the sovereign Indian communities themselves to come up with a realistic plan to shut down the illegal activities, and replace them with viable economic alternatives.

Here’s what’s going on — and not going on.

Continue reading →