Hillary & Obama … Meet The Kansas Tornado, Mr. Matt Fencl
March 25th, 2008
Submitted By: Matt Fencl
Ladies and Gentlemen, with Obama and Clinton still in a neck and neck race for the democratic nomination, I feel there is no better time to discuss their respective policies toward the emerging economic giant, China. Those of you who know me are no doubt perplexed about my choice of topics. After all, I’m one of the few card-carrying Republicans in the Cal Poly MBA program. Wouldn’t it make more sense for me to contrast McCain’s foreign policies to those of a democratic candidate? Well, not necessarily. I’m an opinionated individual and composing an unbiased article comparing the respective Republican and Democratic positions on China would be nearly impossible. However, I have no preference for either Obama or Clinton; disliking them equally makes me completely impartial. Therefore, here’s you chance to hear their positions with no slant added…a rare opportunity in today’s journalism. If you don’t trust me, you’re more than welcome to read Clinton, Obama Ramp Up Their Rhetoric Against China. Hopefully I’ll spark some much needed discussion and help widen the spread in the race for the democratic nomination.
The first thing you’ll notice in comparing the platforms of Obama and Clinton are that there are not any shocking differences between the two. However, on the issue of free trade, some subtle distinctions can be seen.
Both Obama and Clinton contend that the World Trade Organization and the North American Free Trade Agreement have hurt the U.S. by eliminating manufacturing jobs traditionally performed by the middle class. The irony, and a political liability for Hillary, is that her husband was the president that signed the NAFTA pact back in 1993. Earlier this year in Wisconson, where manufacturing jobs are continually being lost, seven out of ten people blame these job losses on free trade agreements like NAFTA. The attitude toward free trade is darkening elsewhere in the United States as the U.S. economy continues to falter. Over 58% of Americans now believe that free trade is hurting the U.S. economy while only 28% of Americans believe it is beneficial. Clearly both Democrats feel an increasing urgency to capture the votes of these disgruntled Americans.
Whether or not free trade is actually hurting the U.S. economy is an entirely different question. There are a variety of different opinions on this, but I’m only concerned here with the fact that most Americans perceive free trade as negatively influencing the economy.
An emerging pattern begins to develop if you look at Clinton and Obama’s solution to this problem. Hillary believes that the solution is pressuring change on China. Notice the absence of domestic policy proposals in this excerpt from one of her speeches:
“Today, China is most obviously the world’s largest and one of its fastest growing economies. It’s become a global superpower that needs to be convinced to play by the rules in the global marketplace. Here again, the Bush administration has failed. One third of our trade deficit is with China and over the course of the last seven years Bush policies have has allowed the Chinese government to become our banker. Today, China’s steel comes here and our jobs go there. We play by the rules and they manipulate their currency. We get tainted fish and lead-laced toys and poisoned pet food in return. That will change when I am in the White House because I know we have got to take a consistent approach towards China.
I’ve co-sponsored legislation to compel the Administration to take aggressive steps to stop China from manipulating its currency, to make our goods look more expensive. I’m the original co-sponsor of the Foreign Debt Ceiling Act which really means that we would require any administration to begin reversing our trade deficit and start breaking our reliance on China for not only what they provide to us in terms of the way they buy our dollars and buy our debt but also to be held to higher standards for what they import into our market.”
Correct me if I’m wrong, but I read this as a solution grounded in changing how China operates in the world economy. I get the impression that Clinton wants China to “play by the rules,” and that pressuring them to do so will help the United States. Contrast this with a quote from Obama below:
“We’ve got a tax code that is encouraging flight of jobs and outsourcing. And that’s why we’ve specifically recommended … that Congress change our tax code so that we stop giving tax breaks to companies that are moving to Mexico and China and other places, and start putting those tax breaks into companies that are investing here in the United States.”
It has a slightly different vibe to it, agree? Obama talks about changes that need to be made in our domestic policy rather than changes China needs to make. I think this is an interesting distinction between Obama and Clinton that should be weighted in the democratic nomination.
[Note from Prof. Carr -- I titled this post. Matt, if you submitted a different title, let me know and I will change it -- my student assistant is out this week.]
Entry Filed under: Pre-Departure, Beijing, China
4 Comments Add your own
1. Chris Carr | March 26th, 2008 at 7:33 pm
Good post.
Hillary is talking smack. This is a good example of a candidate pandering to to their base to win the primaries and become the party nominee, and then when the general election comes (and assuming she edges out Obama for the party nomination) we will see her on a dead sprint back to the political middle ground in order to appear moderate and hence garner the most votes across the US.
Obama has also rattled similar sabres in the past. See, e.g., my previous post on his China reflexes and earlier campaign comments — Mission Control to Obama.
And McCain? Same thing. To get win the primaries, he too, heavily pandered to the party base, and now we are seeing him seek safer, more moderate political ground.
Folks, there are no saints in the rough and tumble business of politics, Dem or Repub. After the election is over, my amateur arm-chair prediction is that regardless of who wins, re: the China issue it will be back to business and the status quo as usual in Washington. The posturing we are now seeing on both sides of the political isle is all a part of the dance.
2. Pete Murphy | March 27th, 2008 at 4:12 am
Matt, our trade deficit with China gets all of the attention. However, when one examines our trade deficit in manufactured goods in per capita terms - that is, divided by the population of the country - our deficit with China is rather unremarkable. In 2006 our per capita trade deficit with 18 other countries was worse - including such nations as Japan, Germany, Mexico and Korea. Surprisingly, our biggest per capita trade deficit in manufactured goods was with Ireland. Our per capita trade deficit in manufactured goods with Ireland was 25 times higher than our deficit with China.
But China gets all of the attention, simply because of its sheer magnitude. I’m not saying that the deficit with China isn’t a problem. My point is that, since our trade policies were already a proven failure around the world, what did we expect when we applied the same policies to a country with one sixth of the world’s population?
The concept of free trade is based upon Ricardo’s principle of comparative advantage, dating back to 1815. Ricardo hypothesized that every nation benefits when they trade what they make best for products that other countries make best. On the surface, it seems logical. However, Ricardo’s theory is fatally flawed because it does not take into consideration the role of population density and what happens in trade between two nations of grossly disparate densities. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it is a sure-fire loser when attempting to trade freely in manufactured goods with nations that are much more densely populated, tantamount to economic suicide.
At this point, I should introduce myself. I am the author of a new book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” To make a long story short, this new theory proposes that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, a lack of space makes it ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (which always rises), inevitably yields rising unemployment and poverty.
This new theory has major ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population management are probably obvious, but why trade? It’s because these effects of an excessive population density - unemployment and poverty - are actually imported when we attempt to trade freely in manufactured goods with a nation much more densely populated than our own. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to our healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs. A virtual host-parasite relationship is established.
If you’re interested in learning more about this new theory, please visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in my blog discussion and, of course, purchase the book if you’re interested. (It’s also available at Amazon.com.)
Please forgive the somewhat “spammish” nature of this reply, but I don’t know how else to inject this new perspective into the debate about trade and population without drawing attention to the book.
Pete Murphy
Author, Five Short Blasts
3. gary chou on his blackberry | March 31st, 2008 at 4:38 pm
1. Matt, no one is completely unbiased.
2. Pete, why is per capita deficit a better measure of trade deficit than the gross deficit? Please explain.
3. I am a firm believer in trade is better (comparative advantage which is disputed by Pete). I argue the negative impact we see is inevitable short term work force adjustment. We must look at economics long term to have final verdict on trade merit. In short term, of course many people would lose jobs as the talents needed change and demand shift. But long term wise, it is better (bigger pie).
Also, let’s not forget the inevitable sin of richer get richer when pie increases. The most recent Economist gave the stat that financial service firms employ 5% of US work force (sans government) but generate 40% of corporate profit. This, my friend, is the result of having a bigger pie.
Free market economy capitalism is fair, just not in the most intuitive sense. Intuition could be misleading.
4. I like Obama and Hillary both very much, they sure will be fine presidents, regardless of what they say now days…for what they say have one purpose only, to win the votes that is still undecided on them. If every thing a person said is only targeted to a small population that like them, but not to those who already made up their minds, their words (Obama and Huillary) are indictive of nothing.
On the other hand, I don’t just like McCain, I revere this man. He will have my vote.
5. I am just nobody and never wrote a book,
Gary
4. Chris Carr | April 7th, 2008 at 8:41 pm
Congrats to the Kansas Tornado, Mr. Fencl for KU kicking the behinds of Memphis tonight.
Rock ….. Chalk ….. JayHawk …… KU
Fall 2008
Nebraska — 45
KU — 10
And the football universe will again be aligned.
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