Robert Pollin: A trade war or a currency war will not solve the economic crisis
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay, coming to you from the PERI institute in Amherst, Massachusetts. Well, one of the ways out of the crisis, we are being told, is to increase American trade and to decrease American imports. How’s that going to happen? Now joining us–codirector of the PERI institute–to help us understand all of this is Bob Pollin. Thanks for joining us again.
ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Thanks.
JAY: So outline for us both sides of the trade debate.
POLLIN: Okay. Well, the basic argument is very simple. The US runs a trade deficit, which means that we import more than we export. That gap is about $700 billion. And if we were able to close that gap, that is, if we were able to export more and import less so that stuff that we’re making here gets sold more in other countries and we buy less from other countries, everything else equal, that will create more jobs. So, for example, if you said, let’s cut imports by 10 percent and increase exports by 10 percent in today’s economy, that would create about 4 million jobs. So that’s a lot of jobs. So if you can think of a way to do that, then, okay, that’s good for American jobs.
JAY: Just give this a little context, because there’s a lot of people talking about, oh, we don’t export anything anymore, and we are the hollowing out of US manufacturing and all of this. And there’s some truth. But United States, if I understand it correctly, is the third largest exporter in the world after, now, China, Germany, and then the US, and the US is not that far behind China and Germany. United States is still in the top two or three manufacturers in the world. So it’s not like there isn’t something going on here; it’s just that the US economy is so massive asin relationship to the US economy, exports seem relatively small. So people are then saying, okay, stop exporting our jobs and let’s buy American.
JAY: So what do you make of that argument?
POLLIN: Well, okay, so, again, you know, the issue is, really, as you said, we do produce, we do export. We just import more. So, therefore, export more than we’re exporting now, import less, and then you create jobs. So then, if you believe that that’s the way to go, then the question is, okay, what are our policy tools to do that? Well, one way is to just say, okay, we’re going to set up tariffs, so we’re going to raise the price of any import coming into the country and make it much more difficult for people to buy imports. That’s number one. Number two would be lower the value of the dollar. So when you lower the value of the dollar, that makes our exports cheaper, and since our dollars are cheaper, it’s more expensive to buy imported goods.
JAY: Okay. So start with one, tariffs. So the argument is, let’s go end to this world free trade business [sic], let’s go back to tariffs. And what’s wrong with that argument?
POLLIN: Well, I mean, other countries can retaliate. This is the problem. This is the general problem with trying to solve our problem through the trade issue, that other countries are also interested in exporting more and importing less because they know the logic in doing soit will create jobs. If everybody tries to do it at the same time, you end up with a big trade war, currency war, and nobody benefits, certainly not the workers.
JAY: One of the counterarguments to that could be, okay, so let’s say we get hit with tariffs for our exports abroad. But we’re the ones sitting on the golden goose egg of markets. So we don’t care if we lose some exports if we get to sell way more to our own market. So in that way tariffs might be effective.
POLLIN: Yeah. So I would say if we really want to slap a big tariff like President Nixon did in 1971, 10 percent tariffs, you would get some benefit. But because of the issue of retaliation, you’re not going to get a large benefit. And, moreover, I mean, if we are for benefiting working people in all countries, not just the United States, I don’t really see thatI wouldn’t gloat over creating a lot of jobs in the US by taking away jobs in other places. I mean, I think a fair question to ask for people who support this kind of approach is to say, okay, whose jobs are you taking away? Because you are going to take away jobs from workers. You know, they could be in low-income countries.
JAY: Or if you don’t take away their jobs, what you might do is they get a lowering of 10 percent of their wages, and the tariff doesn’t mean anything, ’cause the products actually stay as cheap as [inaudible]
POLLIN: Well, then, yes. Then the point is, yes, you’re not taking away [inaudible] So that would be a retaliation. Let’s take a textile manufacturer in Guatemala. Now, yes, they’re making money off of selling things in the United States, so we slap a tariff. Yeah. So what’sis the manufacturer and the business owner in Guatemala just say, “Well, that’s the end of my business”? No, they’re going to squeeze the workers, they’re going to push down the wages of the workers so they can keep selling. They’ll push the wages of the workers down 15 percent. And that will enable them to geteven with a 10 percent tariff, they’ll still come in with a lower price. That’s the kind of dynamic we’d be setting off, and that’s what I think is not the right way to go, and it’s not going to work on its own terms.
JAY: And the other side of tariffs is it ain’t never going to happen, because the American finance sector and much of the manufacturing sector is far more interested in making money in the Asian markets than they are in the United States anyway, and they’re not going to take a chance at being frozen out of the Asian markets.
POLLIN: Right. So you have the other mechanism, which is thelowering the value of the dollar, which, again, as we know from the news, just sets off these skirmishes, because, yes, China, Europe, Japan, Latin America, they are also interested in the exact same thing, exporting more, importing less, using these tools of currency to do it. And on top of that, most of the activity around currencies, the movement in the relative value of currencies, is not about trade issues, but it’s about the gigantic speculative financial markets where monies are flowing back and forth.
JAY: Okay. Third thing that’s sort of on the table, especially after Tuesday’s election, is don’t do anything. Government, stop doing anything. Don’t make more money. Don’t do tariffs. Just stop. Let the thing burn. If there’s going toyou know, cut back on spending. Let the economy bottom out. If there’s going to be massive bankruptcies, you need to go through that catharsis, and then there’ll be growth. What do you make of the argument? ‘Cause that, you know, may have been seen as a small sector making that argument, but this election, with the Tea Party, this is supposedly now the Republican Party’s position.
POLLIN: Okay. So then when the Tea Party members lose their jobs and they can’t pay off their mortgages and they lose their homes because we’re in a depression, I’ll check back in with them and see how much they like their policy, because that’s where their policy would lead us. It’s very easy to say it now. I mean, here, again, we’re sitting here at the University of Massachusetts. We got a $50 million stimulus check. Without that check, there would be hundreds of layoffs right here in this institution, which then would’ve spilled over into our communities and would have meant layoffs. It would have meant defaults. It would have meant foreclosures. Depressions are not a pretty picture, and we have not had a depression at the level of the 1930s. If we follow the Tea Party policy, to the extent that they have one, that’s exactly where were going to head.
JAY: Well, I’ll give you a counterargument I think they might make. Well, let’s say unemployment is almost 20 percent now. So if you do what they’re saying, maybe unemployment goes to 25, maybe it goes to 30, but that still means 70 percent are working. So the vast majority people are still working, and they’reyou know, after a time of going through this burn, you’ll start to have what they say real growth. So.
POLLIN: Well, except we don’t know where the growth comes from. When we had a real depression in the 1930s, even the New Deal, for all the wonderful things that we remember fondly about the New Deal, it did not succeed in getting us out of a depression. What succeeded was government deficit spending on the order of 25 percent of the economy, tied to World War II. So what we need is something along those lines, something massive as an injection of new spending from the public sector, because the private sector on its own is not prepared to do this. Now, I don’t say that it all has to come from the deficit. Federal Reserve policy can be much more aggressive, much more creative in pushing down the risk, lowering interest rates, creating opportunities. Some kind of combination along those lines is what’ll get the economy out of this great recession.
JAY: Thanks for joining us.
POLLIN: Okay. Thank you.
JAY: And thank you for joining us. And if you have questions or comments, Bob will answer them in a blog on our site. And also I’m going to start reading questions or debates or arguments you may have with Bob directly in some of these interviews, so you’ll be able to question him. In fact, sometime sooner than later you’ll be able to get on a webcam and have your own interview or argument with Bob. Thanks for joining us.
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