Who Needs Balanced Trade? Who Needs Balanced Budgets?

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and New Economic Perspectives. Originally published at Correntwire

The intensity of the conflict over the Trans-Pacific Partnership (TPP) has died down since last June, after the Administration won its victory in getting Trade Promotion Authority (TPA) through Congress. During the Intervening months, the efforts of the Special Trade Representative (STR) to complete TPP negotiations have continued. At the end of June, the goal was to complete negotiations by August so that the Administration could send the Agreement to Congress in enough time to start the clock on the 90-day countdown period Congress has to vote on an agreement negotiated under the TPA, and to schedule a ratification vote on it before the end of 2015.

That “plan” however, if it was that, rather than a forlorn hope, was quickly dashed by an assessment of the issues still outstanding at the end of July. At that time (on July 24th) Lori Wallach of Public Citizen, one of the leading policy analysts participating in the fight over the TPP, gave the following estimate:

TPP proponents are eager for Congress to vote on a Trans-Pacific Partnership (TPP) deal in late 2015. But to do so, given Fast Track’s statutorily-required timeframe of notice periods and pre-vote reports, TPP negotiations must be completed – and the TPP text itself – by the end of July. If notice to Congress of intent to sign the TPP were sent by August 1, a final TPP vote could be held the last week Congress is in session in December.

Assuming the quickest timeline conceivable under the Fast Track rules and that somehow a required International Trade Commission (ITC) report on TPP impacts could be completed faster than has ever occurred for past pacts*, a TPP vote could take place about four and one half months after Congress is given notice of intent to sign a deal. Thus, negotiations must conclude at the July 28-31 TPP ministerial and a text must be ready for notice of intent to sign by August 1. That text must be publicly posted on August 30. This would allow for a vote the week of December 14. After that, Congress goes on recess and a vote would roll to 2016.

The political costs of an unpopular “yes” vote for the TPP will escalate if voting rolls into the 2016 presidential election year. Already Democratic and GOP presidential candidates have begun attacking the TPP and their public criticism is generating public attention on the pact’s potential threats of job loss and more. A 2016 TPP vote also would increase the risk that voters could punish those who vote “yes” on the TPP during the November 2016 congressional election.

Minimum Timeframe: 4.5 Months between End of Negotiations and Votes in Congress

It is now; the end of September, not the end of July, and there are enough difficulties in the way of completion mentioned by Politico today to suggest that completion before the end of October is highly unlikely, and probably also another forlorn hope for those favoring the TPP. That Michael Froman, the STR, is now talking in public as if the Administration cares more about getting the TPP right than getting it done soon suggests that the expectations of our trade negotiators for quick completion of the TPP negotiations are now scaled down considerably. Politico says:

FROMAN: U.S. WON’T RUSH TPP DEAL — U.S. trade officials are talking up the benefits of the proposed Trans-Pacific Partnership agreement even before it’s complete. But they’re also pushing back at any suggestion they’ll rush to get the pact done in Atlanta this week no matter what.

“The president has made clear that he will only accept a TPP agreement that delivers for middle-class families, supports American jobs and furthers our national security,” U.S. Trade Representative Michael Froman said in a statement to POLITICO Pro. “The substance of the negotiations will drive the timeline for completion, not the other way around.”

While the possibility of not completing the nearly six-year-old talks this week is real, “I have no doubt they’re making a major push,” said Cal Cohen, president of the Emergency Committee on American Trade, who is in Atlanta for the meeting. The remaining issues are “very doable. But there has to be a readiness to compromise,” he said.

There are many issues related to trade in agricultural products to be resolved. Also, rules pertaining to auto manufactures, and a big fight over how many years of exclusivity protections new “biologics” ought to get, with the US insisting on 8 years of monopoly protections, while other nations want either five years or less ranging down to no years at all. A recent statement from Public Citizen outlines the issues.

So, let’s say the Administration did get this done by October 31, 2015. If one then adds the minimum 4.5 months to get the agreement ratified, then, one is looking at the final vote about March 15, 2016, right in the middle of the primary season, both for presidential candidates and for both Houses of Congress. A controversial vote at that time is poison for office holders wanting to win office again. It is poison for Republican candidates for President and for Hillary Clinton on the Democratic side. No one is going to want to take an unpopular vote in favor of the TPP and take the thunder from the right and the left about the various issues surrounding the treaty.
The votes for the TPA were very difficult for both Houses of Congress, and Democratic Congressmen who voted for it have come under heavy fire. These Congressmen and some Republicans who ignored the TPP sovereignty issues raised by some of the more conservative Republicans will get challenged in the primaries for their TPA vote.

Will they then vote for the TPP in the middle of their campaigns and then, even if they win their primary, face opposition from the other Party in the fall making their vote on trade a political issue aligning them with the multinationals against the American people? I’m afraid I don’t see that happening.

Instead, I see the President being told by the leadership of both Houses that if he submits the TPP to Congress on a schedule to get a vote for it in March or April of next year, then the TPP will be voted down. I see Hillary Clinton telling him not to force that vote then, or she will be forced to publicly oppose it, and to use her influence to defeat it for fear of compromising her own chances to win the Democratic Party nomination. I also see a wholesale rebellion among Democratic Congressmen against their lame duck President who is trying to build his legacy by making them take a poison pill ruining their re-election chances, and I don’t think the President will be able to get near the number of Democratic votes for the TPP, that he was able to get for the TPA, in June. I then see the President trying to make a deal with the leadership in both Houses to get a vote during the lame duck after the election.

But whether that happens or not will depend on the results of the election and the extent to which there is a reaction against the corporate establishment expressed in them. If there is, then I doubt that the trade deals will be back for some time to come. If there is not, then there will be another fight during the lame duck to do everything possible to stop the TPP.

But, regardless, of the exact scenario in the coming months, the TPP is coming up for Congressional consideration, and when it does, it will be the most intense struggle between neoliberal forces in both parties, and anti-corporate forces among both progressives and conservatives, we’ve seen yet. In addition, there will be more new developments such as the ones here and here, about the Trans-Atlantic Trade and Investment Partnership (TTIP), and the Trade in Services Agreement (TiSA), perhaps the most dangerous of the three major current trade agreements in negotiation, which will impact perspectives on the TPP in Congress, and the eventual fate of all three agreements.

To contribute to the debate on the trade agreements, and to provide arguments for the opposition to them, I’ve published two new e-books. I released the first in July 2015. That book, Declarations of Dependence: Trade Tyranny, Sovereignty, and Democracy, focused on a critique of the TPP primarily from the viewpoint of the damage it would do to our constitutional order, and to our democracy. It also, addressed the political process in Congress passing the TPA, and the justification used to support the TPA and the coming trade deals, as well as the question of what kind of trade policy the US ought to have.

Now, I’ve published a second e-book on trade focusing principally on the larger context of these trade deals and the issues raised by that context arising out of the negative impacts previous “free trade” deals have had on American society. Here is a little more about the context.

The United States has run trade deficits for nearly 40 years now. Many are convinced that this is the primary factor explaining the migration of “American jobs” overseas, a stagnant economy, and our accelerating levels of inequality. A balanced trade policy, reducing trade deficits to near zero, will, it is claimed, support lower unemployment by keeping “good jobs” here, drive wages up rather than down, be more sustainable, and won’t contribute to a collapse of the global economy.

But, there is an important truth of macroeconomics to be considered. “Exports are real costs; and Imports are real benefits.” So, an important issue is: would we rather send US fiat money (our electronic reserves) to other nations and add to our real wealth by getting goods in return, or would we rather add to their real wealth and get their fiat money, or our old fiat money back in return? Other things being equal, we’d prefer the first alternative rather than the second: trade deficits are better than trade surpluses, at least in the short run because they add real wealth to our nation.

Other things are not equal, however, since if the Government running trade deficits does nothing to compensate for their shorter and longer-term effects, then these will create a political reaction de-stabilizing any trade policy resulting in continuous trade deficits. (That political crisis has been building for a very long time and is coming to a head in the struggle over the TPP.) However, the negative effects of these continuous trade deficits can be avoided without implementing “balanced trade” as a continuous policy. How that can be done is the subject of my new e-book Who Needs Balanced Trade? Who Needs Balanced Budgets? which was published on September 29, 2015 at Amazon.

My new book looks at trade policy in the broader context of budgetary and fiscal policy, and the relations among the foreign, domestic private, and government sectors of the economy. And, since the trade balance impacts the private sector and the government balance, it argues for an integrative view of trade and fiscal policy in relation to public purpose, and also proposes changes to Government institutions to facilitate planning, analysis, and evaluation of integrated trade and fiscal policy. I think this integrative approach to trade and budgetary/fiscal policy has been implicit in the literature on Modern Money Theory (MMT) for a long, long time. One contribution of this book is to make this approach to integrated policy explicit within the context of the idea of net benefit for “public purpose.”

The book chapters cover: Free Trade Policy; Balanced Trade Policy; three variants of Fair Trade Policy; Trade for Public Purpose Policy; Impact Assessment for Trade Policy; Balanced Budget Fiscal Policy; Deficit Neutrality in the Long Run Fiscal Policy; Budgeting for Public Purpose Fiscal Policy; A Holistic Approach to Trade and Fiscal Policy; and A Critique of the Current Trade Deals. Finally, the concluding chapter presents the book’s may conclusions, including some about the pending trade deals being negotiated by the Obama Administration, and an agenda relating fiscal and trade policies to public purpose.

Who Needs Balanced Trade? Who Needs Balanced Budgets? will be on no cost promo at Amazon at the link provided earlier on October 1st.

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  1. Synoia

    Exports are costs, imports are benefits.

    As we have personally discussed before, I challenge this assertion, and the apparent underlying dogma, with the following question.

    Benefits For Whom?

    Apparently not the workers whose jobs are exported under the “Imports are benefits” dogma.

    1. say_what?


      If, reductio ad absurdum, all assets in the US were equally owned then yes inexpensive foreign goods and inexpensive guest labor would be a blessing to all of us.

      So let’s please quit assuming that lack of jobs is the problem when the true problem is lack of justice.

    2. Joe Firestone

      Right, Synoia. That’s why my book proposes integrative trade and fiscal policy for public purpose, including delivering economic and social justice to the 99%. The standard in the book isn’t free trade.

    3. washunate

      Yeah, that’s the key distinction.

      The foundational challenge is inequality. It has nothing to do with the Balance of Payments. US wealth has not been shipped overseas. It has been looted domestically. The middle class isn’t being destroyed by China and India. It’s being destroyed by our very own systems of law and medicine and banking and academia and so forth.

      1. Joe Firestone

        Absolutely! What the nations having a trade surplus are doing is to send us real wealth in return for electronic bits of information. We have the better of that deal. But we’re unwilling to exploit because of our institutions and politics, and yes, inequality!

        1. washunate

          Yeah, I think that’s where we have a huge opportunity to change how we prioritize investment in this country.

    4. lord koos

      Imports of frozen chicken, iphones, plastics, flat-screen TVs, etc from China are benefits? Debatable.

  2. washunate

    This is where definitions get interesting. The reason the “broader context” is called the Balance of Payments (BOP) is because it balances. That’s what trade is – giving up something to receive something else. Talking about trade deficits is itself political rhetoric manipulating unfamiliarity with macroeconomics. The very concept of a trade deficit is nonsensical.

    The problem in the US is not that jobs have been exported to foreign nations or that the federal government isn’t big enough. The problem is that the distribution of wealth and power within the US is excessively concentrated.

  3. Jim Haygood

    ‘Would we rather send US fiat money (our electronic reserves) to other nations and add to our real wealth by getting goods in return, or would we rather add to their real wealth and get their fiat money, or our old fiat money back in return?’

    Nice to see Joe drawing an appropriate distinction between ‘real wealth’ and worthless scrip (‘old fiat money’). Although one worries that our victims may wake up some day and realize that they’ve been euchered, as Venezuela’s fiat money victims have already discerned:

    ‘The black market for US dollars in Venezuela reached a new high on Tuesday, September 29, when the exchange rate for the nation’s currency rose to 816 Bolivars. The price marks an increase of 371 percent from the start of 2015. With the jump, the average monthly income for Venezuelans now sits at US$9.’


    Say, comrade … could you spare a thousand bolivars for a cup of coffee?

    1. washunate

      But that’s the beauty of trade with fiat currencies in floating exchange rates. There’s no need to worry. The exchange rate adjusts dynamically as preferences for current account and capital account items change over time.

      When foreigners no longer want dollars (or more precisely, want them less than they do now), then imports will decrease and/or exports will increase. We’ll buy less wine from Italy and France, more from California and Missouri. Computer programming will move from India to Indiana. Instead of making clothing in Bangladesh, we’ll make it in Biloxi. Rather than Americans hiking the Alps, foreigners will hike the Rockies.

      On and on, there’s plenty of real wealth to go around in our society. We have a relative abundance of water, soil, sunlight, wind, timber, minerals, outdoor recreation, labor, and so forth, within the borders of the US.

      1. lord koos

        However, we no longer have the manufacturing capability to provide enough products to satisfy domestic demand.

        1. RabidGandhi

          Easy solution: decrease domestic demand by strapping families with crippling debt from education/housing/health care and by lowering the median wage. It’s a win-win!

        2. Nikko

          The U.S. has greater capacity for manufacturing then ever before in history, what are you talking about?!

          The average manufacturing worker produces 4x as much as in the mid 70’s, we have much idle capacity and unused talent/labor.

          1. washunate

            Right on, I’m curious to see if lord koos expands on that thought? We could easily make more cars, computers, clothes, cabinets, and other stuff in the US if there was demand for it. It’s just a function of price. For goodness sakes, inside the prison system alone we have a million slaves give or take making stuff at any given time.

            I have no idea what real-world production bottleneck is thought to exist.

    2. RabidGandhi

      No, Jim’s complaint is that he just hates seeing too many zeros on bills.

      The ridiculousness of this is shown by the fact that he needs to cite the black market exchange rate in order to posit the impoverishment of Venezuelans; as if the only use of money were to cross the border clandestinely and purchase foreign currency.

      Of course, this is a tragedy for those whose main use of money is buying dollars instead of actual products (aka rentiers), but I have yet to see a convincing argument why rentiers’ needs should be prioritised.

    3. say_what?

      One of these days a monetary sovereign is going to wise up and realize that it’s its own banking cartel that is the primary limitation on its ability to creating new fiat without price inflation.

      Like I’ve said, if the banks create 97% of the money supply then why don’t they deserve 97% of the blame for price inflation? As well as 97% of the blame for a nation’s other woes?

  4. todde

    And when these countries have our money what exactly are they going to do with it?

    Buy our debt and our capital, creating bubbles in both.

    And there is your income inequality.

    1. Ben Johannson

      You cannot have a sovereign security bubble (or any other type of bubble but that’s neither here nor there). And if China wants to buy means of production it’s difficult to see how that results in income inequality in the United States.

      1. todde

        Who do you think owns.the means of production?

        The poor?

        If I increase the demand for the means of production, ie capital assets, what happens to the price?

        If the price of something goes up that the poor don’t own, don’t be surprised if income inequality increases.

        1. skippy

          A more accurate depiction of the state of affairs is not whom owns the means of production, but the means of enacting laws…

          Skippy… one proceeds the other imo…

      1. say_what?

        Under the greater fool theory? Having no more storage capacity for oil they are buying trade goods for dealing with primitives such as the Saudis for when they need more oil?

        Well, the Dutch bought Manhattan for $24 dollars in beads …

  5. susan the other

    This is puzzling. Exchange rates get out of whack because of deficits. Because deficits reduce the value of the currency. Because the currency is a reflection of the health of the economy and its ability to service its deficit. But MMT doesn’t bother with exchange rates. It says the value of the dollar is dependent on our ability to produce trade goods that other people want. And we can always do that. But someday this evolves into all countries being able to produce what other people want. And then trade becomes pointless. And then?

    1. RabidGandhi

      Because the currency is a reflection of the health of the economy

      By this logic, the economy of Peru (1 PEN =0.31 USD) is some forty times healthier than the economy of Japan (1 JPY = 0.008 USD).

  6. John Merryman

    Capitalism used to be about the efficient transfer of value. Now it is about the manufacture of commodified hope/the production of capital as an end in itself.

    Money functions as an economic circulation system. Essentially a voucher system. The worst thing for a voucher system is excessive vouchers, yet our economy is now based on creating and storing this notational value, to the detriment of all else.

    The solution has been to for the public borrow them back out of the system, which requires enormous deficit spending. The government method of budgeting bears no relation to what the term means. Currently they create these enormous bills and then add enough goodies to get sufficient votes to pass. Then the President can only pass or veto them in whole. This is like bribing a kid to eat an apple with candy bars.

    To budget is to prioritize one’s needs and desires, then spend according to ability. The government could do this by breaking the bills into all their constituent items, have every legislator assign a percentage value to each one, reassemble them in order of preference and then have the President draw the line. To quote Truman, “The buck stops here.” Given items below the line would have much less constituency than those being asked to pay for them, there would be minimal pressure to override the President.

    This would divide power, with the legislature doing the prioritizing and the executive setting the limits.

    Now this would completely blow up our entire current financial system as there would be far less Federal debt to trade around, but if we were to go to local community banking as a public utility, then local communities would fund much of their own needs and not have to beg for national help.

    There would be some degree of parochialism and methods would have to develop to keep divergent communities united in a larger society, but given those which did form larger networks would likely be more successful, there would be incentives to do so. Possibly then regional and national banks to create the financial circulation systems to enable this broad cooperation.

    If excess wealth were taxed back out of the system and not just borrowed out, then people would quickly learn to invest directly into what most save for in the first place, such as housing, healthcare, education, entertainment, etc.

    Rather then trying to store abstractions in a private, rent seeking service. Remember government used to be private as well. Though few now want to go back to monarchy.

    This would create more public spaces, stronger community relations and a healthier environment.

    Eventually maybe humanity will evolve into being the planetary central nervous system, functioning to preserve the larger entity. Not just top predator in a collapsing ecosystem.

  7. Joe Firestone

    Many, if not most of the questions raised here are treated in the book. You may or may not find those answers illuminating. But, if you want answers to the questions, then “gamble a stamp,” as the old saying goes, and download and read the book.

  8. Marsha

    A trade deficit means living high off the national credit card debt and ceding control to others and building critical dependency on long long supply chains. What is the price of “wealth” meaning lots of “stuff” in terms of loss of control over safety and security?

    1. Joe Firestone

      Please read the book. There is no “national credit card.” There is nothing even forcing the US to issue debt instruments so that foreign nations accumulating US reserves can earn interest on their investment in absolutely safe debt instruments.

      As for the trade deficit, it doesn’t, by itself, create the long supply chains or cause any threat to our security. That occurs because of our import policies, and the kinds of things we allow people to import. If certain products are critical for our security, then we can protect our industries here to ensure that we make those things ourselves. That’s an aspect of industrial policy, which is viewed favorably in the book. And my overall position is strongly opposed to unmanaged “free trade” which is heavily critiqued in the book. The book is for integrative trade and fiscal policy based on assessments on net benefit relative to public purpose. If trade deficits result from this overall position then fine. If they don’t and policies aimed at this produce surpluses then also fine. The issue is what ought to be the context of integrative trade and policy, not whether or not be have trade surpluses, deficits, or balanced trade.

      1. David Green

        I don’t understand equating wealth with ephemeral consumer goods. But if other countries end up owning land, buildings, and infrastructure with in our country with their surplus, that’s real wealth. Moreover, trade deficits = federal budget deficits, which allow fetishization of debt and attacks on public spending. We need to trade with poorer countries in ways that allow them to develop, not impede their development. I know that’s a pipedream, but it’s also possible. But thanks for the provocative discussion.

        1. say_what?

          ‘But if other countries end up owning land, buildings, and infrastructure with in our country with their surplus, that’s real wealth. “

          Ever hear of nationalization or the threat thereof?

        2. Joe Firestone

          Consumer goods have value for people. That’s why they buy them. But, also, a big part of the part deficit is due to imports that enter our own manufacturing processes, home construction, or are durable good of one kind or another, so we’re not talking about “mere” consumer goods, or items for conspicuous consumption. But, that said, why do you draw the conclusion that the people who trade with us will end up owning enough of our land, buildings and infrastructure to make things uncomfortable for the rest of us. The infrastructure certainly doesn’t have to be privately owned, and, in fact, I don’t see why that should be the norm at all. As for buildings, the supply of buildings will change over time, and ownership will change also. The book, spends a good deal of time considering Warren Buffett’s business fable purporting to show that our thrifty trading partners will wnd up owning all our assets. After a detailed argument I concluded that there are all kinds of fallacious assumptions in his fairy tale, and that there is no reason to think that this would happen. Please read it, I think it answers your concerns.

          1. David Green

            Fair enough, but the key variable to me is full employment. Unless we have a guaranteed income, then if trade means putting people out of work and luck, then it shouldn’t. If it promotes an overvalued dollar, it shouldn’t. If it’s part of an attack on the working class, it shouldn’t be–not our own, not that of other countries. Obviously, under current “free trade” dogma, what I’m advocating is again a pipedream. But I don’t see the point in making strange claims about having more wealth in the form of plastics made in China, versus their ability to use our dollars to buy buildings–or whatever else other than consumer goods.

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