The $64 Trillion Question (Part 5)
What’s at issue in these cases is a clash between the outdated U.S. orthodoxy of international free markets and the new international reality of strategic globalization—between, on one hand, embracing free trade and eschewing subsidies, even when other countries do not, and, on the other hand, actively using government to promote jobs and trade. I witnessed the conflict at a White House meeting last year on how to revitalize the Midwest by turning old auto and auto-parts plants into green-tech factories.
At the meeting, one faction called for a comprehensive strategy of promoting R&D, matching foreign investment inducements, providing tax incentives for domestic production, and halting foreign-currency manipulation. The other group argued that markets always produce optimal results and that the future of green tech industries in America should be left up to market forces. The argument was never resolved, and it has not been resolved in the Obama administration.
But leaving things to the “free market” means allowing the Germans, Danes, Koreans, Japanese, French, and Chinese to dominate in the field. If the Obama administration wants to double exports—and better yet, double exports and reduce imports so that our overall trade balance improves—it is going to have to adopt its own strategy of strategic globalization.
What does that mean? At the G-20 meeting, the administration’s first step should be for the president to ask his colleagues to cooperate in bringing about a 25 percent to 40 percent revaluation of manipulated currencies in relation to the dollar within the next three years. The president should warn that if such an agreement cannot be reached, he will have no choice but to launch a full-scale effort in the IMF, WTO, and elsewhere to halt the mercantilist manipulation of currencies. He should leave no doubt that he will do whatever is necessary, including even taxing certain capital inflows, to achieve substantial currency adjustments.