Contributors
Chuck DeVore- Contributor

Assemblyman Chuck DeVore represents 450,000 residents of Orange County California’s 70th Assembly District.. He served as a Reagan White House appointee in the Pentagon from 1986 to 1988 and was Senior Assistant to Cong. Chris Cox. He is a lieutenant colonel in the Army National Guard. Chuck’s novel, CHINA ATTACKS, sells internationally and has been translated into Chinese for sales in Taiwan. [go to DeVore index]

Trade Wars
Let the free market work…
[Chuck DeVore] 7/17/04

CBS News Radio reported on July 13 that the “Trade deficit narrowed to $46 billion in May after hitting an all-time high the month before…” Left unsaid was the fact that U.S. exports hit a record high in May as well.

To hear Senator John Kerry and his allies in the “mainstream” media put it, President Bush’s free-trade policies aren't working; America is losing the economic battle to its international competitors. Exhibit One: the U.S. trade deficit hit an all-time monthly high of $48.1 billion in April after five straight months of increases. Outsourcing overseas, weak foreign environmental and labor laws, and foreign protectionism call for strong action at home, presumably, raising taxes on American consumers in the form of protectionist tariffs while aiming government assistance at displaced employees as well as companies to help them export.

President Bush would point out that an economy in recovery typically buys more goods from overseas, and that rising U.S. exports are a testament to surging American productivity as well as a U.S.-led global economic recovery. Furthermore, that the best way to increase American exports is by breaking down trade barriers and encouraging free trade (the President’s dalliance with steel tariffs aside).

What is happening on the international trade front? And what should government policymakers be doing about it, if anything?

The trade deficit plunged 4.5 percent in May, the largest month-over-month decline since October 2002, largely on the strength of U.S. exports which climbed a substantial 2.9 percent to $97.1 billion, a new record. Imports also increased to $143.1 billion, up 0.4 percent, to a new record as well.

Americans helped foreigners rack up record sales of vehicles, food and drink, as well as oil in May, while we sold record amounts of automobiles, engines, and parts, as well as industrial supplies such as plastics and chemicals abroad. Our exports of capital goods (aircraft are big component of this category) also reached its highest level since March 2001.

These robust trade numbers have caused some economists to revise upward their estimates of second quarter gross domestic product (GDP) growth by half a percent to about 4 percent – a very healthy clip.

Republicans and Democrats view the trade deficit through different lenses. Republicans typically see the trade deficit – the balance of what we export in goods and services vs. what we import – as a function of free markets, whereas Democrats look to government intervention to “balance” trade and mitigate its impact on workers. For the Democrats, this includes aggressive job training assistance programs for all workers, no matter why they have lost their jobs, government-funded wage insurance to pay people “forced” to take lower paying jobs, and government health insurance for workers who lose their jobs. Government-funded or mandated wage and health insurance, while well intentioned, do nothing to improve America’s competitive posture.

On the Federal level, the best long-term macro-economic strategy to improve American competitiveness is one that encourages investments in continued productivity gains. Making President Bush’s 2001 tax cuts permanent, rather than allowing them to begin phasing out, is the best place to start. Conversely, targeting assistance to specific industries through subsidies or tax law, while helpful in the short term to those fortunate enough to benefit, only distorts the economy and increases corporate reliance on government intervention.

Here in California, we must attract capital to encourage business formation and job generation. One key roadblock to California’s economic success was probably lifted when Governor Schwarzenegger forced through reforms in our workers’ compensation system. However, other roadblocks remain: high taxes, burdensome regulations, and employer-provided health insurance mandates, make it difficult for California to compete with the rest of America as well as the rest of the world. Rejecting Proposition 72, the November referendum that will force most employers to provide health care to all, removes one such impediment to California’s economic recovery.

Government policymakers need to resist the desire to intervene in markets – to use their power to force temporary solutions on irresistible market forces. Rather, the best policies to pursue are those that nurture private investment and improve productivity. Increases in productivity allow Americans to compete and improve our standard of living. Increases in regulation and government interference don’t. CRO

Chuck DeVore is the Republican nominee in the 70th State Assembly District. www.ChuckDeVore.com

copyright 2004 Chuck DeVore