Jobs or free trade agreements?

Let me start today with a correction. In yesterday's post, I mentioned a new report on manufacturing in America. It was done by Booz & Company not, as I reported, by Booz Allen & Hamilton.

But speaking of manufacturing in America and also of creating jobs and especially green jobs in America, did you see in yesterday's Wall Street Journal that Evergreen Solar has filed for bankruptcy protection, saying that it could not compete with Chinese rivals without a reorganization. It will close production facilities in Midland, Michigan and lay off 80 workers. You may recall that only a few years ago Evergreen was a high flying green start-up venture whose stock price hit $108 in January, 2008. It closed on the NASDAQ yesterday at 16 cents.

Part of the problem has been that Evergreen's advantage in polysilicon technology has diminished as the cost of this material has recently plummeted. But Evergreen and other U.S.-based manufacturers like Solyndra (that received a Federal government loan guarantee of $535 million in 2009), First Solar, and SunPower have also found it increasingly difficult to compete in the face of the large subsidies the Chinese government is providing both directly and indirectly to its manufacturers.

On the one hand, China is strongly encouraging solar power use by aggressive policies to have the electric companies buy solar power into their grid systems. On the other hand, as Jeffrey Pichel of Jeffries and Company told the Journal, the Chinese government is also providing low cost utilities, free land, and subsidized capital to its manufacturers. In addition, of course, it is also intervening daily in global currency markets to buy dollars and to thereby keep its yuan undervalued by 20-30 percent versus the U.S. dollar. All of this has led to cutbacks in U.S. based production and to its transfer to off-shore locations in China, Malaysia, the Philippines, and other locations where these subsidies are matched in one way or another.

Here is a concrete example that should lead to some tough questions for President Obama in the course of his current bus tour of the mid-west. Over the past two days, he has been telling audiences in Minnesota and Michigan that he aims to create jobs by, among other things, concluding a free trade agreement with South Korea. He has been saying this despite the fact that the International Trade Commission has estimated that such an agreement would actually increase the U.S. trade deficit which would imply a loss of jobs rather than a gain from the deal.

Now Obama himself has been a strong proponent of green jobs and green start-ups and the Obama administration has, as noted above, provided some assistance to some of these U.S. ventures. So the question, is how can the President be in Michigan and talk about doing a questionable free trade deal with Korea while avoiding any comment on responding to the industrial policies of China that have just led to the loss of 80 jobs in Michigan?

Indeed, this is the crux of the jobs issue. Because they don't deal with currency and financial subsidy questions, free trade agreements almost never lead to an increase in U.S. jobs. If the President and his Republican opponents sincerely want to create jobs, they will have to find a way (given that further stimulus, tax cuts, and interest rate cuts are unlikely) to reduce the trade deficit. And to do that they will have to find a way to respond to the strategic industrial policies of America's economic partners.

So here's the test. Are candidates proposing more free trade agreements or more policies aimed at matching or countering the currency interventions and financial investment incentives of the export led economies of Asia and Europe? The former are unlikely to produce jobs. The latter may.

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