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Today, Bloomberg.com reported:
U.S. Treasury Secretary Timothy F. Geithner proposed G-20 members pursue policies to reduce trade gaps “below a specified share” of their economies, according to an Oct. 20 letter obtained by Bloomberg News. That suggestion today split the emerging and industrial countries.
“Setting numerical targets would be unrealistic,” said Japanese Finance Minister Yoshihiko Noda, while German Economy Minister Rainer Bruederle rejected a “command economy” approach and Indian Finance Minister Pranab Mukherjee said caps would be hard to quantify. In interviews with Bloomberg Television, Canadian Finance Minister Jim Flaherty said the idea was a “step in the right direction” and Australian Treasurer Wayne Swan called it “constructive.”
I agree with the ministers from Japan, Germany, and India. Current account deficits/surpluses are not solely outcomes of public policy, even as public policy can influence such balances. Instead, relative differences in competitiveness play a large role. Asking other nations to refrain from fully realizing the benefits of their comparative advantages is not realistic. Instead, nations that seek to reduce their own trade imbalances need to adopt policies and encourage their firms to become more competitive.
For the U.S., that would require much better educational performance (degree attainment/skill mix) than what has been occurring in recent years, increased corporate R&D (which has been sliding relative to foreign rivals and in which the pursuit of operational effectiveness has often supplanted the more important role of strategy--operational effectiveness can easily be imitated and, therefore, cannot lead to sustainable competitive advantages; strategy focusing on differentiation through new knowledge, etc., is much more difficult to replicate and can lead to such sustainable advantages), and a crash investment program to move away from dependency on imported oil (a sizable and persistent chunk of the nation's trade deficit).
But recognizing that U.S. companies are not always the best in the world, American workers are increasingly less skilled/less prepared than their foreign counterparts due to growing educational gaps, and replacing talk (which is cheap) with concrete investments (which can be difficult to argue for) requires far more effort and courage than merely asking others to refrain from realizing the benefits of their comparative advantages. The new U.S. approach is unrealistic. If anything, it would erode incentives for competitive improvement.
U.S. Treasury Secretary Timothy F. Geithner proposed G-20 members pursue policies to reduce trade gaps “below a specified share” of their economies, according to an Oct. 20 letter obtained by Bloomberg News. That suggestion today split the emerging and industrial countries.
“Setting numerical targets would be unrealistic,” said Japanese Finance Minister Yoshihiko Noda, while German Economy Minister Rainer Bruederle rejected a “command economy” approach and Indian Finance Minister Pranab Mukherjee said caps would be hard to quantify. In interviews with Bloomberg Television, Canadian Finance Minister Jim Flaherty said the idea was a “step in the right direction” and Australian Treasurer Wayne Swan called it “constructive.”
I agree with the ministers from Japan, Germany, and India. Current account deficits/surpluses are not solely outcomes of public policy, even as public policy can influence such balances. Instead, relative differences in competitiveness play a large role. Asking other nations to refrain from fully realizing the benefits of their comparative advantages is not realistic. Instead, nations that seek to reduce their own trade imbalances need to adopt policies and encourage their firms to become more competitive.
For the U.S., that would require much better educational performance (degree attainment/skill mix) than what has been occurring in recent years, increased corporate R&D (which has been sliding relative to foreign rivals and in which the pursuit of operational effectiveness has often supplanted the more important role of strategy--operational effectiveness can easily be imitated and, therefore, cannot lead to sustainable competitive advantages; strategy focusing on differentiation through new knowledge, etc., is much more difficult to replicate and can lead to such sustainable advantages), and a crash investment program to move away from dependency on imported oil (a sizable and persistent chunk of the nation's trade deficit).
But recognizing that U.S. companies are not always the best in the world, American workers are increasingly less skilled/less prepared than their foreign counterparts due to growing educational gaps, and replacing talk (which is cheap) with concrete investments (which can be difficult to argue for) requires far more effort and courage than merely asking others to refrain from realizing the benefits of their comparative advantages. The new U.S. approach is unrealistic. If anything, it would erode incentives for competitive improvement.