An American Growth Strategy
As the European Union slips inexorably further into crisis and perhaps recession, the negative impact on the United States is inevitably going to be substantial. At the same time, slowing growth in China, South America, India, and elsewhere will also have an important impact.
The whole world will now be reemphasizing export led growth and the favorite target market place will be that of the United States. Among the G-20 nations, only America will be without a comprehensive growth strategy. The likelihood is that the U.S. trade deficit will rise significantly while unemployment remains high. This is, of course, not necessarily a winning political formula for the U.S. presidential election.
Both President Obama and Republican candidate Romney need to articulate a serious growth program that goes beyond the standard talking points on stimulus and cuts in government spending. I’m going to help them by outlining here a few key ideas of what they might propose.
Given the high level of U.S. government debt and of the federal budget deficit, further stimulus is bound to be limited, whether it be as a result of tax cuts or of increased spending. Thus the main avenue to growth must be through reduction of the U.S. $800 billion trade deficit. This can come from a combination of importing less and exporting more. America can produce more of what it consumes and export more of what it produces. The program is very simple and straight forward.
The most important step will be for the candidates to articulate that their top national security priority, more important than Iran’s nuclear program or the so-called Pivot to Asia, will be to produce and provide tradable good and services from an American base. Make it in America. Provide it from America. Those must be the touchstones of the new national strategy.
In recent months it has become clear that there is already a trickle of manufacturing and industrial activity coming back to the United States from Asia. Booz &Co. along with the Boston Consulting Group, have done analyses demonstrating that production in a wide variety of industries can increasingly be done competitively from an American base, at least for purposes of supplying the American market. To further stimulate that trend, U.S. corporate taxes should be made competitive with those of other leading countries. This means rates should be somewhere between 15 and 25 percent.
The United States is the only major country without a Value Added Tax (VAT). Because this tax is rebated on exports to the United States and added on to the price of U.S. exports to countries having a VAT, the tax currently acts as a subsidy for imports into the U.S. market and as a tariff on U.S. exports to foreign markets. This situation must be corrected by adoption of a VAT by the United States.
Washington needs to announce that it will selectively match the targeted investment incentives offered by the likes of Singapore, China, and France to attract investments in targeted industries like biotech and semiconductors. What I mean here is not that the U.S. has to proactively offer these things, but it needs to offset the offers of other countries that are aimed at drawing the production out of America. At the same time, the U.S. could propose negotiating disciplines in the WTO on such offers.
Similarly, Washington must have a policy of countering currency manipulation. For example, Japan recently intervened in currency markets to weaken the yen as an aid to Japanese manufacturers, and especially auto manufacturers. China, Brazil, Korea, and others routinely engage in such actions which tend to act to the disadvantage of U.S. based production. Again, U.S. counter-policies could be coupled with calls for negotiation of international disciplines on currency manipulation.
Jawbone, jawbone, jawbone. No executive should ever leave the president’s presence or that of a presidential candidate without being asked when he or she is going to invest and produce more in America. When executives are in China, all they hear is the question of when they are going to put production and R&D into China in order to maintain a good image there. They need to hear the same refrain in America.
Investment in infrastructure, creation of an infrastructure bank, and dedication to keeping the United States at the cutting edge of infrastructure will be essential. For example, Korea’s advanced high speed Internet infrastructure means that certain kinds of R&D can only be done there. The United States must be able to match this capability.
America must adopt labor-government-business cooperation similar to that of Germany, Scandinavia, and Japan. There should be regular consultations and discussions among these three key entities on how to make and keep America competitive. Joint setting of national objectives and undertakings to keep budgets, inflation, and investment on target will be extremely valuable.
Support for R&D and development of pre-competitive technology by government has always been a major pillar of U.S. competitiveness. The success of the Agricultural Extension Agencies, of the Defense Advanced Research Projects Agency (DARPA), and of Sematech and the National Science Foundation must be maintained and extended.
President Obama has set a target for doubling exports. Nothing wrong with that, but if exports double while imports triple, nothing will have been gained. Both Romney and Obama should announce that they will set targets for balancing trade. With no trade deficit, America would gain 4 to 5 million jobs with no need for debt funded stimulus programs.
This nine point program, if adopted, would assure U.S. economic vitality and leadership for a very long time to come.