Bergsten: U.S. should be involved even more in international markets

 

C. Fred Bergsten, director of the Peterson Institute for International Economics, speaks Friday morning in the Amphitheater. Photo by Megan Tan.

Nick Glunt | Staff Writer

While Thursday’s morning lecturer John Stropki spoke on globalization in regard to manufacturing, Friday’s speaker Fred Bergsten commented that manufacturing only makes up 10 percent of the U.S. economy. The real topic to Bergsten — and the one he spoke on — is the service industry, which makes up 80 percent.

Bergsten, a longtime Chautauquan and well-known economist, was the fifth and final speaker in Week Seven; the speeches covered “The U.S. Economy: Beyond a Quick Fix.”

During his speech, Bergsten said globalization is important to the economy because it boosts average household income, creates jobs and fuels economic growth — but the U.S. can do more.

Bergsten is the director of the Peterson Institute for International Economics, a nonprofit think tank based in Washington, D.C., that focuses on international economics.

The U.S. has become more and more involved in the global economy over the past 50 years, Bergsten said. International trade has more than tripled, and it makes up more than one-third of our total output.

Other countries supply more than half of American oil, and almost half of Fortune 500 revenue comes from international business. Furthermore, half of American government debt is owed to foreigners.

“The United States has now joined the world in two senses,” Bergsten said. “We are highly dependent on global developments for our own prosperity and stability, and we are now more like other countries.”

He pointed out that while such international interaction was always a requirement for other countries, but not for the U.S. Fifty years ago, the U.S. was “pretty much self-contained.” Anymore, he said, the U.S. is highly involved in foreign markets.

Because of globalization over the past several decades, the U.S. is more than $1 trillion richer per year, more than 10 percent of national income. That number, he said, “equates to more than $10,000 per household” on average.

If the U.S. further integrated into the global economy, Bergsten said it could produce an additional $500 billion per year.

He said international “emerging markets” were not affected by the financial crisis. These markets are important to the global economy because they remained untouched.

“There’s a huge swing in international economic capability,” Bergsten said, “and therefore power relationships.”

Some of these countries — China, India, Russia, Brazil, South Korea and Mexico — have been developing so fast in the past decades that they’ve joined what Bergsten calls “The Trillion Dollar Club.” Turkey and Indonesia, he added, are soon to join as well.

China alone accounts for 10 percent of global output, and its global domestic product is growing at 10 percent every year. Like Stropki, Bergsten spent a portion of his lecture on Chinese trade.

Though the U.S. has become heavily involved in global markets, Bergsten said it fails to recognize how involved it is. It continues to wrack up debt with other countries — becoming, as Bergsten said, the biggest debtor country in the world.

This worries him because it could one day drive the U.S. into even deeper economic turmoil. It is risky, he said, to stay on this path. These other countries, after all, “don’t always have our best interest at heart.”

For reasons like this, he said Standard & Poor’s had a right to downgrade the U.S. credit rating.

“The United States needs to become much more of an exporting country,” Bergsten said, “and, indeed, to look to foreign markets as a critical element of dealing with our own economic problems — creating jobs, reducing our unemployment problem.”


Q: A very simple question: Who carries these trade messages to other governments and how do we get them there and who has to approve these strategies?

A: Trade policy is kind of a unique hybrid in U.S. decision-making. The constitution gives the authority of trade policy to the Congress, but after the disasters of the 1930s that I just described, the Congress assigned a great deal of that responsibility to the president, who in turn, has set up a bureaucratic machinery to handle it. So trade policy requires cooperation between administration and Congress. That is particularly difficult in a period of divided government like we have now. Stropki yesterday described very well the ridiculous hang up over passing the three trade agreements that I mentioned. He noted that, in the case of the Colombia agreement, all their products were already coming in here free, but we’re losing tens of millions if not more of sales to Colombia because they maintain tariffs against us, which they’ve eliminated for other trading partners. All we have to do is sign the agreement, and we get full, level playing field. So it’s between the Congress and the White House; they’ve bounced it back and forth with different excuses, the truth is, this administration has not been very enthusiastic about trade agreements. The Republican Congress has not been very enthusiastic about coupling trade agreements with domestic assistance programs to help the losers, which there are, that I pointed out before, and so there’s still an impasse, ridiculously, three and four years after most of these agreements were negotiated. But that’s the process, and it’s going to take some bipartisanship and forceful leadership to get out of the box.

Q: Where does Mexico fit in your global projections, and how will this affect our immigration policies?

A: Mexico, as I mentioned, is of course a member of NAFTA, the North American Free Trade Agreement, so it’s in kind of a halfway status. In fact, some observers, some Mexicans and non-Mexicans, count Mexico still as a part of Latin America but others a part of North America because it is part of the increasingly integrated economy with the United States and Canada. But in per capita income terms, Mexico is still an immerging market economy. I put it in my trillion-dollar club as you may have noticed, because they are so close to us and so dependent on us, their economic growth is highly dependent on ours. So when we have a downturn, they also do have a significant downturn. However, even with that change, they grow faster than we do. They are a rapidly growing market in the sense of an ascending population, and so they need to be one of the key targets for our export expansion efforts. We have a huge stake in a successful Mexico because only a successful Mexico will be attractive enough to its own people at home and put less pressure on our economy through migration here. Now I happen to believe a lot of the Mexican migration to the U.S. is good for our economy. We need to continue it. We’ve got big problems that I didn’t even mention about visa policy ranging from low-wage Mexican agricultural workers to very high-skilled Indian engineers and technology experts. We need more foreign experts to strengthen our own competitiveness. Historically, we’ve relied on that; we’ve welcomed it. More recently we’ve become restrictive, and that, too, is hurting our competitiveness, but we want a strong Mexican economy. It will largely reflect the strength of the U.S. economy, given the proximity of the two and that we have a free trade agreement that’s in full effect between our countries.

Q: This questioner notes that you were involved in government financial policy, 1969 through ’81, at a time when the maximum income tax bracket was 70 percent. The question: Do you believe that we can correct the current recession without a substantial increase of government revenue, i.e. taxes?

A: No. My sense is that the reason you have so much Congressional agreement not to raise taxes, is because they haven’t yet seriously looked at the other side of the equation, namely, what it means to cut expenditures. You know, if you haven’t seen A, if you think you’ve seen A, you like B. But they haven’t really seen A because as I’ve said, they haven’t really done any expenditure cutting. Once they get specific about cutting Social Security payments, Medicare benefits, the national parks system, even defense spending, they’re going to get such huge pushback that they’ll suddenly come to realize that part of the budget correction has to come through higher revenues. I think that’s inevitable. The issue then will be how do we get higher revenues, what kinds of taxes. Should we raise personal and corporate tax rates? Well, probably not. Negative incentive effects. But should we put in new kinds of taxes that penalize excessive consumption; maybe even excessive homeownership; maybe even excessive gasoline use in our cars; maybe even excessive carbon emissions that pollute the environment? My answer to all those is yes. The point being that if we do it sensibly and skillfully, we can achieve multiple purposes through tax reform. We can increase revenues, as necessary to contribute to budget correction but also deal with some of the structural problems of our economy. The undersaving, the underinvestment, the excessive pollution, the excessive dependence on imported energy. All those things are susceptible to very sensible tax policy measures, and all this I think can and should be brought together over the next year or so.

Q: What are the most significant changes that you have observed in the global perspective of the United States, and have the world’s expectations of us and our economy changed?

A: Well, the biggest change, I’ll just repeat what I said earlier in my remarks, this “scissors” dilemma in which we find ourselves. If you compare the U.S. system now to a generation ago, let alone 50 years ago, there has been this dramatic increase in our dependence on the rest of the world and a dramatic reduction in our ability to set the terms of world economic outcomes. Like the thing in the IMF I was talking, much as we wanted to get the Chinese to fly right, we have not been able to do that. So that two-way shift has dramatically altered the position of the United States in the world. Foreign reactions to the U.S., I think have lagged those realities, for a variety of reasons, the rest of the world, on balance, even though they criticize us a lot, the rest of the world basically wishes us well, and in my view, actually, probably gives us a little more leeway than we deserve. The rest of the world has observed our successes for the last 50 years or more. Many of them have been rescued by us, and have direct gratitude to us for having helped them when their times were tough. They kind of have a blind faith that our system, like Churchill said, will try everything else and then do the right thing, so I think the rest of the world still cuts us a lot of slack and gives us the benefit of the doubt. My fear is that we decreasingly justify that, and if one of these days they wake up to that fact and decide that they better face hard, cold reality, too, we might be in for some very bad news, and that I think is what we as a nation, for national security reasons as well as purely economic reasons, must try to avoid, and that’s why we have to carry out a really reformed economic and foreign policy strategy as quickly as we can.

—Transcribed by Aaron Krumheuer