Oct. 16, 2009 – 7:50 a.m. CT

Brace for a Push for Free Trade

The Treasury released a study yesterday which fell short of calling China a currency manipulator, but emphasized the country's need to float its own currency rather than peg it too heavily to the dollar.

This is all part of a larger strategy that the U.S. is pursuing to encourage more market-oriented reforms and re-establish its leadership on free trade. (Of course, one would think that tariffs on Chinese tires goes against that goal, but Treasury Secretary Geithner bristles when asked directly about that. He argues that enforcing trade laws with China is one way to gain more cooperation across a variety of other more important issues, such as encouraging Chinese domestic consumption.)

In SEVERAL on- and off-the-record meetings over the last two weeks, the Fed, the Obama administration and the Treasury, all made clear that the status quo on trade and global market reforms is not sufficient to get to where we all need to go (e.g., it is as much – if not more – in China's interest to stimulate consumption over exports as it is in ours). Watch for the Fed and Treasury, in particular, to push more heavily in their rhetoric and deals for market reforms and trade liberalization. They have already taken the lead among the G20 and, although I can't say I quite agree with all the administration's methods, I agree with the need. The loss of momentum on multilateral trade agreements such as LAFTA (the Latin version of NAFTA) has left us with dysfunctional and hard-to-pass bilateral trade agreements. (Think Columbia.) This is nothing to say of bilateral agreements among other countries that are designed to lock us out of markets in which we need to prosper.

The Bottom Line: If we have any hope whatsoever of ever paying the world back and getting our self out of this mess, we will have to rely on one of our most base and old-line industries – manufacturing. We may not employ as many people as we did in the past in basic manufacturing, but it, along with the engine that the tech sector provides for exports, is our best path out. Moreover, the profits from manufacturing, even if they don't trigger as many direct jobs as they did in the past, do support a whole service industry that does create some very high-paying jobs. We will desperately need the export profits from the manufacturing and technology engines of growth to support the rest of the economy in the decade ahead.

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