September 23, 2011 11:47AM

Eyes Wide Shut to Trade Policies That Would Encourage Domestic Investment and Hiring

The Congressional Joint Economic Committee held a hearing this week entitled “Manufacturing in the USA: How U.S. Trade Policy Offshores Jobs.” The intended purpose of the hearing was to examine how foreign unfair trade practices encourage the offshoring of U.S. manufacturing. Thankfully, not all witnesses stayed within the contours of that presumption.

I say “thankfully” because the incessant focus of politicians on fixing the policies and practices of foreign governments, as though they were the primary impediments to U.S. business success at home and abroad, is a diversion that should no longer be tolerated. It gives the appearance that our elected officials are earnestly seeking appropriate solutions, while further obscuring the real solutions. Meanwhile, it protects incumbents from having to make substantive, consequential choices.

I’ve written lately (in this policy paper and in this op‐​ed) about how U.S. trade policy undermines the competitiveness of U.S. firms and chases some producers offshore. But I find some of the greatest impediments to U.S. firms’ success to be homegrown, domestic policies that place unnecessary restrictions and burdens on U.S. firms trying to compete in a global economy.

I elaborated on those points in written testimony submitted to the committee, the introduction of which follows:

Too many U.S. policymakers, from Capitol Hill to the various executive branch agencies in Washington, tend to focus on foreign policies and foreign barriers when considering how best to improve the competitive prospects for U.S. firms. The presumption is that the major impediments to the success of U.S. firms are foreign born. Closed foreign markets, complex laws and regulations, overt flaunting of the trade rules, subtle protectionism, and unfair trade are the primary culprits that subvert the success of U.S. firms, discourage investment and hiring, and encourage offshoring of production. Indeed, that is the premise of today’s hearing, as inferred from its description on the Committee’s website.

But that premise is myopic and, frankly, irresponsible. It reinforces arguments for nonsensical policies, such as preserving our own barriers to trade and investment, which are nothing more than costs to U.S. businesses and families. Policies that raise the cost of doing business in the United States — such as our tariff regime and the trade remedies duties that the U.S. government imposes on broad swaths of industrial inputs — encourage manufacturers to at least consider moving operations abroad, where those materials are available at better prices.

Governments are competing for business investment and talent, which both tend to flow to jurisdictions where the rule of law is clear and abided; where there is greater certainty to the business and political climate; where the specter of asset expropriation is negligible; where physical and administrative infrastructure is in good shape; where the local work force is productive; where there are limited physical, political, and administrative frictions. This global competition in policy is a positive development. But we are kidding ourselves if we think that the United States is somehow immune from this dynamic and does not have to compete and earn its share with good policies. The decisions made now with respect to our policies on immigration, education, energy, trade, entitlements, taxes, and the role of government in managing the economy will determine the health, competitiveness, and relative significance of the U.S. economy in the decades ahead.