The United States needs to adapt its economy to globalization, former Treasury Secretary Larry Summers said at a hearing on U.S. trade policy.
``To try and fix the problem through trade agreements is like trying to fix a flat tire by pumping air where the leak is,'' said Summers, a former Clinton administration official and currently a professor at Harvard University.
Senate Finance Committee leaders heard from members of the business and labor community on the deficit and trade agreements at a March 8 hearing on Capitol Hill. Congress will debate the issue druing the next few months as a law that grants the president authority to negotiate free trade agreements expires July 1.
Under the current Trade Promotion Authority law, the president settles terms of the accords and Congress can only approve or reject them, without making any modifications.
``We need to link the issue of economic internationalism with a better domestic strategy designed to create a better economy in the U.S.,'' Summers said.
In 2006, the U.S trade deficit in goods jumped 6.8 percent to $836 billion. China's portion is 28 percent, or $233 billion. The plastics trade deficit with China reached $5.6 billion, up 9.8 percent from 2005.
``Adapting the economy to global competitiveness is not just a trade issue,'' said Sen. Blanche Lincoln, D-Ark.
``These countries wait us out for three years because they know they can destroy an industry in that time and we won't do anything about it.''
``The global rules are being made by the global companies,'' said Bob Baugh, director of the industrial union council of the AFL-CIO. ``We don't have a national strategy to succeed globally.''
Most members of the committee, as well as the members of the business and labor community at the hearing, said there was a need to beef up enforcement of existing trade laws - possibly by establishing a trade prosecutor division within the U.S Trade Representative's office.
``The government's lack of attention on enforcement has tilted the playing field,'' said Andy Warlick, president of manufacturer Parkdale Mills Inc. in Gastonia, N.C. ``This is the crux of the trade problem. We allow foreign governments to subsidize their exports while our government looks the other way.''
Officials remain uncertain on how to approach enforcement because of the complex nature of international relations.
``It is a very difficult policy position,'' Summers said. ``We need to act with very great care, given the magnitude of the capital flows from China - upon which we have begun to rely. We would be at our own peril if we tried to force a change. We might not succeed, and, if we do, we might come to rue our success.
``They have become our banker and we ignore that to our own peril,'' he said.
With Democrats in control of Congress, the law is unlikely to be renewed without assurances free trade agreements will incorporate greater labor protections and environment provisions.
If it is renewed, expect Congress to take more control over the free trade agreement process, said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee.
Baugh seconded the idea.
``It is time for fundamental change in U.S trade policy,'' he said. ``We need an entirely different set of rules.''