Who would have thought the week of Oct. 10, 2011, could generate so much news regarding global trade?
First, we have the Senate’s historic passage of a currency manipulation bill, that if agreed to by the House and signed by the White House (not likely), would identify nations that manipulate their currencies and require remedies to adjust for the misalignment. The bill will now go to the US House of Representatives. China has already hit back with some hard swings, including lowering the value of the yuan against the dollar.
A second story making its way through the trade press involves Mexico, as part of an agreement allowing China to join the WTO in 2001, having asked for certain import tariffs on a range of products expected to expire on Dec. 11 of this year. Steel groups within Mexico have voiced concerns. Finally, we caught an article (actually written Sept. 30) entitled “European Technocrats May soon Deprive Americans of Knowing Where Everything They Buy is Made, making the case to remove country of origin labeling and instead adopting “Made in the World labeling.
We could write at length on all three developments, but will keep our comments focused today on that WTO movement toward “Made in the World. The following video from the WTO’s Director-General, Pascal Lamy, makes a compelling case for why the current system of measuring goods does not reflect how global supply chains actually work, nor the true level of value-add from each country. The 3+ minute video below sounds compelling:
The WTO does not represent the only NGO that shares that point of view. In fact, the Fed also shares a similar view, and Bill Strauss, a manufacturing expert at the Chicago Fed, shared it at a conference we held last year:
My rant, however, pertains to the proposed solution. Though the World Input Output Database will attempt to properly attribute the appropriate amount of value-add that goes into a particular good, and we certainly can see the value of better defining a country’s trade balance, the WTO’s motivation appears to involve “better educating the media around creating less support for protectionism (as if “protectionism involves some sort of organized political movement) as opposed to identifying the root cause of why so many companies and organizations have a beef with current trade practices.
So here’s our suggestion. While we create this “Made in the World label, why don’t we tack on the label the “should cost of said value-add process if the country freely floats its currency vs. the “actual cost.
Somehow, I doubt the WTO would go for that.