Howard Richman's  Instablog

President Barack Obama has frequently claimed that his energy policies will create "millions of new American jobs that pay well and cannot be outsourced." But as United Steel Workers President Leo Gerard warned in a commentary Friday, they can and probably will be outsourced. He began with a recently proposed project, being considered in Washington, to buy Chinese windmills with US taxpayer money:

Taking candy from a baby: A consortium of Chinese and American companies goes to Washington and announces plans to build a $1.5 billion windmill farm in West Texas using $450 million in U.S. Stimulus funds, which will create 2,330 jobs – 2,000 of them in China.

Meanwhile, according to a Financial Times story, American parts will continue to be excluded from Chinese-made windmills despite an agreement that was recently negotiated:

At the [US-China meeting in Hangzhou] last week, China agreed ... to relax restrictions on importing wind power components. However, Paulo Soares, head of the Chinese operations of Suzlon, the Indian wind power group, said the new rules would make little difference. “The big companies already have installed manufacturing operations and established supply chains, so it is not going to change anything,” he said.

And American made solar panels and solar panel parts are also being excluded from China as noted by University of Maryland economist Peter Morici in a recent Business Week interview:

China does a lot of things that make it difficult for companies to export into the country. Take, for example, solar panels. The two big markets for solar panels going forward are China and the U.S. But China requires that 75% of the contents of solar panels sold in China be made domestically. We don't.

If companies locate their factories in China, they can sell to both the United States and to China, while if they locate in the United States, they can't sell to China. In a September 16 New York Times column, Thomas L. Friedman, noted that Applied Materials (AMAT), the American company that is the world’s leader in producing the machines that produce solar panels, has built all of their factories abroad. He wrote:

The other day, [Applied Materials’ CEO Mike] Splinter gave me a tour of the company’s Silicon Valley facility, culminating with a visit to its “war room,” where Applied maintains a real-time global interaction with all 14 solar panel factories it’s built around the world in the last two years. I could only laugh because crying would have been too embarrassing.Not a single one is in America.Let’s see: five are in Germany, four are in China, one is in Spain, one is in India, one is in Italy, one is in Taiwan and one is even in Abu Dhabi….

Later in the article, he pointed out that it is even worse than that. Applied's inventing won't be done here for long, perhaps so that their research can be close to their factories:

In October, Applied will be opening the world’s largest solar research center — in Xian, China….

According to the theory of "comparative advantage," each country produces what it produces relatively efficiently while trading with the other countries for what they produce relatively efficiently. But "comparative advantage" requires balanced trade to work. For every $1 we import from China, the Chinese government only allows its people to import about 25¢ from us. 

Our trade with China operates on the "mercantilist" principle. China produces what it produces relatively efficiently as well as what we produce relatively efficiently. They trade goods with us and get our assets, IOUs and industries in return. China grows, we shrink, and eventually Chinese communism dominates the world while American democracy is buried.

We don't have to keep taking this. We could demand that China's government start balancing trade, else we would balance it through auctioned Import Certificates that would limit the value of our imports from China to the value of their imports from us. Such import limitations would be in perfect accordance with a special WTO rule for trade deficit countries which states:

(A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.

If we were to implement this policy, the Chinese government would be forced to take down its many barriers to American products. Not only would U.S. manufacturing employment immediately turn around, but the new business investment that we would get in our manufacturing sector would pull the U.S. economy right out of the Great Recession.

Unless President Obama requires balanced trade, his energy policies could produce lots of green jobs in China and very few in the United States.

Disclosure: No Positions