Earlier today, I mentioned the fact that our trade deficit in advanced technology goods stems from a failure of trade and innovation policy — not because we are less innovative. It is the result of an “invent it here; build it there” business model. Well, it looks like we may be going doing the same road with green technology. This morning, the New America Foundation issued a report on the Green Trade Balance. The situation is not good:
Green investment is a major pillar of the president’s economic recovery plan. Yet, America’s dependence on foreign countries to produce green technologies may undermine this recovery strategy. Using a list of green goods derived from the Organization of Economic Cooperation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC), we have determined that the United States ran an overall green trade deficit of -$8.9 billion in 2008, including a deficit of -$6.4 billion in the critical category of renewable energy, one of the main targets of the Obama administration’s green agenda. The U.S. economy also suffered a significant deficit in the pollution management category. On the positive side, the United States ran modest surpluses in two categories–energy efficiency and a grouping of other environmental goods related to water purification and sustainable agriculture.
If current trends continue, the green trade deficit can be expected to widen further as the administration’s agenda increases domestic demand but without sufficient measures to increase domestic production. If the deficit continues to grow, the United States will forego the creation of millions of high-wage, high-skill green manufacturing jobs and lose its potential to be a global producer as well as a consumer of green technologies.
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The trends in America’s green trade balance should caution policymakers against over-promising about the jobs and investment we can expect from government spending to support the green economy. If the green recovery is to deliver more jobs and spur more domestic investment, it will need government measures to encourage domestic production as well as domestic consumption.
When the stimulus bill was passed, some policymakers recognized this need (see earlier posting). As I reported then, Sec. 1302. (Credit for Investment in Advanced Energy Facilities) of the tax provisions of the bill created a 30% tax credit for the establishment of an alternative energy manufacturing facility. As my old boss, Senator Jeff Bingaman was quoted in the Wall Street Journal as saying, “Several of us have come to recognize that we’ve outsourced the very things we’re going to need to change the nation’s energy mix, and this is a way of encouraging more manufacturing here at home.”
The New America Foundation report highlights how urgent that task is.