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Transition 2012

A guide to foreign policy and the 2012 U.S. presidential transition.

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Renewing America Watch: Rare Earths and North Carolina Jobs

by Toni Johnson
March 14, 2012

A worker shovels cast-off tailings in Baotou, China, October 31, 2010. (David Gray/Courtesy Reuters) A worker shovels cast-off tailings in Baotou, China, October 31, 2010. (David Gray/Courtesy Reuters)

With voters worried about U.S. economic standing as measured against China, we turn again to our sister project Renewing America, which takes on six domestic issues affecting U.S. power abroad. Last month, GOP presidential hopeful Mitt Romney said in an op-ed China needs to comply with trade rules and President Obama has recently created a new trade enforcement task force in part to address worries about China.

This week, CFR’s Edward Alden looks at the WTO dust up with China over the trade of rare earths, which are needed to make a myriad of devices that run our digital age. Alden says compromise is best:

The WTO disputes system can be extremely valuable because the panels serve as a neutral arbiter in assessing violations and calculating harm to the industries. But they cannot impose a solution. In the aircraft case, the two sides now have little choice but to find a negotiated truce, one in which (per the panel decisions) the EU will likely have to agree to reduce subsidies by more than the United States.

With the United States now challenging China in the WTO on several fronts, the Obama administration should look for similar negotiating opportunities. China is not going to back away from its determination to succeed in these emerging industries, and is already threatening to push back hard in the dispute. But neither should the United States allow subsidized Chinese competitors to take a major bite out of U.S. sales, either domestically or overseas. WTO rulings could help in clarifying where trade rules are being violated, and by how much, and it is encouraging to see the Obama administration using that tool more aggressively. And in this latest case, the United States also needs to move quickly to develop domestic and other international sources of rare earth materials to help increase leverage over China.

But like the U.S. and the EU over aircraft, negotiated compromise with China is the only plausible way forward. Even as trade tensions ratchet up, both side should make sure to leave their doors open.

Voters’ number one concern as seen by exit polls continues to be jobs and the economy. All the candidates have the some type of jobs proposal but a big issue especially between the President Obama and GOP contenders is how the federal government ought to respond.

Alden again touches on the issue of manufacturing jobs, focusing on new paper by Roland Stephen that looks at the state of North Carolina, which holds a GOP primary May 8th. North Carolina has been hit hard by loss of manufacturing but has managed to improve its jobs prospects:

What are the lessons? Every state faces its own challenges, and there is no blueprint. As Stephens writes: “What is required is a toolbox for action that meets the needs of these fragile economies–regions struggling to make the most of their particular mix of assets following the decline of manufacturing employment.” Nonetheless, there are policy choices made by North Carolina that should be relevant to other states that are trying to manage a similar transition.

  • Invest in infrastructure. North Carolina has an extensive road system, for example, built largely with funding from its gas tax, which is among the highest in the nation.
  • Invest in education.  The state has increased K-12 spending faster than the national average, and was among the first to back testing to raise standards. And North Carolina has one of the country’s most impressive state university and community college systems, with per pupil spending the 3rd highest in the country.
  • Pursue open-ended initiatives and show patience in waiting for payoffs. Rather than trying to attract specific industries, states would be wiser to create a supportive environment for innovation through generic investments with multiple uses. Stephen points out that the Research Triangle was never envisioned as a successful biotech cluster; instead, the idea was to pool talent on the theory that good things would then result.
  • Create institutions–regional partnerships, technology centers–that are focused on regional development.

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