I understand that when things are going badly it is our human instinct to find the culprit among the “others,” which often means foreigners (excluding the countries from which our personal ancestors immigrated). Per President Trump, the Chinese and Mexicans are the wolves currently devouring our jobs. Let’s breathe deeply and think hard about this issue.

I think we have a good reason to be afraid. There really are aliens taking our jobs. These aliens carry out their assigned tasks with alarming accuracy, they work long hours without complaint for very low wages, they don’t join unions, and they don’t fall in love, which can be very disruptive at the workplace.

You know who might soon take your job, don’t you? It’s the robots. It’s the microprocessors. It’s WALL-E and R2-D2. That’s something to worry about. If your children and grandchildren can only carry out mundane repetitive tasks, they will be in a world of hurt, since they will be in direct competition for jobs with those efficient, reliable robots.

Those robots will do not just the physical tasks but also the intellectual tasks that require only artificial intelligence. Traditional lecture-and-exam-style education creates artificial intelligence; simply put, it merely programs the students to respond the way their instructors think is wise. With the surge of computerized artificial intelligence all around us, we are making traditional education obsolete. Be afraid, university lecturers.

Yes, trade is a factor in jobs evaporating—especially the surge in imports from China—but more as symptom than disease. It’s not barriers to our exports to China that are the problem. It’s our failing educational system—which is not producing enough people ready for a world economy ever more reliant on artificial intelligence—and our pathetically low national savings rate, which requires us to rely on the savings of countries with high savings rates, like China. These problems of education and savings are homegrown, and can’t be blamed on the Chinese and the Mexicans.

Before we scapegoat anyone or get scared about trade, we need to understand it. So let’s start by contrasting balanced trade, with imports and exports equal, and then unbalanced trade, with imports well in excess of exports (as is currently the case in the United States).

If the U.S. had balanced trade, the right question would be, “Are China and Mexico partners of the U.S. or competitors?” Competitors produce the same goods, but partners specialize and do not produce the same products. If we were partners, China would produce the T-shirts and jeans and consumer electronics, while we would produce Boeing aircraft but no T-shirts or jeans or consumer electronics. If we were partners, China would stock the shelves at Walmart with low priced goods, while we would produce none of the same goods in the U.S. That kind of partnership is a win for all Americans who would get to buy Chinese goods at low prices without any downward pressure on wages from Chinese competition. If we were partners, the U.S. should work to maintain that partnership by increasing its economic distinctiveness by elevating the educational attainment of our workforce. Think of it as a global educational race with the leaders enjoying a partnership relationship with the followers, but with the great mass of runners behind competing fiercely against each other. Look behind us. Can you see them all catching up?

On the other hand, if we were to find ourselves back in the pack, and Chinese products were still produced in the U.S., then China and the U.S. would be competitors, and wages of U.S. low-skilled workers would be set in Beijing, not Los Angeles. If we were competitors, not partners, we could put up barriers to imports which would reduce the competitive pressure on wages of our low-skilled manufacturing workers. Of course, that would shrink both imports and exports, thus forgoing some of the benefits of specialization according to comparative advantage.  

That might be wise public policy if the benefits to our middle class exceed the lost gains-from-trade. But we should insist on some evidence for that view, especially given the ongoing force of automation on our middle class. And even then, barriers to imports from China and Mexico would be treating the symptom, not the real cause of lower wages—our failing educational system.

Of course, the Trump administration is not thinking about that education system, or about balanced trade. It is obsessed with our trade deficit, and using it to fuel an anti-trade backlash. But Trump doesn’t understand where that deficit comes from.

The trade deficit is a consequence of our low savings rate, not impediments to our exports. When the investment opportunities in the United States exceed the flow of U.S. savings, we are forced to borrow from foreigners to fund some of our investments. That borrowing creates a demand for U.S. dollars, an elevated value of the dollar, suppressed exports, and increased imports.

The right public policy to reduce our external imbalance is to encourage savings, for example through a matching by Uncle Sam of your contributions to your retirement accounts, or by getting the federal deficit under control. It isn’t good policy to go to our Chinese lenders and insist on higher interest rates!

Workforce development and greater national savings—that’s what we need. With those problems solved, there is no reason to worry about wolves devouring our jobs.

The post The “Aliens” Taking Our Jobs Are Not the Illegal Kind appeared first on Zócalo Public Square.

These reactions are predictable because we have heard them all before. Back in the 1980s, the trade villain de jour was Japan. (China was just emerging into world markets.) Proposals to address trade deficits with Japan provoked the same reactions from professional economists and foreign policy experts that we hear today.

But there was one exception in the 1980s. On May 3, 1987, famed financier Warren Buffett published an essay in The Washington Post entitled “How to Solve Our Trade Mess Without Ruining Our Economy.” His solution was thoughtful and new.

He proposed a market-based system similar to the “cap-and-trade” arrangements currently in use to limit greenhouse gas and other pollutants. Very simply, Buffett suggested that for each dollar of exports from the U.S., the exporter would receive a government voucher entitling the bearer to import a dollar’s worth of goods or services.

The vouchers could be used directly by the exporter or sold to some third party (an importer). That is, there would be an open market for vouchers. But, since no one could import without the requisite vouchers, the value of imports would be limited to the value of exports. U.S. trade with the entire world would be balanced.

The idea seemed to find a middle ground in the arguments over trade deficits. It was neither protectionist (it included no tariffs or quotas) nor did it involve Japan-bashing (the analog of today’s China-bashing). But Buffett’s piece, after causing a brief flurry of interest among the D.C. chattering class, was quickly forgotten.

Why? Perhaps it was because Buffett was not an academic economist, so his view could be dismissed as an amateur’s musings. Perhaps it was because there wasn’t enough of a consensus that a trade deficit is a problem. Perhaps it was because even among those inclined to be more worried about deficits, Buffett’s proposal was seen as a solution to a problem that would soon go away without further action. At the time, the dollar’s value in international currency markets happened to be falling. It was easy to argue that a declining dollar would correct the trade imbalance by making American goods more affordable in world markets.

But the problem didn’t go away. Moreover, within a few years, China joined Japan in running large trade surpluses with the U.S. Now, when Trump’s complaints are discussed, we again hear that the problem with China is yesterday’s issue, and that the problem will soon disappear, as wages in China go up, along with the value of its currency. But it didn’t in the 1980s and it won’t now. Which is why we should revive Buffett’s idea.

The problem of America’s trade imbalance isn’t specific to one or two countries—our nation runs a massive “$500 billion net export deficit” with the rest of the world.

There are two ways such a significant trade imbalance hurts us. The first—but lesser—element is the displacement of American manufacturing jobs. That issue is clearly the one with the most political salience. Manufacturing would definitely benefit from a correction of the U.S. trade imbalance, but trade isn’t entirely to blame for the fact that only about one in ten U.S. jobs are in that sector nowadays (down from three out of ten after World War II); technology has played a major role in that downsizing as well.

The second, more significant if less politically salient problem with all those deficits is that it forces the country to sell off its assets and/or run up its debt—which is just what the U.S. has been doing for decades. In one way or another, this generation’s imbalanced consumption will be paid for by future generations. There is a fundamental unfairness in that intergenerational transfer which correcting the trade balance would alleviate.

The Buffett proposal addresses both these economic ailments. The Buffett system also doesn’t require negotiating “great” trade deals. And there is no need to bash any country in pursuit of such deals; the impersonal voucher market brings about the zero-trade balance, not some hardline negotiation. And if any one country tries to grab a bigger share of the U.S. market for imports through tactics such as currency manipulation, it can only do so by reducing the market shares of other countries. So the pressure is on those other countries, not the U.S., to enforce rules of fair trading. If you’re an American diplomat worried about the international political effects of China-bashing, the Buffett plan is ideal for you.

But what if you’re a professional economist worried about “protectionism”? Your first reaction to the Buffett plan is likely to be that, given the current trade imbalance, the vouchers amount to a subsidy to exports and a tax on imports. You want to holler protectionism! But instead take a deep breath and think it through.

The Buffett voucher plan is equivalent to resetting the dollar exchange rate to a level that would bring about balanced trade. It is equivalent to a sufficient devaluation of the dollar to accomplish that end. Note that under current arrangements, the dollar regularly goes up and down in currency markets although it has never been low enough to create a zero trade balance (exports = imports). Is every drop in the dollar’s value a move into protection? Is every dollar appreciation a move toward free trade? Such up-and-down labeling makes no sense. Indeed, one nice feature of the Buffett plan is that you could in principle lower or eliminate remaining U.S. tariffs and other trade barriers and still end up—due to the voucher system—with balanced trade.

In short, it’s time to dust off the Buffett plan of three decades ago before the U.S. embarks on a road to frictions with China and other trade partners. Sometimes, when it comes to people and ideas, there is wisdom in the old.

The post The Cap-and-Trade Solution to Our Trade Dispute With China appeared first on Zócalo Public Square.

During these days of transition speculation, there is plenty of talk about what president-elect Donald Trump’s victory means for health care, for immigrants, for the economy, for minorities, for NATO, and so on. In terms of long-term national interests, it’s important to add the endangered concept of a U.S.-centric Pacific Rim to this list. This is because the Trump victory may well spell the end of America’s previous Pacific aspirations.

We will quite possibly see a significant shift of innovation and entrepreneurship westward in the Pacific Rim—indeed, so far West that the center of economic gravity ends up firmly in the Far East.

There are two big reasons for these shifts. First, changes in immigration policy under a new administration will make the U.S. less friendly to talented foreigners seeking to work here. Second, new trade policy is likely to diminish the competitive environment for domestic manufacturers.

The new administration’s anticipated changes to immigration and trade policy are, whatever you think of them and their potential impact on the U.S. economy, a response to real issues. For one thing, globalization has depressed incomes of the middle class—average wages for production and non-supervisory workers is about the same after inflation as in 1974, at $20.67 per hour, according to the Pew Research Center. For another, immigration exacerbated competition for an ever-shrinking pool of low-skilled jobs. Economists have documented, for example, a 6 percent decline in employment and a 2.5 percent decline in wages for low-skilled African-American men attributable to this increased competition.

On top of that, manufacturing employment has been steadily declining for decades and is now at one-third the number of jobs in 1970.

Hillary Clinton promised a continuation of current policy (i.e. these trends) and Donald Trump promised less of them. The voters have now asked for a different engagement with the world that will seek to blunt these three trends.

Immigration policy, in particular, may shift the geography. During the campaign, Trump, with talk of walls and border security, was all over the place. His policy position on H1B work visas and J1 work and study visas has been unclear, through the views of his confidant and nominee for attorney general clearly lean toward more restrictive visa policy.

Overseas news media and businesses—according to reports in the India Express, The Jakarta Post and elsewhere in the Pacific Region—see current visa programs as being in jeopardy. Suffice it to say that whatever new immigration policy emerges will be less inviting to foreigners.

In particular, innovators and tech entrepreneurs from China (vilified in the campaign), Indonesia (the world’s largest Islamic country), Malaysia (another Islamic country), and India (with a Muslim population of 175 million) will feel less welcome. This will be true even if there is an expansion in visa issuance to highly qualified tech people in general.

Instead those ambitious, smart, entrepreneurial innovators will be more inclined to migrate to another hub of technological innovation, perhaps Singapore, Bangalore, Toronto, Tokyo or Shanghai. The more attractive these hubs are to innovators, the faster their local economies will grow, potentially at the expense of U.S. growth. Singapore, with centrality, two large universities, and several small technical colleges and the new Singapore Technology Development Center, is especially ready to take advantage. But others are as well.

Shanghai eased restrictions for foreign science and technology professionals willing to participate in the Chinese Communist Party’s innovation initiatives at its new technology hub in 2015. When I was in Shanghai with a UCLA class last March, we learned that even though China ranked low on IP protection, innovation in the new hub was starting to explode. Silicon Valley Bank, whose original mission was funding new ventures in California, is in a joint venture that provides funding to exciting new Shanghai start-ups.

The U.S. election will push not only people but also the products they produce in a “westward to the East” direction. New innovative products coming out of expanding Asian tech centers will be traded among Asian countries and not as much with the U.S. This is because American trade policy will be less friendly towards imports that compete with U.S. manufacturing.

The rejection of the Trans-Pacific Partnership trade deal and the consequent ascendency of the Chinese-led Regional Comprehensive Economic Partnership (RCEP) will reinforce this trend. Meanwhile, as our innovation edge erodes over time, the U.S. will likely lag in producing, and exporting, cutting-edge goods. Instead U.S. firms may come to copy what the foreign firms are doing much in the way that the Chinese now try to copy what quality U.S. firms are doing.

One might argue that the U.S. is a very large economy and therefore restrictive trade measures are not liable to have much impact. Domestic competition and the ability to sell in a very wealthy market should be attraction enough for entrepreneurs.

While that might be true, protectionist policies—what economists call import-substitution policies that include high tariffs on imports, like those suggested by Trump during the campaign—have been pursued by many countries and studied extensively. The consensus is that, by protecting domestic firms from more efficient international competitors, they hurt economic growth and manufacturing efficiency.

Stagnation in Latin America is in part attributable to a reliance on import substitution. Argentina is a classic case. In 1909 it was the seventh-richest country in the world. Many things went wrong in the 20th century, but import substitution was part of the story. Nehru’s India is another case of a country that insulated itself from world competition because it thought itself a big enough market to go it alone, and suffered the consequences. Myanmar, where I will be writing the next piece in this series in December, took protectionism to extremes and has basically been dormant for 50 years.

The point here is not that the U.S. will stagnate nor that it will become Myanmar, Argentina, or India, but rather that all of the examples of protectionist policies, however mildly applied, lead to a diminution of the country’s ability to be a leader in the protected industries.

A desired move towards a more protectionist economy was one of the key takeaways of the Nov. 8 vote, especially in battleground industrial states like Pennsylvania, Wisconsin, and Michigan. The electorate may have deliberately chosen international withdrawal, opting for stable but less efficient domestic industries over dynamic and nimble leading industries.

It is rare—and very valuable—for a place to achieve critical mass in a certain industry. Critical mass in entertainment occurred in Los Angeles because it was possible to film in a variety of nearby locations all year long. Many states and countries have tried to counter it with subsidies, but Atlanta, Toronto, and others have transferred wealth into Hollywood moguls’ bank accounts in Beverly Hills, and not into a self-sustaining critical mass. The same is true with technology and Silicon Valley. The Silicon Corn Field in Iowa and Silicon Bayou in Louisiana are only shells of what the planners dreamed of for them.

We don’t know right now which places are going to be most competitive and achieve critical mass in innovative industries as the Pacific Rim center shifts west. My money would be on Singapore, with its English common law, low taxes, affluent and well trained work force, major universities, and central location. If Singapore (or insert your top candidate here) in fact hits critical mass, it will be very hard to dislodge. So even if the U.S decides to reverse course on immigration and trade policy in the future, we will have to live with the consequences of this shift.

In 2011, Joshua Kerlantzik in an article in Current History argued that the 21st Century was “not quite yet” the Asian Century. A shift to the west of innovation and technology may well change that.

The post How a Trump Economy Could Make Singapore Great Again appeared first on Zócalo Public Square.

We have so many indicators to measure, you’d think the answer to that question would be as straightforward as the answer to the question of “How’s the weather?”

It never is, of course, for a number of reasons. The “economy” in the aggregate covers many activities and sectors, some of which can be booming while others are in a rough patch. Similarly, some individuals suffer economic hardship in supposedly good times, while some people manage to thrive in down times, so one’s feelings about “the economy” don’t always correlate with the latest macro statistics and headlines.

But there is a more novel reason for the confusion surrounding how people feel about the economy: the perceived seesaw relationship between the U.S. economy and the rest of the world. For the past decade, our fortunes and those of nations beyond our shores haven’t been moving in tandem. Even more worrisome, in the political realm the two are increasingly described as being in a zero-sum, adversarial relationship.

The 2007-to-2009 financial crisis was a rare case of an economic catastrophe inflicted by the United States on the rest of the world, as opposed to earlier foreign contagions that struck the U.S. Ever since then, however, the U.S. has been outperforming most other places. We at UCLA’s Anderson Forecast continue to believe our economy remains on track for moderate growth, at a 2.5 percent rate for fourth-quarter over fourth-quarter GDP growth. The country remains on track to create 2.4 million jobs this year and 1.5 million jobs next year as the economy reaches near full employment. We estimate unemployment will stand at 4.6 percent by year’s end.

The Federal Reserve appears to be ready and willing to raise interest rates this year, partly because it is about to get the inflation it has been praying for, a sign of healthy demand for workers, goods, and services. Consumers are out and they’re spending, managing their debt loads appropriately, and the housing market is recovering from the disastrous financial crisis of the past decade.

It all speaks to a solid, if not spectacular, outlook, and yet it’s hard not to feel that there is an ominous disturbance in the force lurking somewhere out there, seeking to undermine our steady upwards trajectory. And this ominous disturbance in the force for the past few years has been the global economy.

Not long ago, the rise of China and other emerging markets, combined with the stability of Europe’s developed economies, made the rest of the world seem more like an opportunity than a threat to U.S. investors. But no longer—these days it’s mostly economic threats that seem to be washing up on our shores from distant lands.

Late last summer and early this year, we saw sharp declines in our stock market due to fears of what a slowdown in Chinese growth might mean for the world economy. Tensions within the European Union—over its handling of the Ukraine, Greece’s unsustainable debt load, and the Syrian refugee crisis—have also been a source of recurring worry to our financial markets. Other once-ballyhooed economies like Brazil have also been facing a slump, contributing to a decline in commodity prices and a rise in the value of the U.S. dollar, which makes our goods more expensive around the world, thereby hurting our exporters. Falling oil prices are another symptom of the funk much of the world economy is in.

The next disturbance in the force may again come from China, or from Europe, as the United Kingdom will vote in June on whether or not to stay in the European Union. Whether such a “Brexit” is a wise move or not, the transition period will likely be marked by increased market volatility.

The United States cannot indefinitely remain an island of exceptional economic tranquility in our interconnected age. Our economic fate is linked to that of the rest of the world.

Unfortunately, our politics don’t reflect this reality. There has been much talk on the campaign trail this election year about who’s “winning” and “losing” in our economic relationships, with no acknowledgment that trade can be a win-win scenario. As a result, the lurking threats posed by weakness overseas are presented by fear-mongering politicians as being more serious and sinister than they really are. Certainly there is no acknowledgment that it was America and its mortgage mania that dragged down much of the world’s economy in the Great Recession. And a time when the rest of the world yearns for steady economic leadership from the U.S., two of our leading presidential candidates want to fence off the country from the world, and blow up the global trading system we designed in the aftermath of World War II.

All these intangibles make it difficult to be in the economic forecasting business, especially when many of these intangibles are more political than economic in nature. We are used to thinking of “political risk” in the context of emerging markets (say, an election in India, South Africa, or Argentina), but now you have to say that political risk must be an asterisk attached to any U.S. economic forecast. If Donald Trump or Bernie Sanders is elected president and sticks to his campaign rhetoric and worldview once in office, we could see the second major “made in the U.S.A.” global recession of the young century. And we would discover that the true disturbance in the force lay within the whole time, as the threat to our well-being proved not to be the outside world and its woes, but how we reacted to them.

The post The U.S. Can No Longer Remain an Island of Economic Tranquility appeared first on Zócalo Public Square.

Yet those who would confiscate the mayor’s passport and confine him to the city limits are utterly wrong in contending that he has no business doing business abroad. Today, periodically leading trade missions is arguably an even more important task in an L.A. mayor’s job description than ever before.

The reason: A truly global middle class is emerging for the first time in history, and it is emerging most rapidly outside of the United States.

By 2030, this middle class will more than double in size, from 2 billion now to 4.9 billion. According to the Brookings Institution, Europe and America will see their share of the world’s middle class shrink from 50 percent to just 22 percent by 2030. Rapid growth in China, India, Indonesia, Vietnam, Thailand, and Malaysia will cause Asia’s share of the new middle class to more than double to 64 percent by 2030.

Rising middle-class populations drive economic growth both through their growing demand for goods and their increased household savings, funds which are then available for investment. Not surprisingly, the World Bank figures that, by 2030, fully half of the global stock of capital will be found in the developing world, up from less than 30 percent today.

So Mayor Garcetti has the same very same reason for traveling across the Pacific as Willie Sutton had for robbing banks: it’s where the money is. The three nations he chose to visit—China, South Korea, and Japan—are economically vital to L.A. Fully two-thirds of the value of goods shipped through at the Port of Los Angeles involves these three economies, as does about one-third of the value of the international air cargo handled at LAX. The stated goal of the mayor’s trip was on target: to expand trade in goods and services, to encourage more Asian companies to invest in Los Angeles, and to persuade more Asian tourists to visit (and shop) here.

Another reason Garcetti had to go: so many other mayors and local government officials are traveling to Asia with the same objectives. Los Angeles is one of 50 cities around the country that has been working with Brookings to define customized regional strategies for boosting exports and attracting foreign investments.

While previous mayors have made trade trips (there’s a very good reason why Tom Bradley’s name is on LAX’s international terminal), the surge in trade programs at the municipal level is relatively new.

In some cases, municipalities have taken an existing sister-city relationship and added a more explicit commercial agenda. When Portland, Oregon and Suzhou, China first became sister-cities back in 1988, the objective was limited to building cultural links, such as a vibrant arts-exchange program. That’s changed. The promotion of trade and investment were clearly the top priorities in Portland Mayor Charlie Hales’ most recent visit to Suzhou.

In California, the Bay Area Council, a consortium of businesses in the San Francisco area, has been especially active in building economic bridges abroad. In June 2010, the Council opened an office in Shanghai; since April of last year, that outpost has played host to the California-China Office of Trade & Investment, the state’s first overseas trade office since an earlier, hugely unsuccessful generation of California trade offices was shuttered in 2003.

It’s not just large metropolitan areas that are looking abroad for business.

Take the case of Sacramento, which in May 2013 opened an office in Chongqing, the sprawling manufacturing hub in southwestern China with a population of 33 million. Why? As office director Antonio Yung explains: “Chinese companies won’t do business with you, much less invest in you, unless they know you.” Sacramento’s office in Chongqing has worked with Chinese officials to open new channels for shipping Central Valley produce directly to inland China, tripled the number of Chinese students enrolled at Sacramento State and UC Davis, and brought Chinese investors to Sacramento.

So exactly how does L.A.’s economy stand to profit from trips like Mayor Garcetti’s?

Forget the pre-packaged, photo-ready announcements at which the visiting leader, normally just freshly briefed about the details of whatever business contract is being signed, is portrayed as the one closing the deal. That’s usually just a ploy to deter cynical media coverage back home. The real benefits of politician-led trade missions are more fundamental—and usually become manifest only in the long run.

The most effective trade missions are about establishing and nourishing direct connections. They are best viewed as social calls on people whose cultures emphasize personal relationships. And they have a sheer educational value that is often overlooked. Our leading politicians are seldom business people. So traveling in the company of people who actually do business internationally can provide policymakers with useful knowledge about the challenges businesses face in foreign markets.

Of even greater importance is that any trade mission Mayor Garcetti leads should offer him multiple opportunities to educate those he meets about L.A. It would be presumptuous to assume that even the most cosmopolitan foreigners are intimately familiar with Los Angeles. In reality, for much of the world L.A. is Hollywood—or simply that sprawling place where an uncle or a cousin went to live.

That Los Angeles is America’s leading manufacturing region, with more manufacturing jobs than Michigan, is seldom recognized. That L.A. also is a technological center—with more high-tech jobs than Boston-Cambridge, New York City, or Santa Clara County (according to the Los Angeles Economic Development Corporation)—is rarely acknowledged.

These messages about the real L.A. need to be broadcast around the world. Who better than the mayor to broadcast them?

The post Keep Sending the Mayor to Asia appeared first on Zócalo Public Square.

That may sound provincial. The debate over the massive NSA surveillance programs disclosed by Edward Snowden is a national and global matter, not just a California concern.

But the disclosures—and the U.S. government’s reaction to them—hit at the heart of California’s economic life. Whether you believe the massive collection of phone and electronic records is a scary invasion of privacy or a necessary defense against terrorism, you should worry about our state’s exposure to the fallout.

The problem for California is not that the feds are collecting all of our communications. It is that the feds are (totally unapologetically) doing the same to foreigners, especially in communications with the U.S. California depends for its livelihood on people overseas—as customers, trade partners, as sources of talent.

Our leading industries—shipping, tourism, technology, and entertainment—could not survive, much less prosper, without the trust and goodwill of foreigners. We are home to two of the world’s busiest container ports, and we are a leading exporter of engineering, architectural, design, financial, insurance, legal, and educational services. All of our signature companies—Apple, Google, Facebook, Oracle, Intel, Hewlett-Packard, Chevron, Disney—rely on sales and growth overseas. And our families and workplaces are full of foreigners; more than one in four of us were born abroad, and more than 50 countries have diaspora populations in California of more than 10,000.

Hollywood and Silicon Valley are as important as Washington’s politicians and foreign policy wonks, if not more so, in shaping the image of the United States overseas. But news that our government is collecting our foreign friends’ phone records, emails, video chats, online conversations, photos, and even stored data, tarnishes the California and American brands.

The response from America’s leaders? “With respect to the Internet and emails, this does not apply to U.S. citizens and it does not apply to people living in the United States,” said President Obama, as if the privacy and trust of foreigners were of no consequence. Similarly, James Clapper, the director of national intelligence, said that the Prism program, which taps into online communications, “could not be used to intentionally target any U.S. citizen.”

Such statements should be chilling to Californians.

Will tourists balk at visiting us because they fear U.S. monitoring? Will overseas business owners think twice about trading with us because they fear that their communications might be intercepted and used for commercial gain by American competitors? Most chilling of all: Will foreigners stop using the products and services of California technology and media companies—Facebook, Google, Skype, and Apple among them—that have been accomplices (they say unwillingly) to the federal surveillance?

The answer to that last question: Yes. It’s already happening. Asian governments and businesses are now moving their employees and systems off of Google’s Gmail and other U.S.-based systems, according to Asian news reports. German prosecutors are investigating some of the American surveillance. The issue is becoming a stumbling block in negotiations with the European Union over a new trade agreement. Technology experts are warning of a big loss of foreign business.

John Dvorak, the PCMag.com columnist, wrote recently, “Our companies have billions and billions of dollars in overseas sales and none of the American companies can guarantee security from American spies. Does anyone but me think this is a problem for commerce?”

Unfortunately, California is in a poor position to do anything about all of this, since we are part of the United States. As USC’s Abraham F. Lowenthal observed in his indispensable book, Global California, “California has the power as well as the global links and interests of a nation” but “it lacks the legal attributes and policy instruments of a sovereign country.”

Being an American state is an enormous headache at times like these—when the U.S. government is violating the privacy of foreigners who do business with us, when coal-producing states block renewable energy legislation, and when Congress, in the name of immigration reform, wants to further militarize the border between California and its most important export market, Mexico. It doesn’t help when our own U.S. Sen. Dianne Feinstein is backing the surveillance without acknowledgment of the huge potential costs to her state.

It’s time for her and House Minority Leader Nancy Pelosi, who has been nearly as tone-deaf on this issue, to be forcefully reminded that protecting California industry, and the culture of openness and trust that is so vital to it, is at least as important as protecting massive government data-mining. Such reminders should take the force not merely of public statements but of law.

California has a robust history of going its own way—on vehicle standards, energy efficiency, immigration, marijuana. Now is the time for another departure—this one on the privacy of communications.

I’m not a big fan of ballot measures, since they often only add more complexity to California’s complicated system. But on this issue, we need laws, perhaps even a state constitutional amendment, to make plain that California considers the personal data and communications of all people, be they American or foreign, to be private and worthy of protection.

Such a measure wouldn’t stop NSA surveillance, nor should it. But it would give California-based companies some leverage to resist the most invasive surveillance demands of federal agencies. And it would send an unmistakable message to California’s friends that we care about protecting their privacy—and keeping their business.

The post Who Got Hurt By This NSA Scandal? California. appeared first on Zócalo Public Square.