 On Point Vincent Carroll, editor of the editorial pages, writes his On Point column most weekdays. He is also an author and freelance writer. Reach Vincent Carroll at carrollv@RockyMountainNews.com. |
Carroll: Standing up for trade
“I absolutely agree that trade is a great idea in many respects,” Tom Tancredo said in Tuesday’s GOP presidential debate, while giving a very good impression of a man who thinks trade is a bad idea in many respects.
Tancredo is opposed to trading “at all” with countries “who are your potential enemy,” by which, of course, he means China — a rather large source of imports to dismiss. Yet even Tancredo didn’t go as far as Rep. Duncan Hunter, who seems eager to start a trade war with any country whose tariffs aren’t as low as ours or whose currency, in his judgment, is undervalued.
Fortunately, the top-tier Republican contenders — Rudy Giuliani, Fred Thompson, Mitt Romney and John McCain — generally reject the protectionist siren song. The more important question, however, may be whether voters do. And here the evidence is bleak: “By a nearly two-one margin,” The Wall Street Journal reported last week, “Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views. . . .
It’s easy to understand why most Americans might now consider free trade bad for the economy. They are fed a steady diet of anecdotal analysis from fear-mongers such as CNN’s Lou Dobbs and special interests — unions, farm lobbies, old-line industries — bent on protecting the status quo. They hear reports of jobs lost to globalization but rarely of good jobs created because of it.
Meanwhile, many politicians and journalists seem unaware that most of today’s fears regarding trade have been expressed in almost precisely the same fashion at various times for more than 150 years — a period during which per capita wealth has risen by leaps and bounds.
The trade skeptics claim that it’s different this time. With so many Chinese and Indians moving off the farm, they say, a race to the bottom in wages has truly begun. The economy will be hollowed out this time for sure.
Don’t believe them. They are wrong for the same reasons their gloomy predecessors were wrong. So long as wages are related to productivity, as they are, a race to the bottom will remain a myth. As Martin Wolf, the associate editor of the Financial Times, points out in his book Why Globalization Works, “Today, South Korea wages are fifteen times as high as China’s. Fifty years ago, they would have been much the same. In time, China’s wages and so its costs will also rise, together with its productivity. As they do so, its comparative advantage will also change. Today, South Korea has largely left garment manufacture behind. In time, so will China.”
Is it such a bad thing to leave garment manufacture — or toy manufacture, to cite a current example — behind? You’d think so if you listened to the anti-traders, although countries that have are much wealthier than those that have not. Still, there may be no arguing with people who believe a national economy should manufacture everything. What they need to understand is that even if their self-sufficient utopia existed, the share of manufacturing jobs in its total economy would continue to decline, for two reasons: soaring productivity and because the demand for services expands faster in a wealthy nation than the demand for goods.
For some reason this decline in the share of manufacturing jobs terrifies the anti-traders. However, “to think this will be a disaster shows one is prey to the ‘lump of labor fallacy,’ ” Wolf expains, “the view that there exists a fixed number of jobs in an economy. Nobody with any knowledge of economic history could believe such a thing. Two hundred years ago, the share of the population engaged in agriculture in today’s high-income countries was about three-quarters. Today, it is 2 or 3 percent. . . . . Are all the people not required in the fields now unemployed? The answer is of course not. They do a host of jobs, most of them far more amusing and less arduous than their ancestors could even have imagined in 1800. The same will be true in future.”
It’s helpful to read Wolf side by side with Lou Dobbs’ War on the Middle Class, as I did recently, and decide for yourself who makes the more cogent case on trade. From where I sit, it’s not a close call.
Vincent Carroll is editor of the editorial pages. Reach him at carrollv@RockyMountainNews.com.
I suggest all Republican supporters read Pat Buchanan's blog "PJB: The Scramble for America" at http://buchanan.org/blog/?p=866 (a number of other articles can be found starting at http://www.buchanan.org/) which points out the following:
Now, the returns have come in from the Bush policy of free-trade globalism. According to a lead story in the Wall Street Journal – whose editorial page still champions Iraq, the Bush Doctrine, open borders, NAFTA-CAFTA and the WTO – Republicans, by two to one, believe free trade has done more harm than good to America.
“With voters provoked for years by such figures as Pat Buchanan and Ross Perot,” writes the Journal’s John Harwood, citing Romney adviser and former Rep. Vin Weber, “there’s been a steady erosion in Republican support for free trade.”
While one appreciates Harwood’s compliment, it is undeserved. What killed the free-trade consensus in the GOP was not provocateurs, but proven failure.
Since 2002, America has run five consecutive world record trade deficits. Three million manufacturing jobs have disappeared. The euro has almost doubled in value against the dollar. The Canadian dollar has reached parity. Plants have been shutting down across this country for years. The wages of Middle Americans have stagnated. The trade deficit with China last year reached $233 billion, a world record between any two nations.
The only groups that so-called free trade benefits are the overpaid CEOs - and the countries with lower costs of living & high rates of protectionism for their own countries. The average citizen is screwed!
Posted by Mary on October 11, 2007 03:14 AMI wish Tancredo was from a different state.
Posted by He's embarrassing on October 11, 2007 07:32 AMI want to just repost something Mary said here because I thin it's important....and nearly impossible to "spin" away...even by someone as talented at the practice as our own Vincent.
"Since 2002, America has run five consecutive world record trade deficits. Three million manufacturing jobs have disappeared. The euro has almost doubled in value against the dollar. The Canadian dollar has reached parity. Plants have been shutting down across this country for years. The wages of Middle Americans have stagnated. The trade deficit with China last year reached $233 billion, a world record between any two nations."
Enough said.
Posted by jay on October 11, 2007 07:33 AMAll-time record household net worth, all-time record jobs, all-time record employment, all- time record household incomes, all-time record personal disposable income, record spending and consumption, record exports, record industrial production, record service industry, record corporate profits, record dividends, record stock ownership, record GDP, record stock prices, benign inflation, near-record low interest rates, defict as a percent of GDP well below the average of the last 2 decades...and tax cuts!
That says it all: all-time record records. Every measure of success, wealth and prosperity is at record levels....and nothing succeeds like success!
Posted by on October 11, 2007 10:25 AM10:25,
Real household incomes have gone DOWN for 7 years in a row.
Record Debt. Record Deficits. Record Trade deficits. Real wages have stagnated or declined every year since 2001.
Stock Market STILL under pre-W levels (14,500 when adjusted for inflation)
Sorry, you can't put lipstick on a pig and call it something else.
Posted by on October 11, 2007 10:32 AMhttp://research.stlouisfed.org/fred2/series/DSPIC96?cid=110
Real personal disposable income has gone straight up for the past 7 years and currently stands at an all-time record high. And all- time record household NET worth deducts household debt. Its NET and its at an all-time record high, including the debt!
Finally, the DJIA stood at 8847.56 at the close of Clinton's final fiscal year ending September 30, 2001 (that's on Clinton's financial/fiscal watch) while the S&P 500 stood at 1040.94 at the close of Clinton's final fiscal year (again, Bill's financial watch) ending September 30,2001--well below the current record levels adjusted or not adjusted for inflation . By the end of Clinton's final fiscal year, the NASDAQ collapsed to 1498.80, down over 70% from its March 2000 high of over 5000--the fastest and most severe financial plunge ever recorded in American stock market history, according to Alan Greenspan. All on Bill's financial watch and all during "the best economy oin 150 years." Well, not exactly (aka B.S.) , Q3/2000 saw GDP contract (decline) by 0.5% and that was followed by a few more declines. The second down quarter occurred in Q1/01--when Bill was still in office. In fact, during Clinton's final 5 fiscal quarters, the Clinton economy recorded 3 down GDP quarters--each and every decline on HIS fiscal watch.
Sorry, lib., but you can't change history. Check your facts before you post! You came across like a financial imbecile.
Posted by on October 11, 2007 12:07 PMOf all 5 quintiles of the economy, the lowest quintile wages have grown the fastest in the last decade. We have virtually no unemployment because of a booming economy, even with 35 million illegal aliens. 5th quintle wage gains, while at a record high, won't increase until there is a shortage of labor, which won't happen with all of the illegals!! With a strong economy, low inflation and lots of cheap labor, interest rates will stay low, which explains why the dollar has fallen compared to other currencies. Other currency interest rates are increasing while the dollar is not, which causes a flight of cash to these funds! Hillary and her increased tax and spending plans will suck the wind out of the economy and cause great havoc and massive unemployment.
Posted by PAK on October 11, 2007 12:08 PMhttp://www.epi.org/content.cfm/webfeatures_econindicators_income20070828
Enough said
Posted by on October 11, 2007 12:18 PMMr. Carroll misses one crucial point in his analysis. Pollution.
The cost of manufacturing in the US is higher than the cost of manufacturing elsewhere because of pollution controls.
From the economic point of view, we have an extra cost above and beyond wage differentials.
From an environmental point of view, we are exporting pollution.
If we were to create tariffs to compensate for low pollution controls at the point of manufacture, we would solve both problems.
Posted by Yaakov Watkins on October 11, 2007 01:03 PMYaakov...the effect on outsourcing from "pollution controls" pales in comparison with the gains made from moving one's operation to countries without proper labor and wage regulations.
Let's take that in perspective....paying a 12 year old girl in the Phillipines .10 an hour to stitch shirts or pay a 25 year old woman in michigan 6.00 an hour to do the same...where do you think the lion's share of mfg cost savings comes from in that equation...astronomically lower wages and predatory labor standards or a "polution tax"?
Doesn't take a rocket science to realize that taking advantage of third world labor practices far outweighs any benefits from getting away from that evil environmental lobby here in the states.
Posted by jay on October 11, 2007 02:28 PMdon't bother with pollution controls, just develop the cleanup technology and sell it to other countries when they're tired of skanking themselves up
Posted by on October 11, 2007 02:44 PMSince the implementation of NAFTA in 1994, the U.S. textile and apparel industry has lost more than 1 million jobs, including more than 500,000 since January 2001. Meanwhile U.S. imports of textiles and clothing have exceeded $96.4 billion in the last 12 months alone.
For some, free trade is an ideology, or even a religion. Trade triumphalists think that trade is an end in and of itself.
Others think differently -- and rightfully so. Rather than being an end in and of itself, trade should be used as part of a MEANS to an end; i.e. bettering lives for Americans, strengthening America's power on the world stage, etc.
Depending on the circumstances, trade can have varying degrees of good or bad impact on the U.S. economy and power.
Just because some companies see higher profits as a result of offshoring or importing, it does not necessarily follow that trade has a positive impact on U.S. GDP. In fact, the record negative U.S. trade imbalances have meant that trade has acted as more than a 5 percent drag as a percent of real U.S. GDP in each of the last five years.
No sane person would argue that mercantilist countries like China should be allowed to use trade to flood the U.S. market with sudsidized goods that would destroy manufacturing sectors of the U.S. economy critical to U.S. national security.
No sane person would argue that America should allow any mercantilist country unequal access to the U.S. market -- but we do with China, Japan, Korea and others.
It is time for the United States to stop playing the chump and start acting like a business realist.
The one piece of leverage that the United States does have to open other markets and boost beneficial trade is access to the U.S. market.
If China is not willing to play by the rules, they should not be allowed the same access to the U.S. market as those countries that do play by the rules. It is not rocket science, other countries are more dedendent on the U.S. market than the United States is dependent on their markets.
The United States has run trade deficits in manufactured goods of more than $3 trillion since 2001. We are losing market share and jobs in many key sectors of the economy subject to international competition.
Dr. Charles McMillion of MBG Information Serviceswrote last week,
"Friday’s BLS report on the US job market in September again shows that massive, on-going fiscal and monetary stimulus is creating only a few jobs and ALL net job growth comes from a few consumer services that face almost no import or outsourcing competition, or export opportunities.
Of the 110,000 net new jobs created in September, state and local public schools created 46,000 jobs, private healthcare and social services created 45,000, and 25,000 more jobs were created in bars and restaurants. This same pattern applies to the 199,000 jobs created over the past two months; 88,000 jobs are in state and local public schools, 91,000 jobs are in private health care and social service firms, and 48,000 are in bars and restaurants.
Manufacturing lost another -18,000 jobs in September and has lost -63,000 over the past two months. Construction lost another -14,000 jobs in September and has lost -36,000 jobs since July. Jobs in firms providing Financial Activities lost -14,000 jobs in September and have lost -28,000 jobs over the past two months. Business and Professional Services added 21,000 jobs in September and added 39,000 over the past two months."
Finally, no one ever got rich by running up their credit card at the big box retailer instead of investing their money. The United States has a serious production shortfall. If we don't start producing more and righting our international imbalances, America will lose more and more of its ability to control its economic destiny.
Let's not become what Warren Buffet calls a "sharecropper's society" where America spends a disproportionate share of its earnings servicing foreign-held debt or where America is forced to sell off its most profitable assets to pay what we owe others. Bring back pragmatism to U.S. trade policy instead. The only thing at stake is America's standard of living for future generations.
"The United States has a serious production shortfall. If we don't start producing more and righting our international imbalances, America will lose more and more of its ability to control its economic destiny."
Manufacturing output is currently at an all-time high.
http://cafehayek.typepad.com/hayek/2007/09/the-state-of-ma.html
Just like the US agricultural sector has seen output surge over time even as it accounts for less and less employment, so it is with manufacturing.
Posted by Colin on October 11, 2007 04:05 PM"Real household incomes have gone DOWN for 7 years in a row.
Posted by on October 11, 2007 10:32 AM "
Please get your facts straight. Household incomes went down for several years early in the decade, they have begun rising again.
http://www.census.gov/prod/2007pubs/p60-233.pdf
Posted by ConsDemo on October 11, 2007 04:17 PMIncreased productivity isn't going to change the fact that we've outsourced millions of jobs to other parts of the world that have lower labor and wage standards than we do...effectively mortgaging millions of americans' futures to make a buck for the few.
That's tough to rationalize or justify...considering that we'll normalize global wage and labor practices eventually....but only after the wages for MOST American mfg jobs have taken the necessary plunge to the basement...or after those jobs simply no longer exist on this continent.
Posted by jay on October 11, 2007 04:23 PMThe more we trade the more we prosper, the more we prosper the more we trade. Protectionists ought to read David Ricardo's reasoning on free trade and get educated instead of parroting what the Ralph Nader's of the world are saying. I like trade because i can now buy cheap products and live in an economy where inflation and interest rates remain low. And the government has no right to restrict trade flows and lower my standard of living through protectionist policies. Let the market rule. Empower people, not governments.
Posted by Jack on October 11, 2007 08:51 PMIn reference to Colin's comment,
Is manufacturing output up, yes it is. But demand is up even higher.
While U.S. demand for Durable Goods and Non-Durable Goods has exploded by 134.5 and 46.9 percent respectively between 1993 and 2005, U.S. production failed to keep pace. U.S. production of Durable Goods grew by 68.2 percent and Non-Durable Goods grew by just 18.2 percent during the timeframe mentioned above.
As a result, U.S. domestic manufacturing only captured 50.7 percent of growth in demand for Durable Goods and a paltry 38.8 percent of growth in demand for Non-Durable Goods between 1993 and 2005. With some growth in exports – including bounce-back outsourcing to Mexico – U.S. domestic production growth covered less than half of domestic demand growth.
Moreover, capital investment in U.S. manufacturing in new and used plant and equipment in REAL terms is lower now than in 1992 when the U.S. population was 50 million smaller. Also, during that time, real U.S. GDP growth is up approximately 50 percent.
The bottom line is that U.S. manufacturing is not growing nearly as much as it should be growing. The reason for the lack of growth is a flood of subsidized imports from countries like China.