Free trade and the Democrats Posted by: McQ
on Monday, January 15, 2007
Stephen Chapman is afraid, no, in fact he's sure that Democrats are going to engage in a war of choice of their own - one aimed at restricting free trade:
"Free," when modifying "trade," is a four-letter word on the left. Bill Clinton favored breaking down barriers to international commerce, but the idea has lost favor in the Democratic party, and in the November elections it sunk further into disrepute. The American Prospect, a liberal magazine, reports with glee that "every single newly elected Democratic senator is a critic of free-trade orthodoxy."
Among the most vocal critics of open commerce is Sen. Sherrod Brown of Ohio, who has never met a trade deal he liked. In a recent interview with National Public Radio, he said, "People feel these job-killing trade agreements have really squeezed the middle class and caused lots of people to lose their middle-class status. . . . [Most Democrats] think our trade policy encourages more companies to leave the country. They think our trade policy has caused more and more businesses to outsource." And he vows not to vote for any agreement that doesn't impose strong labor and environmental standards on our trading partners.
Brown reflects the views of labor unions, but you shouldn't conclude that organized labor is merely concerned about low-paid workers in Mexico and Guatemala. The AFL-CIO opposed the 1989 free-trade agreement with Canada . If Canadian workers are a threat, who isn't?
One of the reasons the middle class is being squeezed has nothing to do with low-paid workers in Mexico or Guatemala, but instead those workers coming here illegally. A middle class American plumber who used to work for X dollars is now force to work for X-Y dollars, that price being the difference a plumber of questionable immigration status is willing to take, in cash, for the same job. It helps your pricing when you're not trying to maintain or feed a family here and don't pay taxes. And this goes on constantly.
Another problem is that labor and Democrats claim to want to save jobs here but do so by pursuing a policy that punishes consumers. By barring or putting heavy tariffs on goods from countries which don't meet their arbitrary "strong labor and environmental standards", they diminish the buying power of those that can afford it the least and for whom they claim to have the most concern, the working poor.
Chapman points out the absurdity of the thinking which prevails among the unions and trade-restrictionists:
To say developing countries shouldn't be allowed to take advantage of their workers' willingness to accept low pay or hard conditions is like saying we shouldn't be allowed to make use of our high-tech factories or our skilled labor force.
It's the equivalent of telling them they shouldn't produce anything until they've advanced to our standards — which they can't do unless they start from where they are and work their way up.
But this "Catch-22" is exactly the reasoning they advance. And it still doesn't "protect" jobs. Labor is one of the most expensive factors of production. Consequently, when things such as the minimum wage are imposed, they arbitrarily raise the cost of that factor of production. At some point, a business, whose purpose in life is to turn a profit, must consider alternatives. That can mean cutting the work force, automation or moving production to a less costly labor environment.
But other than an excuse for protectionism, how bad has outsourcing really been? Not so bad in reality:
A report by the federal Bureau of Labor Statistics found that in 2004, foreign outsourcing was responsible for only 2 percent of all U.S. job losses. The vast majority occur because of vigorous competition and changing consumer demand within our own borders — such as auto production shifting from Ford factories in Michigan to Honda plants in Ohio.
Or Alabama, a "right to work" state. In reality, more open trade hasn't hurt us at all regardless of what the protectionists would like you to believe:
The worst villain among protectionists is the North American Free Trade Agreement, which opened up business with Mexico. But since it took effect in 1994, total employment in this country has risen from 112 million to 136 million, and the unemployment rate has dropped from 6.6 percent to 4.5 percent.
If anything, Democrats should be looking at opportunities to strengthen and expand free trade. Instead, it appears they're more likely to look for opportunities to restrict it, all on arbitrary grounds which will reward one of their main constituencies, big labor:
Blaming international trade for wage stagnation in this country is like blaming lettuce consumption for rising obesity. Trade is about selling American goods abroad as well as buying imports here. Exports have been rising, and studies indicate that the jobs created by exports pay better than the ones destroyed by imports.
Brown and others cling to the superstition that we can get rich by sealing ourselves off from the world and paying each other high prices for products made entirely in the U.S. of A. If they manage to erect new barriers to trade, we'll learn once again that protectionism is nothing but fool's gold.
I am a free trader, Although I am not one of those who thinks we are better off with our trade partners screwing us over and stealing our copyrights and restricting our trade with them. Free trade has to have some sort of enforcements.
Having said that, It is amazing to me that people do not see the obvious parallel between nearly 25 years of fantastic wage, monetary, and productivity growth in most of the world, and the fact that it all started in the early 1980’s when a majority of nations began to lower trade barriers and enter more forcefully into the world economy.
Actually, Hong Kong comes very close to free trade...
One of the arguments for immigration in my opinion would be that it would allow the USA to keep a larger manufacturing base. Yes, it might depress wages at the lower end of the scale, but you would also keep engineers, technical positions, design, etc. here in the USA.
What happens now is that the factory shuts down and the company begins importing. Wow, what a great cost savings! The engineers and designers are kept around to help the supplier with quality and come up with new products. But within 5 years the Chinese supplier has their own engineers and their low cost designers now have a good feel for the US market. The importer ends up just being a middle man. Then the Chinese begin to sell directly to the stores and we are left only with consumption.
Now, that’s fine too, but would not happen if we could import guest workers to keep the unit labor costs low on the labor intensive parts of the operations. Would that lower wages overall or be any different from shutting down the plant or moving it to China? I don’t know.