Reverse Free Trade

Liberal or conservative, we all agree that a job is better than a handout.  But the availability of family wage jobs has been steadily declining as manufacturing jobs disappear.  Wages and benefits are stagnant, factories have closed and we are more valued by the rest of the world for our consumption of their goods than the production of our own.

My parents'generation could live comfortably on a single income, allowing mothers to stay home, raise families and cook wholesome meals.  After the 1970s, that changed and women entered the workforce en masse.  But instead of doubling the resources available to families, job security, wages and benefits eroded and prices rose sharply, requiring two jobs just to keep afloat.

For generations, we Americans have expected our children to have more opportunities and to fare better than we did.  Suddenly that has changed.  Not only is the wealth disparity growing but now we read that poor families are seeing fewer and fewer of their children in college while the privileged few dominate the competitive universities.  Government can and should take action to reverse this trend in two areas:  trade and education.  In both cases, a reversal of recent trends would suffice.  I've discussed education extensively in Noggin Strain and will focus on trade here.

Take a look at the following chart, from exponential

Notice the steady growth in the 1960s, spurts and stops in the 1970s and then a steady decline after 1980. During this period of time (1960-2008), total U.S. population increased by 75% (adding 131 million) and 120 million women were added to the workforce.  To sustain job levels, manufacturing employment needed to rise similarly.  But instead, it has eroded.  The fall from nearly 20 million manufacturing jobs in 1978 to just over 13 million in 2008 was no accident.  It was directly related to government trade policy.  Because government caused the problem, government now needs to fix it.

Free Trade has been the centerpiece of economic policy since Reagan, with GATT and then WTO (World Trade Organization) and NAFTA (North American Free Trade Agreement) wiping out trade protections.  The sales pitch has been that this will open foreign markets to American manufacturers.  But a look at some of those domestic industries in the top ten of exporters reveals a more complex picture.

Automobiles and automobile accessories are one of the largest categories of exports from the U.S. to other countries.  In 2008 we exported $50 billion worth of cars and another $40 billion worth of accessories.  Good for us.  That same year though, we imported $79 billion worth of cars and $65 billion in accessories.  So even in our highly successful auto industry, imports were 50% higher than exports.  Pharmaceuticals are another successful export product, with $40 billion in annual exports.  Balance that against $79 billion in imported pharmaceuticals, double what we sold abroad.

Even the computer industry has been bleeding jobs.  We learned recently that Apple Computer, the world's most valuable company, has outsourced 700,000 manufacturing jobs to Asia.  Compare that to the 47,000 people Apple employs in the U.S.  And the computer industry in the U.S. employed MORE American workers in 1975 -- when computers were rare indeed -- than it does today.

There was a time when "big business" meant "big American businesses".  In the days of free trade though, big business now means multinationals, companies that profit from moving goods across borders and that show no allegiance to any nation.  Their interest is in cheap labor, lax environmental standards and no trade barriers.  They move goods and capital (their investments) freely across borders.  They have no vested interests in the cities that host their factories and no compunction about abandoning factories and workers if it's slightly more profitable to do so.  They park their profits wherever they can avoid paying taxes, leaving others to pay for the secure shipping lanes, ports, infrastructure and military might they depend upon. 

So what's to be done?  Eliminating tax incentives for moving your business overseas is a start but only a start.  More importantly, we need to care for American manufacturers.  Both the producers and the workers need to be prized again and protected from the destructive forces that endlessly seek lower wages, less stability, less oversight and fewer safeguards.  That will require a reversal of the past 30 years of free trade agreements.  It requires tariffs.

While there still are some tariffs -- mostly agricultural -- we have exempted most of the world's countries from them through various agreements.  Let's commission an independent panel to look industry by industry at the impacts of loosened tariffs over the past 30 years.  Look at several questions:

1.  What has happened to the domestic producers of the products?
2.  Is there still a viable domestic producer of these goods?
3.  Are American companies producing the products overseas or are the products appropriately imported (e.g. silk kimonos should be imported; iPads designed and sold in the U.S. maybe should not be).
4.  What level of tariffs would be sufficient to protect American producers and workers?
5.  What would be the impact of other nations' retaliatory higher tariffs for our exports?

I do not propose reinstating tariffs because we need the revenue.  We could reinvest what is received in tariffs to build infrastructure for American businesses  -- energy, transportation, water.  But that isn't the purpose.  The purpose is to salvage what's left of American manufacturing, family wage jobs and our sinking economy.  Without manufacturing, a nation of our size cannot be sustained.

Note:  Today we export more raw materials -- oil, lumber and food -- than manufactured goods.  Oil is in fact today our number one export.  With the pressure the extractive industries (oil drillers, miners and timber companies) place on the environment, it's probably worth looking at our exports as well.