Thursday, May 21, 2015
The War of Industries
There is no question but that the higher the tariff on imported goods, the greater the impact on trade. And if one industry has a product or commodity that is in high demand on the other side of the world, the last thing that business sector wants to see is its exports to that consumer base subject to high duty-charges.
American agriculture, for example, wants low tariffs on foodstuffs so foreign buyers will consume more of their exports. Our farms are highly mechanized, with less reliance on labor than many foreign farms. We operate from scale with incredible efficiency. Foreign countries often want to protect their farmers.
But to get lower tariffs on some American exports often requires reciprocity, almost always across the board. We, likewise, have to keep our duties on such foreign nation’s exports to us reasonable as well. That’s great for agribusiness, but when American manufacturers – with inherently higher labor costs – face significantly-cheaper labor costs from their international counterparts, they really want an equalizer with a higher duty on such foreign goods. And if they don’t get those protective tariffs, well, they often are forced to take their manufactures overseas to avail themselves of that self-same lower labor cost component.
While that might be great economics for the U.S. business with overseas manufacturing capacity, that’s terrible news for the American workers who were displaced in the process. And when we hear about the flood of new manufacturing that is returning to U.S. shores, the benefits, for the most part, are enjoyed by the companies that now use robotics and automation instead of workers to implement this business strategy. Displaced workers are still… displaced.
Global trade is a reality, and it is now virtually impossible for any modern, developed country to turn against world trade, isolating itself into a lesser-trading status. If you were to take cheap manufactured goods, from China, Mexico, Bangladesh, etc., etc., out of the U.S. retail marketplace, American cost of living would soar well-beyond its increasingly unaffordable state today. So what do we do? If you can’t beat ‘em, make the process easier? Or figure out how to maintain some protective barrier to prevent wholesale displacement of too many more American workers?
It’s clear that American stock prices have risen in no insignificant part due to the flexibility given to American companies to outsource with fewer concerns about trade restrictions, but corporate wealth does not necessarily translate to better wages and working condition for average American workers.
That is precisely the issue behind the elimination of trade barriers under NAFTA (which was passed over two decades ago embracing North American trading partners) and the 17 trade agreements passed by Congress since then. Now we face the Obama Administration’s proposed (and still being negotiated) Trans-Pacific Partnership Trade Agreement, which has oddly generated strong pro-business GOP support while sending warning flares from Obama’s own party. Democrats are staring at the potential of displaced American workers; Republicans are seeing a more open trading field.
The problem, it seems, is the failure of our own economy to absorb too many of those workers who have lost their jobs as a result of such expanding global treaties that tear down trade barriers. “The costs of globalization have been greater and more enduring than they expected, and government efforts to mitigate the impact on American workers have often proved insufficient.
“‘I think what we’ve learned is that U.S. labor markets aren’t as flexible and self-correcting as I think we had presumed,’ said Gordon Hanson, an economist at the University of California, San Diego. ‘The uneasiness I have about the way we’ve handled globalization is not so much globalization itself. It’s that if you don’t have the right safety net, you’re going to impose an enormous amount of hardship.’
“There is also mounting evidence that the benefits of globalization have accrued disproportionately to upper-income households, while the costs have fallen heavily on the less affluent, contributing to the rise of economic inequality.
“The Obama administration has presented the proposed agreements — one with nations that border the Pacific Ocean, the other with Europe — as, in part, a shield against globalization that would require other nations to move closer to American standards for environmental protection, worker rights and intellectual property.” New York Times, May 18th. Forcing our trading partners to pay living wages and observe environmental concerns is part of a solution, but to many, this hardly goes far enough.
But does history suggest that there just may be less than meets the jaundiced eye? “In 2013, on the 20th anniversary of Nafta, the Congressional Research Service reviewed the research and concluded it was not that big a deal… ‘In reality, Nafta did not cause the huge job losses feared by the critics or the large economic gains predicted by supporters,’ the report concluded…
“A 2005 study by the Peterson Institute for International Economics, a research group in Washington that is a strong proponent of trade deals, estimated that embracing trade had added about 7.3 percent to America’s economic output — or about $10,000 in annual income for every household in the United States.
”But the benefits are not distributed evenly. Trade increases overall prosperity by eliminating less productive jobs. In theory, the workers find new jobs. In practice, studies by Mr. Hanson and other economists show that [some rust-belt] in cities…, global competition is increasing unemployment and reducing wages.” NY Times. While some workers have obviously benefited from open trade barriers, others have been slammed into obsolescence and have simply not recovered.
Congress doesn’t seem to know how to grapple with the underlying income inequality issues, and while it could create or stimulate jobs with massive infrastructure (we’re spending less as a percentage of GDP today than at any time since 1947), educational/training and sponsored research commitments, it has tied its own hands by proscribing raising any money anywhere that could result in higher taxes anywhere on anybody… tax policies that have failed miserably to create solid jobs. We cannot stop global competition, and even keeping barriers intact is unsustainable. We need to manage global competition and not think we can prevent any harmful changes; they will occur one way or the other. There will be winners… and losers. But a sympathetic Congress could make a difference.
I’m Peter Dekom, and it does seem counter-productive to let a Congress – with its head buried in the sand and a ball and chain around its ankles – make decisions that require flexibility and genuine understanding.