Cox: Slicing global trade with a GE carving knife

By Rob Cox
June 9, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Emptying out the basement of my grandparents’ home in New Canaan, Connecticut a few years ago, I found an electric carving knife. From the still-unopened box, I learned that my grandfather had bought the General Electric appliance, which features two alternating serrated edges that slice through an overcooked turkey like butter, for around $19.99 in 1970.

The knife still cuts beautifully. But the chain store where it was purchased, Caldor, liquidated in the 1990s, trampled in Wal-Mart Stores’ march toward retail domination. The GE factory in Bridgeport where it was manufactured, along with toasters and coffee percolators, was torn down brick by brick a few years ago. It once employed 20,000 workers and housed a bowling alley and pool hall for employees.

Nostalgia for such places, and the era in which they thrived, is one factor behind the popularity of both Republican Donald Trump and Democrat Bernie Sanders in the U.S. presidential race. Both rail against free trade and globalization. Similar rhetoric plays into Britain’s upcoming vote on whether to remain in the European Union or leave. Homegrown workers, the narrative goes, have been displaced. Good jobs have vanished. Ordinary people’s wages have been stagnant, or nearly so, for years. So blame cheap foreign labor or, in the Brexit debate, immigrants.

Even the latest chapter in the carving-knife story doesn’t obviously change that picture. Just this week, GE completed the $5.6 billion sale of its white-goods business, which began producing heating and cooking devices in 1907, to Haier, a company based in Qingdao, China. Haier would have been the Red Star Electric Appliance Factory back when my grandpa, the son of an Italian immigrant who made hats in Danbury, Connecticut, went shopping at Caldor.

What’s lost in the telling of this and countless other wistful anecdotes in the United States and elsewhere, however, is the other side of the story. Developed economies have gained hugely from freer trade, something which – as economists think about such things – expands the available pool of labor beyond national borders.

The trouble in making the case for globalization is that it simply doesn’t tug at anyone’s heartstrings. As Johan Van Overtveldt, the finance minister of Belgium, which has seen its fair share of industrial hollowing-out, said this week in an interview: “The advantages of trade are divided and shared among the entire population, so the per-capita impact seems relatively small. But the disadvantages can be huge, highly concentrated and visible. That’s why it is essential for policymakers to explain the benefits clearly.”

With so few political leaders speaking up for the free movement of goods and people, my humble electric knife may perhaps do its part. GE Appliances, which on Monday became a division of Haier, no longer makes carving knives. But Stanley Black & Decker offers a comparable device, made overseas, for $15.99. That’s $4 cheaper than its 46-year-old antecedent. But adjust the $19.99 my grandfather spent in 1970 for inflation, and in today’s terms he paid around $120, enough to buy seven Black & Decker models. That, in a nutshell, is a quantified benefit of globalization.

For further evidence, trawl through the spring-through-summer 1971 edition of the Sears, Roebuck catalogue, which back then would have landed in the mailbox for free but cost me $21.99 on eBay. Nearly everything in its pages was made in the United States. There’s a 5,000 Btu, three-speed air conditioner advertised for $139.95, which would come to more than $820 adjusted for inflation. Frigidaire offers a model with the same features today for $139.99.

But wait, there’s more. A Ted Williams two-man tent available in 1971 from Sears would have cost $350 in current terms, while a new Poco Divo two-person backpacking tent goes for $19.99. The comparisons go on, from appliances to clothing, from toolkits to babies’ toys. While there are other reasons some consumer goods have become so much cheaper relative to purchasing power, it’s clear that a big driver has been reduced friction in the flow of manufactured goods, services, raw materials and, ultimately, labor across borders.

Nobody would argue that saving a theoretical $100 here or there is an acceptable tradeoff for the loss of thousands of decent jobs. But in the context of what U.S. consumers spend every year – some $11 trillion, or around two-thirds of GDP – the benefits are massive and widely shared. Telling Americans that the quid pro quo for bringing jobs back home, as Trump likes to put it, would be a sevenfold increase in the price of lots of goods makes the sound bite a lot less appealing.

Displaced workers, though, have voices. They have families to feed and experience genuine suffering. “Open trade creates dislocation and that has to be dealt with,” Lance Fritz, chief executive of railroad operator Union Pacific, told me last week. “But equally clearly, the many benefits of trade need to be articulated, and that’s not happening in the current political climate. As a result, global trade is not getting its fair shake in the dialogue, and that can have serious consequences.”

That certainly was the case with the Tariff Act of 1930, sponsored by Congressman Willis Hawley and Senator Reed Smoot. In the five years following the passage of the Smoot-Hawley legislation, world trade fell by two-thirds. The act, which raised import duties on 890 products, is touted by economists as a catalyst for the Great Depression and the associated catastrophic loss of employment.

Closing borders to “protect” good jobs isn’t, therefore, the answer. Explaining how free trade benefits everyone requires a nuanced approach, and the losers deserve a fair hearing, too – and potentially some help. Such precision is missing in the arguments on both sides of the Atlantic. Maybe my venerable GE electric slicing knife can help provide some.

16 comments

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Free trade is probably more beneficial than not. The problem is that the benefits of free trade are not evenly applied. NAFTA absolutely destroyed the manufacturing base of my home town while many of the companies that relocated to Mexico found ways of keeping that profit from lower costs and regulation off shore. With NAFTA there was supposed to be support legislation to re-train displaced workers. It was never fully implemented. So a master machinist with a comfortable home and a child in college was competing against a worker in a Mexican slum living in a concrete block hovel with a cement floor and washing their clothes on the back porch. The former is now a greeter at WalMart while the other actually makes less money than an apprentice.The profit generated goes to investors, many of which have creative ways of avoiding taxation.The other aspect is forcing American workers to compete on an uneven field against workers with a radically lower standard of living. And there is also no mention of the difference in quality of imported products. Add to that equation the social costs of unemployment and lower revenue to the Social Security system and that cheap carving knife that will last less than two years and can’t be repaired looks a bit more expensive.

Posted by elcantwell | Report as abusive

The inflation numbers do not account for current US manufacturing methods. That electric knife might be 29.99 today not 120.00. I base this on my 30 years in manufacturing.

No one would expect the same workforce size given manufacturing automation but surely some jobs would be had. Americans might prefer less ‘stuff’ in their homes due to higher price while keeping jobs here? The manufacturing move overseas happened so quickly we hardly had the chance to find out.

Globalization entwines many countries economies and that prevents wars. That is a good thing.

Posted by JonKing | Report as abusive

Not sold on your arguments. Appliances and other hardgoods are down a lot, allowing for inflation, but this began before manufacturing moved away. Automation and cheapening are factors in addition to lower labor costs overseas. Expect that the 19.99 tent will start to come apart on first use. Carrier’s move to Mexico and many many other such moves are too damaging to communities and are big factors in hollowing out the middle class. Its not just nostalgia. And to suggest that Smoot Hawley caused the depression is a stretch. Again, one factor but not the main one.

Posted by D_in_newmex | Report as abusive

So the “benefits” of free trade are cheap goods. That is essentially the only argument you have put forward.
Cheap goods made in countries with no labor or environmental standards. Countries where children can work 16 hours a day for $2.00 a month. Countries where untreated toxic waste can be dumped into rivers and lakes and the drinking water of the kid making $2.00 a month without consequence. All that for a $15 electric knife.
Look at China and Bangladesh, the countries are toxic waste dumps. Scandal after scandal where the unscrupulous poison everything including children, who die as a result.

Tell me Mr. Cox, other than your $15.99 electric knife, tell me how the average joe in the US benefits?

Posted by forzapista | Report as abusive

I would prefer good jobs to cheap T-shirts. The only people who love the new economy are the affluent and large corporations.

Posted by jclaytonshaw | Report as abusive

Excellent article. There’s one aspect missing, though — how some American jobs have increased as a result of globalization. Boeing, Caterpillar, technology companies, electronic equipment manufacturers and many others would employ far few people if their exports were limited.

Posted by RudyF | Report as abusive

The inflation numbers do not account for current manufacturing methods. Based on my 30 years in manufacturing that electric knife might be 29.99 today.

No one would expect the same workforce size given manufacturing automation but surely some jobs would be had. Americans might prefer less ‘stuff’ in their homes due to higher price while keeping jobs here? The manufacturing move overseas happened so quickly we hardly had the chance to find out.

Globalization entwines many countries economies and that prevents wars. That is a good thing.

Posted by JonKing | Report as abusive

No mention of wage stagnation in this article, which is another “benefit” of globalization.

American workers’ productivity increased hugely over the time period referenced in the article, though their wages remained flat. In real terms, many families are much worse off now than they were in the 1970s.

Another fatal flaw in the argument is the failure to discern the difference between things that are needed and things that are not. That the American public can now be buried under an avalanche of cheap plastic from China is hardly the ideal of human progress.

So, here’s an article that purports to defend globalization and doesn’t mention wage stagnation, wealth and income inequality, and the decline in the standard of living for a huge swathe of working America. Never mind the use of globalization to defeat labor and environmental protections. With a defense like this, who needs enemies?

Posted by ToddNT | Report as abusive

For now your argument seems valid, but over time, when the labor costs in developing nations nations invariably rise, and inflation hits the U.S. accordingly, what then? Stagflation, a weaker Dollar, Stalled GDP growth, combined with the outsourcing of the millions of quality jobs over time………….not a winning strategy IMO.

However, your point is well taken, but the answer is, as always the middle ground. Tempered Globalization, with carefully considered localization.

Capiche?

Posted by BrunodeLande | Report as abusive

People calling for manufacturing to be moved back to the US clearly know little of today’s production world. New manufacturing plants, other than maybe very small ones, use high tech robotics on assembly lines not people. Foxconn, the Chinese company that makes products for Apple and others, is replacing 60,000 production workers with robotics. For better or worse robotics has seriously begun to replace human workers in many areas. McDonalds has said if the minimum wage goes to $15.00/hr they would consider replacing kitchen workers with robotics. The long term cost would be less. AI in the near future will likely start to eliminate white collar jobs. Instead of yearning for a past that won’t return we need to learn how to adapt to the “new” world.

Posted by genmist | Report as abusive

So globalization is the necessary ingredient to neutralize monetary inflation? This is actually an argument against globalization as well as central bank monetary policy which concentrates power and increases inequities.

Here’s another point that you’re also missing: even with monetary inflation – goods and services will become cheaper as the technology necessary to produce them becomes more efficient and is further developed. It is not simply cheap labor in countries without labor unions, mandatory health benefits and little to no regulation – but also the fact that processes and technology improves over time resulting in a lower cost to produce and, thus, lower consumer prices.

Globalization is simply hidden theft and slavery. Countries are much more than markets and our leaders have been in thrall to forces which benefit greatly from concentrating wealth and power into the hands of fewer and fewer people, all while eliminating national sovereignty, borders, culture, native populations and any ability for people to resist or control their own futures.

Globalism’s time is over. Localism, sovereignty and sound-money are the future.

Posted by colson | Report as abusive

All nice and dandy except not a word about what the wages of the middle class would have been had they kept the pace with increases in productivity. So suddenly that $350 tent wouldn’t be such a big deal. Keep talking.

Posted by woland | Report as abusive

Somehow in 1970 as I recall we were not deficit in the goods we needed to live. Trinkets now are cheaper, but back then our families were functioning better. Working class young men could get good jobs and could start families sooner. You can keep your cheap electric knife.

The lifespans in the white working class of America now are actually going DOWN. Put a cost estimate on that Rob Cox! Put a cost on the heroin epidemics in former mill towns. You ignore externalities, like most globalization cheerleaders.

Posted by BlueGreen360 | Report as abusive

There are values beyond the economic. Those who fail to see this cannot hope to fully understand anti-globalist sentiment.

Posted by RichardSloan | Report as abusive

I guess I’m wondering if costs of items such as those described would have increased as much as calculated in the article given increased efficiency due to computerization since the 1970s. Granted, this would have cost some jobs, but not via outsourcing to other countries.

Posted by BobWilliamson | Report as abusive

Free trade is used a slogan to defend all trade deals. But their negotiations are reported in the news usually as held up over protection of farm interests (farms in the US do not pay high wages hire migrant, gest, andillegalworkers) or intellectual property rights of firms who do not (have big payrolls of long term US citizens).
In short they are free trade and do not protect the bulk of US citizens.

There cannot be long term free trade bet ween areas without a single government. All government supported economic rules and conditions affect trade like wages levels supports, education, safety nets, health rules and supports etc. Vast differences in them or wages will result in mass job migration.

Adam Smith did not take effect of vast wage and government regulation into account. In the long term thwere will always be losers and winners in trade.

Posted by SamuelReich | Report as abusive