–- Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –-
When Congress inserted “Buy America” protectionist provisions that required some goods (such as steel, cement, and textiles) financed by the stimulus bill to be made in America, our government invited a trade war with important economic partners. Now China and Canada are imposing their own protectionist regulations, potentially destroying well-paid American jobs in the export sector. Other countries may follow suit.
This week China reported that the government now requires stimulus projects to use domestic suppliers when possible, even though in February it promised to treat foreign companies equally. The Chinese $585 billion stimulus package has resulted in a World Bank growth forecast of 7.2% for China this year, far above other industrialized countries.
And on June 6 the delegates at the Federation of Canadian Municipalities passed a resolution calling on “local infrastructure projects, including environmental projects such as water and wastewater treatment projects, [to] procure goods and materials required for the projects only from companies whose countries of origin do not impose trade restrictions against goods and materials manufactured in Canada.”
The tragic losers of “Buy America” are free trade agreements and potential job growth in the American economy. Seductively, “Buy America” promises workers they can have it all — cheap goods from China, oil from Canada, as well as protection from global competition. But real life just doesn’t work that way. In reality, “Buy America” is shorthand for fewer jobs as other countries retaliate.
Many markets no longer have national boundaries but global reaches. America sits at the center of global markets for technology, equipment manufacturing, finance, banking, fashion, and advertising — to name but a few. When international markets expand, America grows. When barriers are erected to trade, jobs — and also wages —shrink.
Trade creates jobs not just through investments of foreign companies at home, but also by increasing employment at exporting firms. This effect, though less obvious, is far more significant. That’s why “Buy America” hurts employment.
Andrew Bernard, a professor at Dartmouth College, together with economists Bradford Jensen and Peter Schott, find that firms that trade goods employ over 40% of the American workforce. They conclude that approximately 57 million American workers are employed by firms that engage in international trade.
They analyze American imports and exports using customs documents that accompany shipments of goods crossing the border, along with reports of firms’ employment. The resulting information provides the most precise picture available of the employment effects of American trade.
Back in February, Caterpiller spokesman Jim Dugan declared, “Our position is that, while ‘Buy American’ may sound good, in fact we’re very concerned that if this stimulus legislation contains the ‘Buy American’ provision, other nations and regions of the world would follow our lead and pass similar provisions.” He was right.
Trade also benefits millions of families who cut their shopping bills by buying low-cost imports. To take just one example, the amount that Americans spend on clothing has declined by 21% in real terms over the past 20 years, yet our closets are fuller than ever.
The benefits of free trade, such as increased employment, higher economic growth, and lower prices, are often taken for granted. But the disadvantages of free trade — such as the occasional instances of shuttered plants and lost jobs where American firms are not as efficient as international competitors — are all too visible.
Trillions of international dollars pass through America each year not because we are isolated, but because we are the hub of the world. Terrorists twice attacked the World Trade Center because the building symbolized international trade. They destroyed a building and murdered thousands of innocent Americans, but they failed to vanquish world trade. Sadly, politicians who erect barriers to trade are hostile not only to trade but to our country and to our jobs.
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Personally I like the concept of free trade and globalization. I don’t like the reality though where more and more of this trading and globalization is increasingly in the hands of fewer and fewer corporations and individuals. Quite how this can be reversed is hard to see as these organizations, which may look to be nationally aligned have in fact transcended national borders and aren’t under the mandate of any one government. Any pressure applied will just see them move to a different jurisdiction.
There is a lot of employment to be had in the less efficient model of times not so far gone, where individual companies had their own head and regional offices, accountants, lawyers, other employees and suppliers etc., rather than the group of companies model where so much of these functions have been efficiently eliminated.
This article is total Bull Crap. We have had a negative trade balance in goods and services for about 30 years. This means that if we had traded with no other country we would have come out ahead. Instead we shipped jobs overseas destroying the engine of our economy; making recovery from the depression almost impossible. You can not spend your way out of a depression you must grow your way out, and for that you need the industry that we no longer have enough of.
The concept of Free Trade is a completely bogus idea designed to mislead people -while destroying their Jobs and growing World Government and International Corporations.
Our only hope for recovery now is to rebuild our manufacturing infrastructure and impose import taxes -to bring the jobs, industry and technology back home.
http://research.stlouisfed.org/fred2/ser ies/BOPBCA
The link above to the St Louis Federal Reserve website shows the USA current account from 1960 to present. One can see the bubble shape in the graph of the deteriorating and obviously unsustainable trade situation.
This graph corresponds with corporate America embarking in earnest on so called “free trade” involving the offshoring of the real wealth generating mechanisms of our economy. I say “so called free trade” because several of our largest trade partners do not practice free trade or even have free markets in their countries. I think it quite naive to think we are free traders when our trading partners manage their currency, create hidden structural impediments to trade and pile up our currency as reserves in the form of treasury bonds. In the end we allow the communist party in China to in fact manage our economy when we don’t protect ourselves.
The situation we find ourselves can only exist because of the aberration of having a sovereign currency used to settle trades. Prior to WW2 trades were settled in gold and unsustainable trends such as this couldn’t have happened as the scarcity of gold itself self limited the process. Ultimately the sovereign (USA) cannot resist the temptation of being able to print “gold” when other countries print paper. We in the USA do benefit from cheap foreign goods AND the ability to pursue a guns and butter economy that has never historically been possible.
The downside though is that a structurally over valued currency combined with mercantilist trading partners only too eager to allow us to transfer our real economy to them results ultimately in USA businesses and citizens not being rewarded to invest in USA production or the skillsets an advanced manufacturing economy requires. The day of reckoning will be when our trade “partners” cancel our charge card (change the world’s reserve currency) and we face a future of plumeting dollar value, imported inflation and a long road back reindustrializing.
We are living out the biblical tale of Esau and Jacob. The USA/Esau is only to eager to sell our birthright (the world’s most advanced manufacturing economy) for Asia/Jacob’s pea soup of cheap consumer goods and short term profits.
My apologies to our Canadian friends. I don’t believe there is any problem and there shouldn’t be any barriers to tarde between our nations. But with China, Japan, Korea? Absolutely.
Last week was the 20th anniversary of the Chinese government slaughtering it’s own people in Tiananmen Square. For those who have forgotten, all around the world were massive peaceful protests for democracy in countries all across the former Communist bloc where the leaders peacefully and for the most part gracefully (think Boris Yeltsin, Mayor of Moscow leading the citizens against the briefly attempted crackdown and shaming the soldiers off the streets) accepted the inevitability of the will of the people for the things we take for granted such as democracy, freedom of speech and free markets. Even the Berlin Wall, long a symbol of tyranny crumbled. In the wake of these successful and peaceful revolutions the Chinese people took to the streets to demand the same from their government. For weeks protests went on culminating in over 1,000,000 Chinese citizens peacefully gathered in Tiananmen Square in their capital city of Beijing.
Unlike the Soviet Union and elsewhere in Eastern Europe the Chinese government responded by sending in their 4th Army complete with tanks and machine guns to slaughter over 2000 of their own citizens in the streets of their nation’s capital. In the aftermath, whatever small freedoms that Chinese people had been allowed were withdrawn, there were massive arrests, imprisonment and executions. To this day, there has been no further political reform and China remains one of the most authoritarian countries on Earth. Interestingly, to this day the USA and EU maintain an arms embargo on the People’s Republic of China in response to this massacre.
While we maintain an arms embargo, it is an interesting contrast that the USA has deemed this very same, unreformed and unrepentant authoritarian China sufficiently trustworthy and sharing of our values to transfer our manufacturing base to them and become reliant on their goodwill to loan us money to operate our government. American businesses and businessman think it routine to move production and technology to China, inevitable really. We as citizens have become used to most things we buy to read “made in China” and nobody bats an eye when the Secretary of the Treasury goes to China to kow tow to their leadership and beg them to keep buying our bonds.
I don’t normally leave responses of this type but thought it right to honor the Chinese martyrs who gave their lives for freedom in Tiananmen Square by giving a little thought to how we in the Land of the Free, Home of the Brave have become the economic subjects of this very same government that would slaughter it’s own citizens in the streets. A very wise and very wealthy man by the name of Warren Buffet saw this day of our economic servitude coming and all the way back in 2003 published an article warning his countrymen and giving his own, what I think eminently sensible approach, to ensuring our economic wellbeing and freedom. I’ve attached a link to his article and hope everyone takes a minute to read and think about this subject that not only affects us but will impact the next generations as well.
http://www.pbs.org/wsw/news/fortuneartic le_20031026_03.html
It really seems people have odd ideas about all of this. There is so much talk of the middle class, their jobs and what they spend.
But not everyone is middle class! This may come as a shock to you all, but there are some people who make less money then the middle class now does! These people still need to buy things, drive cars to work etc etc.
So, you create an economy that allows the middle class to buy things, afford things and you do this buy raising the wages also of this middle class.
But what do those who make less do? How do they buy the now costly American made products you all push? How do they afford a car to get to work, when you push the American made, and more expensive, American made cars?
The reality is that it will be close to impossible for those who make less then the middle class does, to afford to buy American.
But the media and our political leaders never seem to mention this group of people, every policy, every discussion and every debate is about “the middle class”.
Note I am a Canadian and I still do not understand why so few of you people do not understand the whole idea of free trade.The above article covers it quite well.If you create trade barriers you can be sure those other countries will create trade barriers to you as well guaranteeing you will have less work.
Somewhat neglected in the above article is probably in need of emphasizing, is how do you pay off trade deficits, you make goods to sell, and so why would you want them to charge you a tax in the form of tariffs on repaying them.
Also not pointed out in the above article is one of the main reasons for free trade is its just so severely expensive to manufacture complex goods like DVD players without large markets, because of the investments needed for robotics etc.Without larger markets people can easily go back to such things as hand blown glass picture tubes for tvs and they would cost hundreds and with higher prices you cannot compete with others who do use automation.This can create a spiral where higher prices for hand made goods sell less and so must be even more expensive causing less to be sold raising prices more and more etc.I do not want to see 500 dollar DVD players and a 10,000 $US only version of a computer.Imagine how much less new technology would disappear from the US and the world as well with such trade restrictions indirectly self imposed against it.
By the way look into recent history with Margrethe Thacher in Britten as they were on their way to becoming a third world economy over it all when protecting local unions by trade barriers.Its was leading them to disaster.
Now the real problem is with union workers getting 50.00 where everyone else only gets 10.00 for the same job and the only reason that the US got away with it is because of history.Its easy to see that such manufacturers as GM would only be in business as long as they were because they did outsource their work.The US would have been broke long ago otherwise.
I’m Canadian and we are better off money wise here and yet I still got almost all of my money in gold,silver and sleep better now.There is a risk here that you my yet commit financial suicide by not doing the same.Ironic that so many cannot sleep at night with no fire insurance yet would never buy gold or silver as financial insurance.
The job of a politician is to get votes and to keep getting votes.It is not necessarily his job to improve society.
Ms. Furchtgott-Roth states, “The benefits of free trade, such as increased employment, higher economic growth, and lower prices, are often taken for granted. But the disadvantages of free trade — such as the occasional instances of shuttered plants and lost jobs where American firms are not as efficient as international competitors — are all too visible.”
Occasional instances of shuttered plants? Firms are not as efficient? Really? Our esteemed economists really need to get out more. The U.S. is positively plastered with shuttered plants. And we have an enormous trade deficit to prove it.
Free trade has not lived up to it’s promises, at least for the United States. Middle class prosperity has been decimated by the sell off of the U.S. manufacturing sector in favor of low cost offshore plants. This trend enriched investors at the expense of wage earners. It’s time to back away from free trade and implement protective tariffs or an onerous value-added tax — at least until our foreign competitors institute the same union wages, health-care insurance, worker safety, and environmental protections that we earned at our plants through over a hundred years of hard-fought labor battles.
read more: http://cyclopsvue.blogspot.com/search/la bel/free%20trade
Well Well, I see a few CDN posters with attitudes. Go to that hot place. I am conservative, I am a patriot, and I am a CDN by birth - American by choice. CDNs think that just because they have a spokane cable channel they are experts on the US. I eally don’t care what CDNs or anyone else thinks. I am tired of everyone selling to us but then they refuse to buy from us. Too bad, I am done buying more “STUFF” So what if my closet is full of clothes? with millions of americans out of work what is so good about it? As far as the buy America act….this is money (50%) borrowed and has to be paid back. The money should be spent in America!
The world is already not buying our stuff. Long before “Buy American” we had a trade deficit about the size of the stimulus package each and every year. How does a trade deficit nation USA not become a big time winner in a trade war? The only things the world buys from us is what they can not get elsewhere. They would continue to buy from us without free trade.
Trade is a net job loser for USA. One of our largest exporters is Boeing. But much of Boeing’s aircraft production is outsourced. No jobs for Americans. Indian companies invest here and create jobs but not for Americans. They bring in their own citizens on H-1B visas. If the trade deficit were spent here we would get jobs here.
What families are benefiting from low cost imports? Comparing the 1973 basket of goods and services used to calculate inflation with today’s basket the average American has to work 12 percent MORE man-hours to buy the goods. Excuse me but prices relative to wages have risen.
The history of US trade protection has been written by advocates of free trade and surprise, surprise protection comes out as a bad thing. According to the free trader story the world collapsed because the US introduced the Smoot-Hawley tariffs in 1930.
But blaming Smoot-Hawley for the Great Depression is a misreading of history. Smoot-Hawley was not a shift to protection but more of the same. At the time it was proposed the US was already the world’s most trade protectionist nation and had been for more than a hundred very prosperous years. The Smoot-Hawley tariffs were not the highest tariffs the US ever had. Nor did they last very long. Passed in the summer of 1930 they became effective the following year and began to be reduced after 1932 by the Roosevelt administration. When the Depression got worse in 1937 tariffs were already back to the pre Smoot-Hawley levels. While trade did decline by two-thirds it was two-thirds of a small number. Trade declined from 6 percent of GNP to 2 percent while the nation remained a net exporter.
It’s time to wake up and smell the roses, people. Globalization isn’t the panacea that our (failed) economic leaders would like us to believe. It matters little whether you live in Manhattan, or a small village in the rainforests of the world. The more self sufficient you are, the less expensive life is. If Americans provide for Americans, and Chinese provide for Chinese, and the African Bushmen provide for African Bushmen, all three groups profit. None owes the other group for some trade imbalance. Those trade imbalances are what powers the wealthiest 2% of the population around the world. Every time America imports or exports anything, the (failed) economic leaders make a little profit. Everyone in the world should buy local, whenever possible. When it is not possible to do so, only buy what is necessary - NOT what the marketing industry wants you to believe that you need. Let’s get back to basics, and the economy will begin healing itself.
On a simpler note, without going into CEO’s based in the U.S. and their factories and workers based in other countries, etc., Americans are not generally in favor of the “Buy America” scheme simply because there’s not much to buy that’s made in American that doesn’t fall into the junk category. Look at GM products, for example. Point made.
Imagine that we, and all workers of the world, got paid in gold for everything we did. Now imagine that we in America get paid more gold for the same work or making the same products as others in the world. Why would anyone in the world pay more gold for the same product?
Now imagine what I said is really true.
That is the real issue here. We really don’t have anything to export that the world wants to pay more for. Until we do, our economy and debt are going to slide. Our wages are destined to go lower because of lack of demand for our products.
So how can we subsidize our high priced houses….Our house prices and cost of living have to go down.
It’s too late to shed tears over the industries that are gone overseas. They can’t be resurrected. The reasons why they are gone, and who’s to blame - it’s quite a different topic that deserves a separate discussion.
It’s quite another matter to try and save the industries that still can be saved. Hint: the compensation in these industries is determined by the market, not “Collective bargaining” or whatever is the term for what would be deemed extortion if done by someone other than unions. These industries tend to produce services rather than tangible goods - and the “Buy American” clause seems to be all about goods.
Even if “Buy American” covered services, the American origin of these services is something hard to define. Is it really American when most of labor is imported on H1 visas, or telecommutes from across the globe, and only management is US-based? That’s where “Buy American” should be focused instead of banning Canadian steel and Chinese textiles from participating in publicly funded projects.
Dear Diana,
I could cry, I could cry………..If there is one point that causes me to despair about your country, it is the attitude of your so called enlightened president. All throughout the campaign I got the distinct impression that he was well above the general mob sentiment at least intellectually. However seeing him lately posturing with his queen bee Pelousi and displaying his determination in carrying the ” buy america ” banner in front of him, simply destroys, in my mind, once and for all the ” green shoots ” of hope that came out this spring,to that effect.
The big U.S. int’l corporations must also be crying….GE…CAT. and so on. Is it that hard to figer out these days that your only hope to straighten the economy is to reactivate solidly exports, consequently international trade !!. Thank god your american dollar is getting lower, that is the only ace you’ve got left in your hand to get out of this mess.
In 2009 the clout and stature of the American empire has been cut to size, thanks to the financial mess it has created. The almighty U.S.A. does not have the clout nor does it inspire int’l players to pay them as much attention as in the heydays of the 1950’s. These days maybe, just maybe, the rest of the world could very well get along without the U.S. I really don’t know if the converse is true ?.
Mr.Obama talked so much about change!!!… remember ??.
I think that he missed out on this one !!!. Like a typical American president he wants the whole world to bend, to change, to accomodate the U.S.. However, he has not grasped as of yet the notion that if you still want to impose that philosophy (somewhat outdated !!) to other countries, you should start by overhauling your image and start considering immediately others as equal………. partners !!. After all it’s a question of respect, when you come to think of it, right ??.
Maurice F. Mimoun
Longueuil, Qc.
Canada
Hmm when did the trade deficit decrease and unemployment increase.. because of protectionist actions? Or because economically “sophisticated” people ran the economy into the ground? You can try to spin it anyway you like it and blame it on people being too dumb to understand free trade. Yet it seems that for all the talk of NAFTA benefiting America why were good jobs disappearing here to be replaced by lower paying service sector jobs. The reason protectionism sells is because it works.
First off “free trade” isn’t really free when other countries don’t play by the rules. Second, unless there is some magic involved trade is a zero sum game, and “free trade” benefits the fat cats here and countries with lower wages.
The great part is American’s understand that, no matter how you try to sell your corporatist syndicate to them. They see who gets enriched by “free trade” and it’s not the ordinary American, unless the corporate bug wigs are who you are talking about. Ask couples with two good jobs how they think “free trade” is benefiting them while they live paycheck to paycheck and wonder how they can educate their kids and what they will leave to them.
“Free trade” sounds good because hell free sells, but explain to the people who don’t have jobs how great it is that their tax money is helping China and India maintain their growth and how great that prices are low at Wal Mart so they can make their unemployment check go farther.
Economists are much like religious fanatics with their irrational belief in free trade and the market. Look where that’s gotten us. We’ll stay ignorant about economics like you stay ignorant of reality. Free trade works in theory, sadly you can’t abstract away reality like you can in a textbook.
While the trade deficit that is so often quoted is accurate - people do need to keep in mind that merchandise trade (trade in goods) is not the only thing American companies sell or do globally.
With exports of intellectual property or services (such as IT, the finance sector or insurance or EDS), the true value of trade becomes much more equitable to the US.
It’s in the nature of business that labor intensive occupations will always flow towards the places able to provide the lowest possible costs, but at the same time economies have to strive to improve and move up the value chain.
You cannot expect to beat a hammer and get competitive wages as other developing nations move upwards that are also able to “beat the same hammer” for less.
As India and China are today - in the next 10 -15 years labor costs there will rise parallel to their costs of living and industries needing cheap labor will once again migrate elsewhere in the world to, say South America or Africa.
And finally in the far future when “cheap” human labor is no longer available, no doubt there will be a paradigm shift and man will replaced entirely by automation / robotics. You can’t stop progress, not matter how good your intentions are.
I agree wholeheartedly with Mr. Castle. The end result of this program has been to enrich the upper echelon of corporations in America. Of the diversely educated and located of my 5 siblings, 3 have lost their jobs to outsourcing, and exhausted their savings, retirement plans, and assistance benefits over the last 3 years. Of course a corporation will outsource if it can; it’s common “sense” to them. They are chopping off their own roots. A productive & entrepreneurial America is a good thing, but our country must and should be of, by and for the PEOPLE, not of, by, and for the COMPANY. Things have been upward facing for far, far too long.
It’s going to take a lot of work to reprogram voters into understanding reality over protectionist propaganda. People see imbalances in the American economy and assume free trade is a net negative.
It doesn’t mater that nearly no economist is against free trade. It doesn’t what the numbers say. People will not understand.
It doesn’t help that the issue has been politicized either. Protectionism has always been an easy sell, and irresponsible politicians don’t have any incentive to do anything other than get reelected.
Dear Mr. Castle,
When America had a 4.4% unemployment rate, in December 2006, the trade deficit stood at $68 billion. Now, the unemployment rate is 9.4% and forecast to rise higher, and America’s trade deficit stands at around $29 billion. Almost everyone would agree, especially the unemployed, that people were better off with a higher trade deficit and lower unemployment. Should we also be concerned about trade deficits between individual states, such as Maryland and Virginia?
Diana
Do economists really think this stuff flies? How can free trade help America when America imports far more than it exports. What good are cheap products if no one has a job? All this free trade was going to help America’s economy, seems it only helped CEOs who could ship jobs overseas. I’m sure Americans want this stimulus money to boost other country’s economies. The reason why it’s hard to see the benefits of free trade is that they are pseudo scientific nonsense. Ask how much free trade helps the average American, not the muckety mucks who benefit from cheap labor and cheap products while downsizing American workers.