You Down with TPP? Why not, G?

I’d be interested in hearing concrete arguments against free trade agreements in general. I am not sold either way, but it’s not material for someone to say the TPP (for example) is a “job killer” or “wage killer” or whatever, unless it is explained exactly how that will occur under the agreement in question. I get the concept – that free trade agreements mean transnationals can move production/labor to the “lowest bidder” on wages and conditions. The notion is, this drives down wages and working conditions to the “very worst” acceptable conditions that the international labor market will bear.

Definitely not desirable! But it’s not helpful to condemn free trade for these theoretical “bad” outcomes without also examining the alternative, and how “good” those outcomes will be. The alternative to free trade is protectionism. Possibly Trump’s biggest appeal, and a major appeal for Bernie, is in promising new protections for American workers in the form of tariffs on foreign goods. What do tariffs do? Well, they are the opposite of “free” trade, so what they do is restrict trade. For example, the U.S. places a “burdensome” tariff on cheap Chinese auto parts – these auto parts become too expensive to buy in America, so the idea is that Americans will now buy the American-made auto parts and support American workers rather than Chinese workers.

Well, heck, why not?

Under pressure from the flagging domestic steel industry in the 1980s, you may recall, the U.S. slapped tariffs on Japanese steel imports. The American industry had been in a steady decline, largely due to inefficiencies in process and wasteful management practices that drove up the wholesale cost of U.S. steel compared to competitors. The U.S. steel people painted it as Japan “flooding” the market with “cheap” steel. But the Japanese had innovated new, more efficient manufacturing processes, and could produce steel faster and cheaper than U.S. mills stuck in a “monopoly” frame of mind. Japanese steel was “cheap” but not in the way the industry implied. It was better, and it cost less.

We all know what happened to the U.S. steel industry. Far from being “protected”, only its outmoded production and management models were protected – for a time – until the world market dried up for (lower quality) U.S. steel. Japan could produce a better product for less money, so everyone bought Japanese steel and nobody (except Americans) bought U.S. steel. The industry collapsed in spectacular fashion.

But that’s far from the whole story. The modern world economy is not about widgets – it’s about innovation and adaptability, about supply chains and logistics, communication and coordination across continents. That’s just. The way. It is. No matter what American policy is or is not implemented, this truth will not change for the rest of the world. Bernie (and Trump if he had the wits) likes to talk about “thousands” of U.S. plants “shuttered” because of NAFTA, and “millions” of jobs lost. OK. But let’s examine that connection. Both happened – but is NAFTA the cause, or the symptom, of a worldwide global recession? When plants close, is it always the fault of some trade agreement that was struck somewhere? Of course not. Just look at the steel industry – it failed for the opposite reason, because the U.S. rejected fair trade and reaped the whirlwind.

And what about all those job losses? One would assume that if NAFTA and other trade agreements are the cause, then countries not engaged in free trade should be doing better. Except they’re not. A fact we should all memorize during this fact-free 2016 presidential campaign: the U.S. economy today is in far better shape than literally every other industrialized economy in the world.

Once again: the U.S. economy today is in far better shape than literally every other industrialized economy in the world.

So let’s look at Pittsburgh. Two decades after the final tolling of the bell for steel, Pittsburgh is resurgant, with a vibrant new economy centered on education and the service industry.

The point is there was no future for steel – but there’s a future for what Pittsburgh actually CAN do better than foreign competitors. And now they are doing it.

What’s more, all of the statistics I am seeing point to a resurgance of manufacturing in the U.S., not the decline we are used to assuming (which was due to the GLOBAL Great Recession, not particular American trade policies). Companies with offshore operations are coming back, for a variety of reasons, and one of them is the leveling effect of free trade. Because other nations’ wages and quality of living tend to rise with increased trade leverage, their attractiveness to transnationals is diminished. American companies operating abroad have to weigh not just labor costs, but labor costs coupled with logistics (for raw materials and delivery back to the U.S.) and local laws they must obey, as well as supporting multiple infrastructures and a foreign work force. If wages get too close to parity, the offshore option starts to look like a burden rather than an advantage.

And let’s not forget that foreign industries have gone “offshore” by building plants right here in America. Mercedes, Fiat, Toyota, Honda, etc. Why? Good workers at competitive wages. Had we instituted “protections” for the domestic auto industry, those factories would probaby be somehwhere else. So when tariffs are not at issue, the U.S. can also be on the receiving end of transnational offshoring.

I believe free trade is quite a separate argument from the real reason American blue-collar and service workers are feeling betrayed. They are feeling betrayed by their own corporate leaders, who for the past 15 years or more have opted to turn massive productivity and automation gains into corporate cash rather than funnel it back to the rank-and-file workers who earned it. Basically, productivy and profit curve goes up, and the wage curve stays flat or goes down – workers know this. And they don’t like it. They know they are being shafted by corporations who no longer feel a need to compensate them fairly. Part of this is a hangover effect from the Great Recession – high unemployment is a corporate warm fuzzy. They get to dictate pay, benefits and working conditions to desparate job seekers. They call the shots. But the recession is over, and wages are slowly – very slowly but steadily – on the rise.

An interesting thing can happen when labor markets get tight – here or in any country. Employers must then compete for workers and offer them a fair wage and benefits – or risk losing valuable workers to competitors. Increased, tariff-free international trade can in fact have the effect of “lifting all boats”. High employment from robust trade among international partners creates the kind of wage-competitive atmosphere that drives wages up, not down. True, American wages are the highest of all, but in some industries (such as the auto industry), highly inflated wages due to union-led wage protectionism are a kind of illusion. They can’t last, because high labor costs drive up production costs, which drive up sticker price, which gives competitors selling the same product the advantage. I believe in unions 100%, but if they “price themselves out of the market” by paying a guy $75,000 a year to drive new cars thirty feet from the end of the assembly line to the parking lot – a verified salary for a job requiring zero skills – they have only their greed to blame when their influence wanes and non-union shops thrive in their place.

Free trade must be fair trade, but negotiating “fairness” among multiple societies is no easy trick. We must do the best we can, but to opt out of the international nature of today’s markets is to opt out of viability in a global economy that gets more global – and less dependent on the success of the American economy – every day.

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