David Coates

Making the Case for Managed Trade


(Chapter Outline)

THE CASE FOR GLOBAL FREE TRADE

Exploiting comparative advantage

The many benefits of untrammeled free trade

Any costs associated with of free trade are temporary, slight and focused, whilst its benefits are permanent, substantial and general

Free trade is unambiguously good for America

Free Trade is good for the “South” as well as for the “North”

Anyway, we have no choice: globalization is here to stay

THE CASE AGAINST FREE TRADE

Given the current fragility of the American economy, US vulnerability to untrammeled free trade is greater than is normally conceded

The adverse impact on wages and employment

De-Industrialization

Trade Imbalance

The gains to the “South” brought by free trade are less than is claimed

Poverty

Inequality

Dependent development

Claims about globalization are scarred by class bias

Globalization and Capitalism

The Altered Balance between Capital and Labor

Globalization as a Class Project

The consequences of unfettered free trade are deeply destabilizing

Savings Gluts or Money Gluts

Persistent Contradictions

THE CASE FOR MANAGED TRADE

The case of managed trade in the “South”

The case for managed trade in the “North”

Immediate tasks

The establishment of powerful labor standards designed to put a floor under remuneration and working conditions across the globe as a whole.

The establishment of “fair trade” institutions overseeing trade between developing and developed economies.

The immediate development of industrial policy designed to reverse U.S. de-industrialization in a progressive fashion – going back to industrial strength and strong middle class wages by going green.

(Extract)

The rosy picture of labor redeployment away from uncompetitive to competitive industries ignores the structural consequences of allowing into the United States manufactured goods made abroad behind tariff walls and/or significantly lower wages. As economies grow, the proportion of GDP and employment supported by the manufacturing sector does eventually fall – most mature economies can and do support large service sectors without inflationary consequences. The ease of their ability to do so turns, however, on whether their deindustrialization is positive or negative in character. In cases of positive deindustrialization, manufacturing employment shrinks as a proportion of the whole because the productivity of the firms in the manufacturing sector is so high that they can produce all the commodities required with fewer and fewer workers. In cases of negative deindustrialization, by contrast, manufacturing employment falls because local firms cannot compete on productivity and price with better placed competitors abroad, and so are obliged to lay workers off. U.S. deindustrialization is increasingly of that second kind. Quite contrary to the free trade arguments that treat American deindustrialization as positive – explaining falling manufacturing employment here as a natural response to changing demand patterns and rising productivity – scholars at the Economic Policy Institute put nearly 60 percent of U.S. manufacturing job losses since 1998 down to increases in trade. The U.S. demand for manufactured goods has not dropped. What has dropped is the U.S. demand for manufactured goods made here in the United States. In 2003 domestic output met 76.3% percent of total domestic demand for manufactured goods. Between 1987 and 1997 it had met 90 percent. This in an economy which now imports almost as much manufactured output as it produces.

Again a Wal-Mart dimension creeps in to explain that trend. To meet the low price requirements of major consuming outlets, American manufacturing firms are impelled to outsource their basic production to cheaper labor markets, of which currently the largest is China. In the process, American firms remain profitable, but American workers lose out. They lose employment, and they lose wage growth: the first through direct out-sourcing, the second through the fear of it in wage negotiations. Big Box retailers like Wal-Mart essentially act as an export conduit for the Chinese economy, importing vast quantities of Chinese-made goods whose sale here triggers a shift in employment from one side of the Pacific to the other. Chinese wage rates are currently running 25-40 percent lower than those in the United States., and have remained largely stable since the mid 1990s, allowing the Chinese economy to accentuate a competitive advantage based primarily on currency manipulation, rising industrial productivity and the suppression of labor rights. Recent Chinese economic growth has been export-led growth, with Wal-Mart doing much of that exporting of Chinese products. The EPI’s Robert E. Scott calculated the U.S. job loss/displacement directly resulting from trade with China between 2001 and 2007 at 2.3 million, with the American workers so displaced losing an average of $8,146 per worker/year. The U.S. trade deficit with China was $84 billion in 2001. It was a staggering $266 billion in 2008.  In August 2010 the monthly trade deficit with China was $28 billion. The earlier impact of NAFTA on U.S. manufacturing jobs was similarly bleak, and equally driven by differences in wage levels each side of the border. Scott estimates the displacement of American workers from well-paid manufacturing jobs to less well paid service sector jobs resulting from the first decade of NAFTA at 660,000 and total job displacement at just over 1 million, with an associated reduction in the total wage bill of $7.6 billion in 2004 alone. Again, workers with only high school education were particularly hard-hit.

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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