CT Blue

The Editors of the Time are encouraging Democrats to heed the sages in their midst, who are telling them that they simply must approve free trade agreements with Peru, Panama and Columbia (Democrats Talk Sense to Democrats). The Times throws in South Korea for good measure. It is, of course, conventional wisdom among the wise heads of our corporate culture that free trade pacts are always good. According to the Times it is in our geopolitical interests to approve these pacts as a way of rewarding or insuring good behavior. And for us unwashed?

At home, the trade pacts would provide opportunities for American exporters and help create jobs.

This is, of course, the conventional wisdom, though we are never told precisely what jobs these agreements are creating here at home, nor do folks like those at the Times go out of their way to look at the numbers. As to those directly threatened by the agreements:

The South Korean agreement faces especially stubborn opposition from the Ford Motor Company and Michigan Congressman Sander Levin, who believes Detroit’s carmakers got a raw deal. There are winners and losers in all such agreements, and the overall benefit — an estimated additional $10 billion for the American economy — should carry the day.

Take your medicine Detroit-there are plenty of jobs at Wal-Mart for you. Luckily for the Times there is not yet a movement afoot to outsource editorial writing. Were that to happen, they might look into this stuff a little more deeply.

Let’s start out by reminding ourselves that the average inflation adjusted income of workers in this country has gone exactly nowhere in the past 20 years. That coincides roughly with the enactment of NAFTA. That is, at least, suggestive.

The Times doesn’t say where it’s $10 billion dollar figure comes from nor does it assert how that alleged gain might benefit average people. After all $10 billion dollars is only enough to cover the yearly income of 10 hedge fund managers. How do we know any of it will filter down to us? One way to try to find out is to see how well us ordinary Joes have done under the trade agreements we’ve passed so far. Answer: not so good.

The Times claim of a $10 billion dollar bonanza is quite likely similar to claims made by other free trade proponents, including liar in chief George Bush:

Proponents of new trade agreements that build on NAFTA, such as the proposed Free Trade Agreement of the Americas (FTAA), have frequently claimed that such deals create jobs and raise incomes in the United States. When the Senate recently approved President Bush’s request for fast-track trade negotiating authority1 for an FTAA, Bush called the bill’s passage a “historic moment” that would lead to the creation of more jobs and more sales of U.S. products abroad. Two weeks later at his economic forum in Texas, the president argued, “[i]t is essential that we move aggressively [to negotiate new trade pacts], because trade means jobs. More trade means higher incomes for American workers.”

The problem with these statements is that they misrepresent the real effects of trade on the U.S. economy: trade both creates and destroys jobs. Increases in U.S. exports tend to create jobs in this country, but increases in imports tend to reduce jobs because the imports displace goods that otherwise would have been made in the United States by domestic workers.

President Bush’s statements—and similar remarks from others in his administration and from members of both major parties in Congress—are based only on the positive effects of exports, ignoring the negative effects of imports. Such arguments are an attempt to hide the costs of new trade deals, in order to boost the reported benefits. These are effectively the same tactics that led to the bankruptcies of Enron, WorldCom, and several other major corporations.

The impact on employment of any change in trade is determined by its effect on the trade balance, the difference between exports and imports. Ignoring imports and counting only exports is like balancing a checkbook by counting only deposits but not withdrawals. The many officials, policy analysts, and business leaders who ignore the negative effects of imports and talk only about the benefits of exports are engaging in false accounting. (Emphasis added)

That quote, and all to come in this post, is from The High Price of ‘Free’ Trade, from the Economic Policy Instititute. When the checkbook is balanced (as of 2003 when the report was written) it turns out that we have lost more than two jobs from every job gained, and those we gain don’t earn as much as those we lose. The state by state figure are at the link. The report notes:

A large and growing body of research has demonstrated that expanding trade has reduced the price of import-competing products and put downward pressure on the real wages of workers engaged in producing those goods. Trade, however, is also expected to increase the wages of the workers producing exports, but growing trade deficits have meant that the number of workers hurt by imports has exceeded the number who have benefited through increased exports. Because the United States tends to import goods that make intensive use of skills of less-educated workers in production, it is not surprising to find that the increasing openness of the U.S. economy to trade has reduced the wages of less-educated workers relative to other workers in the United States.7

Globalization has put downward pressure on the wages of less-educated workers for three primary reasons. First, the steady growth in U.S. trade deficits over the past two decades has eliminated millions of manufacturing jobs and job opportunities in this country. Most displaced workers find jobs in other sectors where wages are much lower, which in turn leads to lower average wages for all U.S. workers. Recent surveys have shown that, even when displaced workers are able to find new jobs in the United States, they face a reduction in wages, with earnings declining by an average of over 13% (Mishel et al. 2001, 24). These displaced workers’ new jobs are likely to be in the service industry, the source of 98% of net new jobs created in the United States between 1989 and 2000, and a sector in which average compensation is only 81% of the manufacturing sector’s average (Mishel et al. 2003, 177). This competition also extends to export sectors, where pressures to cut product prices are often intense.

Second, the effects of growing U.S. trade and trade deficits on wages goes beyond just those workers exposed directly to foreign competition. As the trade deficit limits jobs in the manufacturing sector, the new supply of workers to the service sector (from displaced workers plus young workers not able to find manufacturing jobs) depresses the wages of those already holding service jobs. The growth in import competition and capital mobility under NAFTA has also contributed to stagnant and falling wages in the United States (Bronfenbrenner 1997a).

Finally, “threat effects” arise when firms threaten to close plants and move them abroad while bargaining with workers over wages and working conditions. Employers’ credible threats to relocate plants, outsource portions of their operations, and purchase intermediate goods and services directly from foreign producers can have a substantial impact on workers’ bargaining positions. The use of these kinds of threats is widespread. A Wall Street Journal survey in 1992 reported that one-fourth of almost 500 American corporate executives polled admitted that they were “very likely” or “somewhat likely” to use NAFTA as a bargaining chip to hold down wages (Tonelson 2000, 47). In a unique study of union organizing drives in 1993 though 1995, it was found that more than 50% of all employers made threats to close all or part of their plants during organizing drives (Bronfenbrenner 1997b). This study also found that plant closing threats in National Labor Relations Board (NLRB) union certification elections nearly doubled following the implementation of NAFTA, and that threat rates were substantially higher in mobile industries, where employers can credibly threaten to shut down or move their operations in response to union activity.

Folks like Tom Friedman, who need produce nothing but the same blather that I produce for free, claim that the new global economy has created a flat world, whatever that is really supposed to mean. But as Greg Palast points out in his excellent book, Armed Madhouse, that flat earth is definitely tilted, resulting in a flow of income in the direction of the ultra-rich. That earth is so tilted now that the flow has become a torrent.

Democrats are well advised to be wary of those advising them to ream their constituents yet again.

By the way, I’m totally aware of the fact that Bill Clinton supported NAFTA. He was wrong. If he were still to maintain, in the teeth of the evidence, that it creates jobs here in America, then he would be lying too.