After NAFTA was signed the American worker did do well.  Unfortunately, China and India as well as technology have not stayed still.  

If we follow David Sirota's path and throw up trade barriers what would be the consequence?  If the world were to follow suit what would happen to American software makers and American farmers?  

Would we expect China to passive agree that they should remain poor so American workers can maintain high union wages?  What would stop "American" multinationals from simply relocating?  The Wall Street Journal yesterday had a story about Microsoft having a small subsidary in Ireland whose purpose was to save them about $500 million in taxes.

The concern is about completely unrestricted trade.  It seems bloody obvious that trade will indeed lower costs through comparative advantage, but it is also clear that David Ricardo laid out his theory at a time when the thought of trade actually rapidly reaching all the boundaries of the earth was far from clear.  It was also at a time when the rise of technology was unforseen (so that whole classes of jobs are simply eliminated, from farmworker to secretary to travel agent). 

It seems apparent to me that in a fully globalized and technologized world, the median incomes of developing countries will rise, the median incomes of developed countries will fall, and unrestricted trade is likely to dramatically extend the tail of the income distribution on the wealthy side for those few lucky players.  Of course, perhaps in the long term there will have to be a downward redistribution of wealth ala Henry Ford (who would buy the cars if the workers could not afford them?) but that is on the time scale when the working/service class has globally equalized wages across national boundaries. How long that would take is anyone's guess.  In the mean time unrestricted trade (free of strong constraints for union, environment, human rights laws) places all the strong cards in the hands of the capitalists and puts the entire world back, in some sense, where the factory workers of England and America were in the 1800s and early 1900s before the rise of the unions.  Perhaps enabling technologies like the internet can speed the countermovement of the workers back against the capitalists in that time, but again, how long will it take? 

In the short term there is a lot of pain to the workers of the developed world, and a glass ceiling of income to most of the workers in the developing world.  Unrestrained trade focuses only upon the price benefits and nothing else.  I am happy to see India and China succeed, but I hate to see my beloved Bay Area go down the tubes.  Yes there will be some new new thing, and the knowledge class can go there--but everything is accelerating so how long will that last?

I am in a relatively safe profession (academia) but I can forsee reduced employment rolls there as communications technology soldiers on.  I want to believe in growth as affiliated with progressiveism, but with the average American worker and Mr. Sirota I share a deep concern.   

If we follow David Sirota's path and throw up trade barriers what would be the consequence?

I am not a protectionist.  But "free trade" will never work as long as other countries operate under a different set of rules for, worker pay, worker rights and the environment.  So let's assume that the rest of the world isn't going to adopt the rules we have in this country.  Where does that leave us?  Other countries making stuff which we will have to import.  I know this is a very simplistic view but the basis of economic strength is technological breakthroughs which lead to new industry, which makes things for people to buy.  I see us having big problems in the "making things" aspect of that equation on the path that we are on.  

Uggggh. David Sirota’s rhetorical technique is repugnantly obsequious. That makes 3 of 3 posts of boorish political spew without a fact or rational argument to be found. He has yet to substantiate a single economic point!!

He cites for example people are unhappy with present economics. Well no kidding. That hardly proves his yet to be mentioned notions would make them any happier. What sort of idiot falls for such rhetorical technique?

He adds this obnoxious patronizing:

I, for one, have always believed the American people are extremely smart - despite the arrogant operatives in D.C. claiming we're all just a bunch of morons. The public has an innate sense of right and wrong, and of when they are being sold out by their political leaders.

Oh please. What pandering hackitude. If this innate sense is so great, how come this has gone on for 25 years at least? Economics are a specialization, like medicine or auto repair. The idea everyone is either a “moron” or an economic whiz is a false dichotomy like the assumption everyone can repair their car or perform surgery simply from an “innate sense of right and wrong” or their inability makes them a moron.

The question is, when will the progressive movement as a whole embrace that public desire for a true reevaluation of our trade policy, and not simply shun the popular will?

What, exactly, is this hack talking about? How about a single specific? No, “the question” is when will Sirota actually say something. That’s the third post of such hot air.

Sirota, get yourself a white rhinestone studded suit and pitch a tent somewhere.

The Irony being that your response was probably directed to NickDoe and myself and not to David Sirota.

Yes...hence the "Subject" of my post.  I am being a bit snarky but I am impressed, the attacks do merit good style points...they are vicious.

Lots of Sirota bashing here, but not one ounce of information that might change my wholehearted agreement with David.

Carolyn Kay
MakeThemAccountable.com

Part of the problem with this entire debate is the assumption that the United States will continue and should continue to be the economic goliath it has been since the end of the 19th century.  As a nation we have largely been unchallenged for over a 100 years.

I usually refrain from assumptions Daniel, nothing is ever certain except death and taxes.  But America is a country that possesses great wealth and resources so there is no reason to assume we shouldn't or won't continue to be an economic goliath.

As the world economy is shifting to a post industrial era there are countries, China and India come to mind, we can imagine as real and long term competitors.  Much of this debate is seems like asking who will be the Dutch boy with his finger in the dike.  The much more important question is given that other countries are not going to sit still how do we help shape the world so that there is great economic equality and independence without too much reduction of freedom.

No denying the shift in the world economy.  There have been shifts in the past as there will be shifts in the future.  But whose economic equality and independence are we protecting.  The workers in China making $0.75 an hour?  I admit with the regime in Beijing that is a step up but it is far from economic freedom.  NAFTA has left us in a disadventageous position in the economic world and as long as imports far outstrip exports we will continue to be in a disadventageous position.  Protectionism isn't the answer but neither is letting our corporations export our manufacturing base.

Would we expect China to passive agree that they should remain poor so American workers can maintain high union wages?  What would stop "American" multinationals from simply relocating?  The Wall Street Journal yesterday had a story about Microsoft having a small subsidary in Ireland whose purpose was to save them about $500 million in taxes.

Exactly. This is reality we need to deal with.

Simply hunkering down and bashing free trade doesn’t help. Yes there have been problems with trade agreements, yes the American worker needs more help to adjust, and yes we need political will and clever methods to re-inspire business nationalism, by any means necessary.

But only where realistically possible. We can’t delude ourselves with false options and rhetoric that only passes the problem to future generations and may prompt complete economic collapse down the road.

Increased global competition is a reality whose only possible alternative is a completely draconian air tight sealing out our economy to prevent capital flight which is probably not even possible. We’d have to be suffering so badly across all sectors before we’d attempt that I don’t even want to imagine it.

Sorry, but what you just said is at least part protectionist. Fair trade is inherently part protectionist, protecting of human rights, quality of life, and Americans.

Are you saying we should abdicate our positions on human rights in the name of "free trade" Nick?  It is alright to turn a blind eye to sweatshops in Asia (not necessarily China) because "free trade", on it's own merits, will eventually put an end of this practice?

I'm happy to call myself a protectionist whenever possible, when it's pragmatic to do so. If any US jobs can be protected I'm for it. If quality of life can be raised and protected I'm for it. I'm pro-Chinese as well, but we have a right to maintain a quality of life rather than slide backwards involuntarily.

I am not anti-Chinese.  I am pro-American.  And taking those 2 positions aren't in conflict.  We seem more concerned with China's and India's place in the world vis-a-vis the new global economy then our place.  I want to fully engage China.  But pressure needs to be brought to bear on regimes, like China's, to modify their behavior in terms of the economy and workers rights.  Free market forces will not on their own modify China's behavior.

The silver bullet we need to find is an effective means to retrain US workers to keep a competitive edge. If that proves to be impossible, then we'll have to lessen the blow as much as possible through social programs, and this is one side benefit to the inherent efficiency gains in universal healthcare for example. But ultimately we have to stay in the race with emerging powers like China, or we won't have any choices at all for long.

No argument here.  My only observation is that at some point in time our trade needs better balance.  We can not just keep importing without exporting, our trade deficit will eventually kill our economy.  Right now I don't see an upside to "free trade" without some more robust US exports.

But America is a country that possesses great wealth and resources so there is no reason to assume we shouldn't or won't continue to be an economic goliath.

Sorry, but that's absurd. The US will remain a player, but goliath is unlikely.

The EU is already a much larger market, which is why EU regulation on products now often determines US standards for goods.

China and India have the potential down the road to equal and exceed us in many regards such as the all important growth factor for capitalization. If China stays stable for 10 years and shows no signs of reemerging communism for example, then there is no reason to think the US will have much advantage if any. Companies will rush to China for it’s huge market opportunities and as China attempts to become the world leader in the science, throwing vast resources at growth while we spend money on Chinese manufactured luxury goods, who is likely to emerge the leader.

The central fallacy in the real world is that when citizens see the announcement that plant is closing down, the business is leaving the state, the industry is leaving the nation they cannot see that something else will come along to take its place.

Is it a fallacy Jay?  I live in Connecticut and I am willing to give you a tour of dying mill towns in Eastern Connecticut, like Danielson, Norwich, Willimantic, and even New Britain west of the river...it is thouroughly depressed, depressing and not growing.  In fact in New Britain's case the lost Stanley Works (New Britain was the place Stanley Works was founded) and nothing came in to replace the industries that left.

Pray tell can you (or anybody) tell me what segment of our economy, which manufactures goods, has benefitted from NAFTA?

Let's take this step by step:

Only it didn't used to be called protectionism - it was called patriotism.

This position expresses my point in post 19--Supporting American/Ohioan/Toledan industry  is a longstanding and widely held view. Of course, the free market can speak clearly here. People can express their patriotism by buying American-made goods.  One wouldn't need government policy to enforce this if it were actually a position held as widely at store counters as when taking polls.

Even in G. Washington's day it was cheaper to import manufactured goods than to make them here.

This shows a lack of understanding of couple of things. First, it's just a mistake.  This would depend on the goods involved. Paul Revere presumably undersold British manufacturers, for example. And it's unlikely that people would have found it worthwhile to import horseshoes.  It's not even vlear what is meant by "imported goods" in this context. The industrial revolution was just gathering steam at that point.

But this also bespeaks a lack of understanding of comparative advantage.  Relative difference in prices of factors of production makes trade worthwhile even if the imported manufactured goods were always cheaper.   

(And not just manufactured goods: the tea dumped in Boston Harbor had been deliberately priced to undersell that sold by colonial merchants. 

I don't get that. The tea was over the British government's protectionist regime that forced the US to buy imports and restricted colonists' ability to export freely. The protectionist regime in this case were the British, protecting the jobs of English workers and (more to the point) British capital from cheap American competition.

Libertine

I did not mean you are were making assumptions but that the debate was framed from that perspective.

There is a bit of an authoritarian bent to much of the economic debate.  There is a dislike of American consumerism and Americans like for debt.  So I was thinking of creating greater equality here, so for example CEO's pay was not an increasing multiple of their fellow employees, without dictating too much to Americans.  However, for many reasons it would be good to see greater freedom for the Chinese.

The whole idea of American democracy is that we all benefit when our neighbor is better off. Universal public education is just plain a good thing. It's better to have a universally literate society than one with educated elites ('goliaths') and ignorant masses. It in no way harms Americans when Indians become better off. It's a good thing if the US becomes surrounded by other nations that are successfully growing. Interdependence, and mutual benefit are at the heart of the American ideal--in contrast to grasping monarchies exploiting serfs or totalitarians squeezing the masses.

Even if it turns out that US has an economy that isn't significantly bigger per capita, or growing significantly faster than others, that doesn't mean a bad result. And an adoptiion of a policy position intended to lock in America's Goliath strategy by impoverishing the world would be entirely counterrproductive. 

I, for one, have always believed the American people are extremely smart - despite the arrogant operatives in D.C. claiming we're all just a bunch of morons.

So will they see through this humble attempt to shift focus from the issue at hand?

Let's say David's  right. The American People Have Seen Through Tom Friedman And His Junkets To China.  (Would that the publishing industry would do likewise.)

So what are the American People proposing in their wisdom in their re-evaluation of trade policy? Which industries will you have the folks at the cocktail parites preserve? Which should they cast aside?  Which workers are to punished? Which to be subsidized?

How will we replace "corporate-written free trade deals"?  Will they bear no resemblance to those agricultural trade restriction bills written by, um, corporations?

No WalMarts in CT, Libertine?  No Starbucks?  

Last time I was at Hyperion's offices they were booming, and when I was over at Thomson Financial's offices in Stamford, things were bopping right along.

Walmart?  So let's see the people who lost their jobs at Stanley Works (which probably paid $15-$20 per hour, minimum, with benefits) can go to work at Walmarts or Starbucks for $5.75 and hour and no benefits?  As far as Stamford, and the rest of CT's Gold Coast goes, that is white collar heaven, which is keeping CT economically afloat...but nobody is creating jobs that produce goods on the Gold Coast.

So the displaced workers from the assembly lines at Stanley Works are going to be hired into, for example, white collar jobs at General Reinsurance's corporate offices in Stamford?  Nawww...you are right those high paying Starbuck and Walmart jobs are in their future, just above minimum wage, with no benefits and not allowed to unionize to try to better their economic position.

And so your solution is to restrict trade and have them make less? To go back to the fields and be un- or underemployed?

So you want me to make a "lesser of 2 evils" choice.  Work in the fields for the state or have the state make them work for them for the benfit of the state and US corporate oligarchs?  That doesn't represent freedom to me.  The only difference is that we can make some money off of their toils also.  That isn't "progress" in my book.  It still is indentured servitude...

Part of the point, of course, is that your choice set is restricted to the real world.  You can't say that you would adopt trade policies with the express intent of reducing Chinese employment levels, and not be expected to acknowledge that effect.

The issue is not the form of government, btw. China, as far as I can tell, is pretty much as authoritarian as ever. It's just that they've decided that the best long run growth path is not the autarky path advocated by Stalin, but the export led growth path followed by some other Asian countries.   In fact, if you'll set aside their complete disregard for human rights or human freedom, as governments go, they're doing pretty well anticipating and dealing with the consequences of their policy regime.

So, I guess, I would still ask if you'd prefer people not having the option of the manufacturing job because you find the wage a pittance.

But, even so, that's asking a question about Chinese policy. As far as American policy goes, are you seriously saying that the US should restrict Chinese imports in order that there be fewer manufacturing jobs available in China? 

So what would you do?

This isn't a trade problem. As I said, the issue here is that there are always losers in periods of change. You can wish as hard as you want, but those jobs in light manufacturing in New Britain are not coming back. Stanley has left.  That's the way it goes. That's the downside of a car per person and a television in every room.

But this is playing out across America and not just New Britain, CT.  And it is a trade problem.  The reason Stanley had the problems it did was because of cheap international products (being demanded by Walmart for their "lower prices, always" meme) that are being produced by people being paid at 1/10th what our workers were being paid.  This is progress?

I don't have the answers even though I recognize the problem.  But to say everything is going to be ok while free trade is gutting our workforce and economy isn't the answer either.

  And it is a trade problem.  The reason Stanley had the problems it did was because of cheap international products (being demanded by Walmart for their "lower prices, always" meme) that are being produced by people being paid at 1/10th what our workers were being paid.

WalMart doesn't demand products. Consumers do. This is not a trade problem. If people wanted Stanley tools made in the USA, then they'd insist on buying them.  The reason this is not a trade problem is that if Stanley didn't leave New Britain, then somebody else would make those same tools elsewhere, undersell them, and put them out of business.

 This is progress?

Yes, I'm afraid this is how progress works. 

I don't have the answers even though I recognize the problem.  

That's my central point. David Sirota has beefs. The American People share his beefs.  David Sirota has no answers. 

But to say everything is going to be ok while free trade is gutting our workforce and economy isn't the answer either.

You can't wish these facts away.  Goods people want can be produced overseas more cheaply than they can be produced here. People will buy these more cheaply made goods.  Saying you don't like these facts doesn't get you anywhere. Decrying free trade is making policy the way that the current administration makes policy. But here on TPMCafe we believe in reality-based government.   

Trying to address this problem with trade policy is doomed to fail, and is very expensive.  If you could find a way to make people pay 10.95 instead of 5.95 for a Stanley screwdriver, then you'd be hurting, in total, a lot more screwdriver buyers than screwdriver makers. You can do this without hurting the overall economy too much if you don't do too much of it, but over time the quality of your screwdrivers is gonna fall and those foreign ones are just gonna keep getting better and cheaper.  

The ultimate version of this kind of policy was the Soviet Union.  

Eonomists have long recognized that the cheapest way to deal with the dislocation from trade is to tax everybody, and compensate the losers. The trouble is first that it is hard to prove a job is lost to trade and second, people tend to object to compensation amounts that would be better for everybody. (Say a month of pay for every month on the job.) So you get lame retraining programs instead, which do nobody any good.

But we can't make effective policy if we don't face up to the problems.

For me, the starting point would be national health care. It would  remove the most frightening and debilitating part of losing a manufacturing job, and would soften the blow for everyone who has greater risk of job loss in a more dynamic, globalized economy.

Because, you see, it's not a trade problem Trade in this case is being used as a scapegoat for broader economic changes. 

The most fervent lobbyist for tariffs and protection against imports are corporate interests.  Free trade doesn't benefit large corporations; they battle against it.  They're happy to have unions on their sides, but even when there are no union interests involved, the corporations are up their lobbying against all competition, foreign and domestic.

Always have. Always will.

The beneficiaries of trade restrictions are entrenched interests. And it's funny you should mention communism, because, of course, the hallmark of the soviet system was autarky. Free trade was anathema to the communists.

Where did I say that? Please don't try to put completely misconstrued words in my mouth.

I didn't try to put words in your mouth Nick.  I asked a question...

Are you saying we should abdicate our positions on human rights in the name of "free trade" Nick?

And you answered the question.

I just disagree that addressing human rights issues are best done by economic "carrots".  We are allowing them to continue with bad policy with the hope that they will modify their behavior.  Negotiations based on the hope the other side will honor their commitments, with no guarantee, is no way to operate...It is like a bank handing out loans with no collateral hoping the lessee won't default.

The most fervent lobbyist for tariffs and protection against imports are corporate interests.  Free trade doesn't benefit large corporations; they battle against it. 

Tell that to the US Chamber of Commerce, the National Association of Manufacturers and their ilk who have promised retribution against those who voted against CAFTA.

In theory what you say, Jay, may be true. In reality, corporate interests is too broad a term. Multinational corporations, particularly giant Fortune 500 MNCs, are precisely those who do benefit from current trade policies.

If I read you right, though, and I'm not trying to be snarky here, you don't think current trade policies are free trade. (This is the basis for (libertarian) Rep. Ron Paul's opposition to NAFTA & CAFTA.) Perhaps you also believe MNCs like GE who lobby for things like CAFTA and PNTR with China aren't corporations.

I would add, borrowing from Warren BUffett, that what America is engaged in now is not trade, that is the exchange of goods (or services) for goods (or services). Rather, we are selling assets to purchase imports (& services), not unlike a trust fund baby who sells stock to buy coke, or a farmer selling the acreage to buy butter.
 
I suspect we may agree that this America we live in is not one of free markets.    

WalMart doesn't demand products. Consumers do. This is not a trade problem. If people wanted Stanley tools made in the USA, then they'd insist on buying them.

Don't blame the American consumer.  Of course we all want the lowest prices we can get.  But Walmart, greedily, capitalized on this by driving prices so low that they forced their competitors out of business and their suppliers offshore.  What they did had nothing to do with the welfare of the American consumer or the health of the American economy and had everything to do with putting their corporate profits at a higher level of importance then our country's economy as a whole.

That's my central point. David Sirota has beefs. The American People share his beefs.  David Sirota has no answers.

Yes there are problems with our trade policy.  Yes the American people know it.  But by saying we will continue on the course without addressing the problems isn't the way to go.  You say later on that we are addressing the problems.  How so?  I don't see it.  

JayAckroyd - And an adoptiion of a policy position intended to lock in America's Goliath strategy by impoverishing the world would be entirely counterrproductive.

I don't think remaining a goliath is the point, and maybe impossible anyways.

What's more of an issue is softening the blow for the "losers" in the global economic tradeoffs, the manufacturing jobs and such. That has to be balanced against investment and competitiveness for long term thinking. We can’t just build more tractor factories so we had better come up with better retraining methods and economic planning fast if we want to have any chance for a compassionate society with a long term future.

And it’s not just outsourcing, as many have pointed out automation has cost far more jobs. It’s really about transitioning to a post industrial economy. Eventually we may face intelligent automation that truly reshapes society. The value of labor as we know it today is on a decline until it eventually reaches near zero.

Is there a survey that asked simple questions such as "What international organization deals with global trade?" or "What is the US average tariff on goods?" or "What countries have a free trade agreement with the US?"?

I don't mean to sound superior - I wouldn't get all those questions right myself - neither do I want to suggest that Americans know less than other nations about trade. But it is useless to say that Americans have opinions on trade to try to prove that they are informed. There's a lot of ignorance in the world about trade and using social pressure ("Are you saying I'm an idiot?") won't help to face this information problem.

NickDoe writes: 

So you’re right, we need to grow our way out of this problem and need to maintain our economic edge in high tech for example.

Nick, we don't have an edge in high tech anymore.

Both China and India have had more faculty and grad students in US universities in certain high-tech programs (I know personally about CS, having been there) than there are US citizens in those programs.  They have long since been able to build up their own high-tech university programs (research the IIT, for example, if you don't know what it is) that now dwarf the graduation volumes of US universities which were already graduating more foreigners than US citizens in the first place, from what I hear from my Chinese and Indian friends.

IBM's PC division is now Lenovo, a wholly-owned property of the Chinese government.  Open a PC, any PC, made in the last five years, and see where the components were made - no major PC components are still made in the US, that I know of.  And I'm not just talking about the manufacturing - the R&D is done overseas now.  Last I heard, HP and Microsoft had bigger campuses in the so-called Silicon Plain area in India than they have in the US.

When I was first a CS grad student back in the late '70's and early 80's, I had Indian, Chinese, Pakistani, and Iranian professors.  When I returned in the '90's to finally get my Ph.D., less than 20% of the students and faculty in the program I was in (one of the oldest and largest in the US) were US citizens.

Are you just in denial about this?

It isn't just low-skilled labor that's moving offshore.  The highest skill high-tech jobs have been gone, in a macroeconomic sense, for well more than a decade, maybe two.

I'm not advocating anything here.  I'm just trying to make sure the scope and parameters of the issue are understood.  Ultimately, the US will not be the only economy which suffers from the problems I personally see.  In any event. it doesn't seem wise to me to be in denial about anything, and that includes the US' standing where high tech is concerned.

How will we replace "corporate-written free trade deals"?
 

The answer is simple, as indicated in the polls: Replace the corporate-written deals with ones that address the concerns of ordinary people, with pro-labor, pro-environment provisions that make sure American workers and aren't competing with slave labor and corporations aren't simply exporting their pollution.

 I'm not sure Sirota is talking about trade barriers. He simply wants labor and environmental protections written into trade agreeements. Why is it that copyright and other provisions sought by business are perfectly reasonable and provisions sought by anyone else are automatically considered nonsense?  Also, what the devil is wrong with high union wages?