Benefits of trade outweigh cost - eventually

  • Article by: ERIC WIEFFERING , Star Tribune
  • Updated: October 22, 2011 - 6:06 PM

Trade makes nations wealthier.

We've seen it happen in Vietnam, Mexico, China and India, and we're likely to see it occur again in Panama, Colombia and South Korea as a result of three free-trade agreements President Obama signed Friday.

The signing was long overdue. The agreements, negotiated four years ago, had become hostage to Washington gridlock. Meanwhile, other countries signed their own fair trade deals, which allowed foreign firms to swipe market share from their American counterparts.

South Korea is Minnesota's sixth-largest export market, but a South Korean trade official warned a state delegation in September that European Union exports to his country had soared 30 percent.

Minnesota soybean farmers, meanwhile, watched helplessly as U.S. exports to Colombia plunged more than $60 million, or almost two-thirds, between 2008 and 2010 after Canada and Argentina inked trade pacts that eliminated a 20 percent tariff on their grain.

"We needed these agreements in order for U.S. products to remain competitive," said Katie Clark, director of the Minnesota Trade Office.

But will these pacts mean more jobs in the United States, as Obama, congressional leaders and U.S. corporate interests insist?

The answer to that question may not be known for years to come, but today most Americans believe the prosperity achieved by other nations through trade comes at their expense. In a Wall Street Journal poll last year, 69 percent of adults believed free trade cost the United States jobs. Only 18 percent said trade created jobs.

Economists have never dodged the fact that trade creates winners and losers. No matter their political stripe, though, they're almost unanimous in their view that, in the long term, the winners get more than the losers lose. Companies or industries gain access to new markets, which means new jobs. Consumers and businesses alike get more choices, which means lower prices and more disposable income to spend or invest.

The U.S. itself represents the best case for trade. Our economic might was built on decades of trading with countries that needed or wanted our corn, cars, computers or blue jeans.

But stagnating median incomes during the past two decades have eroded the foundations of the middle class, making it harder for American workers to put their faith in the dogma of free trade. And it's not hard to see why. The biggest trade deals in recent history have been with Mexico and China, which pay their workers less. The cost of those deals has fallen especially hard on the U.S. manufacturing sector, which has shed almost 6 million jobs since 2000.

It's wrong to insist that all those jobs went to China or Mexico. Remaining competitive in a global economy -- especially during a recession -- forces manufacturers to become efficient. That frequently means investing in equipment that requires fewer workers to operate, or automating some processes altogether.

Sometimes it means exporting jobs. TRW cut 52 jobs in Winona after it sent some of its automotive parts manufacturing work to a plant it built in Mexico, according to data compiled by the federal Trade Adjustment Assistance program; Rainbow Play Systems laid off more than 200 workers in South Dakota and Minnesota after shifting some production to China in late 2008.

Economists don't disagree that trade deals result in job losses. On top of that, Dean Baker, an economist with the liberal-leaning Center for Economic Policy Research in Washington, believes job-loss calculations underplay the subsequent impact on wages of remaining workers.

"All of their models assume full employment," Baker said. "But we don't have full employment, so that leaves more workers competing for and driving down the wages of the remaining jobs."

At the same time, it's simplistic and usually unfair to paint companies as the bad guys when they move jobs abroad or turn to foreign suppliers for key parts. Look at it from a business owner's perspective. Suddenly, his or her longtime customers can shop from a list of competitors who are offering to do the same work for half the price. In that situation, it's not about putting profits ahead of people. It's about survival.

The complexity of the issues explains why support or opposition to individual trade deals doesn't always break along predictable lines. As a senator, Obama voted against the trade agreements with South Korea, Panama and Colombia; as president, he championed them. The AFL-CIO opposed the deals, but another big labor group, the United Food and Commercial Workers, supported them. The National Association of Manufacturers said yes to the packages, while the U.S. Business and Industry Council, whose members include small manufacturers, said no.

The problem with trade is that the losses are often immediate and somewhat easy to tally, while the benefits may be decades in the making. But globalization is inevitable, because history has shown those gains to be real. Walling ourselves off will cost far more than we can envision.

ericw@startribune.com • 612-673-1736

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