Topic: Trade and Immigration

Senators Suddenly Pro-Trade

Four influential senators have written [$] to the French Ambassador to express their displeasure at France’s ongoing restrictions on genetically modified (GM) corn, warning that the issue could spark litigation.

America and the European Union have been at loggerheads over GM foods for years now, culminating in a dragged-out WTO dispute (summary available here) that was resolved with a partial-loss for the EU because they took too long to make a decision on allowing certain products into the european market, and because the EU didn’t base some of their restrictions on scientific evidence, as required under WTO rules. Now the victorious parties, including the United States, Canada and Argentina, are waiting for practical resolution and for trade to start flowing.

The French, however, are continuing to resist approving products made from agricultural biotechnology, ostensibly in the face of public opposition to the foods. French President Nicolas Sarkozy has spoken publicly in support of a ban on growing GM crops in France, and the French yesterday proposed scrapping the current EU approval process for genetically modified organisms in favour of tougher standards.

Enter the senators, who see what tougher restrictions would mean for GM-happy American farmers and are incensed at what they see as a flouting of trade rules. Ironically, among them is Saxby Chambliss (R-GA) who favors the continuing support of American cotton growers, even in the face of WTO rebukes for the manner in which that support is delivered. Similarly, Senate Finance Committee Chair Max Baucus (D-MT) has refused to countenance passing any trade deals unless and until he gets his way on trade adjustment assistance (you can see what I think of his ideas for TAA here).

Senator Obama isn’t the only member of that august chamber with two faces on trade.

(D) All of the Above

As an advocate of free trade, I feel slightly vindicated by reports that the Obama campaign quietly assured the Canadian government that the Senator’s strident words about NAFTA in last week’s debate were merely political rhetoric. We’ve long been saying that opposition to trade is mostly an artifice of politics. But the story begs the question: Is Obama (a) economically illiterate; (b) dishonest, or; (c) naïve. The answer is (d), all of the above.

Obama blames faulty trade agreements, like NAFTA, for the loss of 3 million manufacturing jobs since 2000. But one can check that claim easily by turning to page 280 (Table B-46) of the Economic Report of the President, 2008 [.pdf]. There one will find that in the 14 years since NAFTA took effect, the number of U.S. manufacturing jobs declined by 2.7 million. In the 14 years prior to NAFTA (between 1979 and 1993) the number of manufacturing jobs declined by 2.7 million. No difference at all. In both periods, there was a decline of 193,000 net manufacturing jobs per year.

Although U.S. manufacturing employment peaked in 1979 and has been trending downward since, there was an uptick in employment in the first few years after NAFTA took effect. Between 1993 and 1998, 500,000 net jobs were created in manufacturing. Did NAFTA create those jobs? I wouldn’t make that claim, but it certainly has more empirical support than the opposite claim—that NAFTA cost jobs.

Three million jobs lost since 2000? Look again [.pdf]. During the pronounced manufacturing recession of 2000-2003, there was a precipitous drop of 2.8 million manufacturing jobs, but it’s hard to blame NAFTA for that. Manufactured imports from NAFTA countries were flat during that period: imports in 2000 were higher than the average for 2001 through 2003. Again, if you must blame NAFTA, look to the export side of the equation. U.S. exports dropped 11 percent from 2000 to 2003.

And for the record, since 2004, there has been a decline of 300,000 manufacturing jobs nationwide. That rate of 100,000 per year (vs. the rate of 193,000 per year during the entire post-peak period of 1979-2007) suggests that even the basis for the political rhetoric is about five years too stale.

That Obama asserted he would take a “sledgehammer” to NAFTA because it is broken and then say just kidding to the Canadians is dishonest. Some are cynical enough to excuse that as par-for-the-course pandering, but I don’t. The reason that there is a backlash against trade – that there is even a debate – in this country is that lies like those are uttered with such frequency that they are believed. Those myths are all the more reinforced when spoken by someone as apparently likeable and charismatic as Senator Obama.

Finally, the attempt to smooth things over with the Canadian government raises questions about the candidate’s naïvete. Did it not occur to him that a conservative Canadian government might favor a McCain presidency and might make political hay out of the “disregard-the-NAFTA-belligerence” comments?

At least Senator Clinton knows enough to wait until after Ohioans vote before winking at our NAFTA neighbors.

Washington Post Takes Even-handed Look at “Middle Class Squeeze’

If you believe Lou Dobbs and most politicians on the campaign trail, you would think the great American middle class has basically vanished—squeezed to death by falling home values, rising medical and tuition bills, and competition from low-wage workers in Mexico and China.

Today’s Washington Post business section provides a valuable reality check. In a story headlined, “An Upside for the Middle Class: Lost Amid the Stresses Are Gains in Standard of Living,” reporter Michael A. Fletcher provides an even-handed assessment of just where the American middle class stands today.

The article reports what the doomsayers have been saying about rising levels of consumer debt, “flattening wages” and rising income inequality. But it also quotes from a range of experts that trade, technology and economic growth have raised the standard of living for most Americans.

Here are a few facts from the Post article that you won’t learn from CNN’s Lou Dobbs Tonight:

Items once considered luxuries—dishwashers, central air conditioning, video cameras—are now common. The average size of new homes has increased 40 percent in the past generation. And as many consumer items cost less, Americans are shopping more. In 1991 the average American bought 33.7 pieces of apparel; by 2002 he or she bought 48 items, according to Boston College sociologist Juliet Schor. In 2005, she said, Americans were projected to discard more than 63 million computers.

Americans are twice as likely to travel overseas than they were in 1980, and overall they spend more than ever for other recreation, including sporting events, movies and plays—the mark of an ever-improving quality of life, some researchers say.

Of course, supporting a middle class family can be and often is hard work. But we shouldn’t allow ourselves to be panicked into grasping for big-government solutions to an economic crisis that does not exist.

For a more in-depth look at how most Americans are faring in this era of expanding trade and globalization, you can check out my recent Cato study, “Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers.”

Blinded by Ideology

Given the outspoken, anti-trade views of thrice-elected Senator Byron Dorgan (D-ND), you might think that North Dakotans have no stake in the global economy.  After all, if you’re comfortable voting for a candidate who disparages NAFTA and other trade agreements, certainly your livelihood wouldn’t depend on, say, exports to Canada.

Carter Wood over at the National Association of Manufacturers posted this gem (“Leading the Nation in Exports…and Protectionism?”) earlier today.

North Dakota’s exports grew faster than any other state’s in 2007, and the primary destination for its mostly agricultural output was Canada.  If I were a North Dakota farmer, I’d be a bit wary of my senator, whose rationale for endorsing Barack Obama is that he (Obama) “has always opposed Nafta.”

Good grief.

Obama and Clinton Threaten to Bully Our Neighbors over Trade

When they weren’t jabbing at each other over health care and Iraq, Barack Obama and Hillary Clinton spent a good chunk of their debate last night arguing over which of them is the strongest critic of the North American Free Trade Agreement. Both declared that they would withdraw the United States from the agreement if Canada and Mexico did not agree to inserting “enforceable” labor and environmental standards into the agreement.

Talk about a non-starter. It is unlikely that our two neighbors would agree to reopen a 14-year-old agreement that has worked well for all three nations. [You can read my assessment of NAFTA here.] In effect, Obama and Clinton will be asking our two neighbors to bend their national labor and environmental standards to the demands of the U.S. Congress under threat of trade sanctions. Where exactly is the upside for Canada and Mexico in such a request?

Of course, there is no upside. So the only motivation will be the threat that the United States will unilaterally withdraw from NAFTA. That, of course, would result in the re-imposition of tariffs on trade with our two most important trading partners. And because Mexican tariffs on imports from the rest of the world are significantly higher than U.S. tariffs, U.S. exporters to Mexico would face a much steeper tariff increase than Mexican exporters to the United States. By withdrawing us from NAFTA, the Democrats would transform what has truly become a “level playing field” of zero tariffs into one tilted against U.S. exporters.

And even if the U.S. government were able to demand that Mexico impose new and tougher environmental and labor restrictions on its producers, there is little reason to believe that goods now made in Mexico would be soon be produced in Youngstown, Ohio, and elsewhere in the United States. The far more likely scenario is that producers in Mexico would shift production to China, Vietnam, and other lower-cost producers.

Finally, consider the foreign policy implications of threatening to withdraw from NAFTA. The Democratic candidates have been critical of the Bush administration for its checkered record of winning friends abroad. But have the Clinton and Obama campaigns considered how our friends in Canada and Mexico will react to the heavy-handed demand that they re-write their domestic labor and environmental laws under threat of face tariff retaliation from Uncle Sam?

This would confirm the worst fears of our closest neighbors.

Demander-in-Chief

Bill Kristol’s column in yesterday’s New York Times contained an interesting, if disconcerting, quote from Michelle Obama:

Barack Obama … is going to demand that you shed your cynicism… That you push yourselves to be better. And that you engage. Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.

The President of the United States is the employee of the American people. He is not there to make demands of people. If I want to sit on my couch for the rest of my life eating Doritos and watching trashy television – unengaged, uninformed and uninvolved – that’s my prerogative.

(Hat tip: our beloved founder, Ed Crane).

Why Politicians Are Wrong about Imports and Jobs

Politicians commonly blame imports for throwing millions of Americans out of work. If you don’t believe me, check out what Hillary Clinton and Barack Obama both said about trade in their post-Wisconsin-primary speeches Tuesday night.

It’s true that a certain number of Americans lose their jobs each year because of import competition, but the number is small compared to the overall size and underlying churn of the U.S. labor market. And jobs lost from import competition are more than offset by jobs created elsewhere in the economy. And if you don’t believe that, check out my recent Cato study, “Trading Up.”

Adding to the evidence, the recently published Economic Report of the President 2008 contains a nifty graph on page 94. It shows that during the past 25 years, as imports have been trending inexorably up as a share of our economy, the unemployment rate has been trending DOWN.

As the graph’s own caption concludes, “Over the long run, there is little connection between increased imports of goods and services and the strength of the labor market.”