For want of a single wire imported from Mexico, jet engines built by General Electric’s American workers in Ohio would fail to ignite. Nor would GE washing machines that are assembled in the United States function without printed circuit board assemblies from countries like the Philippines and China. Such imports — and thousands more — are vitally important to the 131,000 Americans who make those engines, washing machines, and other products of the GE Imagination. You’d think that Jeff Immelt, GE’s chairman and CEO, would be eager to point to the imported components that sustain his company’s American jobs. That Immelt would be eager to explain in such real-life terms, why international trade flows are so important to prosperity. But he isn’t.
Like President Barack Obama and many other U.S. business leaders, Immelt instead promotes the benefits of international trade using the language of mercantilism: trade is about creating American jobs, about promoting American exports. Pragmatic business leaders like Immelt and economic nationalists like Obama long ago have calculated that ordinary working Americans respond better to patriotic-sounding slogans than the simple truth about the connection between imports and exports. In Washington, D.C., exports are highly praised; imports are mentioned as little as possible.
Meanwhile, across the Atlantic Ocean, more enlightened European thinkers in cities like Stockholm, Geneva and Paris have been busy explaining to their publics the all-important connection between imported components and finished manufactured goods.
The contrast between how trade is being talked about differently on the two sides of the Atlantic Ocean helps illuminate why, on the American side, public support for international trade has deteriorated so sharply in recent years. Here’s what’s going on:
Earlier this month, I reported on some solid economic research on the benefits of both the import- and export sides of international trade flows that has been published in recent years by Sweden’s National Board of Trade. The savants from Stockholm have just weighed in again with a 30-page document titled Business Reality and Trade Policy — Closing the Gap. Global value chains — referring to components and raw materials that workers in importing countries need to make their manufactured goods — promote “productivity and, by extension, economic growth,” the Swedish economists note. Because the imported parts are crucial to value-added manufacturing performed by workers in the recipient countries, the Swedish government economists make a (sensible) trade policy-reform suggestion: why not further stimulate growth by eliminating tariffs on those beneficial imports? If the World Trade Organization’s member countries better understood that idea, the tariff-slashing Doha Round would have been completed long ago.
Speaking of the WTO and fresh thinking, more is underway in Geneva and Paris. Last week, the OECD and WTO announced that their economists are working jointly on developing a new database that will help both business leaders and government policymakers better appreciate the connection between imports and finished manufactured goods. “More and more products are ‘made in the world’ rather than in any particular country,” the OECD-WTO March 15 press release noted. The message is the same one that WTO Director-General Pascal Lamy has been telling anyone who will listen for the past several years: if you shut out imports, you are shooting yourself in the foot.
One would expect that Jeff Immelt would agree wholeheartedly with that sentiment, and be eager to say so. After all, his General Electric has perhaps the world’s most sophisticated supply chains — some 500,000 suppliers from everywhere, according to published estimates. Without access to those imports, GE’s American workers would be unable to make their refrigerators, jet engines and such. And as the head of President Obama’s Council on Jobs and Competitiveness, Immelt has proclaimed his strong interest in pushing any economic idea that would promote American jobs. That idea: if your goal is to increase exports, you’ll need also to import more.
But pointing to imported components that GE’s American workers rely upon is not high on Immelt’s priority list.
A politically awkward economic question
The question I sent in to Immelt addressed perhaps the easiest economic lesson in modern manufacturing: Would you agree that GE’s American-based jobs depend upon access to imported components and raw materials?
“I understand the question,” said Immelt spokeswoman Una Pulizzi, who said she’d get busy providing an answer. But after a three-week to-and-fro during which she repeatedly stalled by asserting that Immelt’s “policy team” needed more time to do some research, Pulizzi finally acknowledged that her CEO would decline to comment.
Why GE’s American workers should love imports
Immelt could have answered by making the same point the Swedish national trade board has recently made: eliminating duties on imported components stimulates economic growth. After all, GE brings in duty-free parts in U.S. Foreign Trade Zones in Florida and Kentucky, parts which are then turned into American-manufactured products. Why not take every opportunity to explain that a zero-tariff world helps sustain the jobs of the Americans who are fortunate enough to work in such zones?
Of course, most of the components that GE imports are outside the foreign-trade zones, and are thus subject to tariffs. But even when GE pays duties on imported components, its workforce benefits from having them. Pouring through hundreds of pages of otherwise dry U.S. Customs import records in recent years shows why.
Remember that wire from Mexico, without which GE’s Ohio-made jet engines could not ignite? Certainly the GE workers in Ohio would understand how important those ignition wires are. And how about the printed circuit board assemblies from the Philippines and China that make GE’s American-made washing machines work? Those boards “supply the internal logic for complete control of…the various wash cycles,” as one recent US Customs ruling aptly put it. Should it be a stretch of the famous GE Imagination to agree that if those Asian circuit boards keep American workers busy making washing machines that run, they are good things?
GE also has imported blades that American workers put on American-made wind turbines. While the countries from which the essential blades are not identified in U.S. Customs files, surely GE’s American workers would understand how important those imported blades are — not to just the turbines, but to their own jobs. Without the imported blades, GE’s wind turbines “cannot function,” as one U.S. Customs determination noted.
There is so much more. Think about tempered glass shelves from China that go into U.S.-made refrigerators — imagine buying a General Electric refrigerator without shelves. And how far would a GE-built American locomotive get without (imported) ball bearings? Further imagine trying to drive a heavy duty off-road mining truck without the mounting flanges from the Czech Republic. GE’s American workers need those flanges to attach wheel frames to axle boxes. General Electric paymasters should be happy to cut checks for those Czech boxes.
But Jeff Immelt isn’t happy to talk about such things.
From the executive suite to the Oval Office
Why would the head of one of America’s most respected corporations adamantly refuse an opportunity to explain, in simple terms that anyone could understand, why international trade is so important to his company’s workers?
Perhaps part of the answer involves Immelt’s political ties to President Barack Obama as head of the president’s Jobs Council, which is charged with coming up with ideas to boost American job creation in the global economy.
On Jan. 21, 2011, the day that the president announced his appointment to the council, Immelt explained his priorities in an Op-Ed article for the Washington Post. Basically, those priorities turned out to be Obama’s priorities.”We must set as our highest economic priority not just increasing our exports, as the president has pledged, but also making the United States the world’s leading exporter in the 21st century,” the GE chief executive wrote. No mention of the role that imports must play — the Obama White House doesn’t talk much about imports. But remember, if the goal is to increase exports, the way to do that is to bring in more imported components and raw materials. Neither Immelt nor Obama has shown much interest in explaining the latter point.
Also in the Washington Post column, Immelt further toed the White House line by praising the then-pending U.S.-Korea preferential trade deal, which he said “will eliminate barriers to U.S. exports and support export-oriented jobs.” At the time, Obama and his top political aides were supporting the Korea deal. But the White House was also deliberately ignoring the fact that two other pending trade deals with Colombia and Panama were also languishing (because of objections from the anti-trade wing of the Democratic Party). So Immelt also left the two Latin American countries off his priority list, making it clear that if the White House didn’t care about Panama and Colombia, neither would the head of General Electric.
Immelt, obviously understanding that the Obama White House was giving no priority to the World Trade Organization’s long-stalled Doha Round of multilateral trade liberalization negotiations, didn’t mention the importance of multilateral trade liberalization. Working to support the WTO negotiations hadn’t been a General Electric priority anyway.
When Immelt’s jobs council talks about imports, it isn’t to highlight their contribution to American manufacturing. Just one line from a jobs’ council position paper explains the general tone: “America can never risk becoming so dependent on foreign production that we lose the ability to make what we need to defend the country and our interests abroad,” the council has declared. (Uh oh: what about those ignition wires from Mexico, those Asian circuit boards?)
Bringing jobs back to America?
Speaking of American jobs, that’s something of a sensitive subject for Immelt. GE employed 141,000 Americans in 2008, ten thousand more than last year. While GE’s American workforce has declined, the multinational’s overseas operations have remained constant. In 2008, GE also employed 170,000 workers in other countries — the same number as the company has reported for 2011.
Rather than talk about such numbers, Immelt has been talking of an American manufacturing renaissance, boasting of his patriotic efforts to bring at least a few thousand jobs back to America. On Feb. 12, GE Appliances announced the opening of a manufacturing operation in Louisville, Ky., where the company has hired more than 400 Americans to make its GeoSpring Hybrid Water Heater there, instead of China. In the next two years, GE officials have said they want to add 1,300 more jobs in Kentucky.
To get the Louisville water-heater operations established, GE has announced it invested some $38 million dollars — while Kentucky state and local governments forked over $17 million in “incentives” aimed at easing the corporate pain in investing in America. On March 13, GE announced plans to hire 200 more people at Louisville’s Appliance Park , “thanks to a grant,” which was not identified. Applications will be accepted until Friday, March 16, the company noted, “or until 10,000 applications have been received.” Those jobs will pay $13 an hour.
In the United States, government “grants” and various “incentives” involving tax dollars are are considered more politically correct than the “unfair subsidies” that foreigners receive from their governments.
Whatever term one prefers for the government largesse, cut through the jobs-creating rhetoric of Immelt’s jobs council, and much of it comes down to seeking tax dollars. “To capture new industries that are currently up for grabs, the U.S. must assist them from start up to scale up,” the council has urged. “The Jobs Council recommends utilizing more government grants and pilots to provide ‘proof points’ for new technologies.” General Electric, meanwhile, is pursuing investments in solar power and other trendy technologies that are popular in the Obama White House.
To be sure, what’s really popular in the White House is getting the president elected to a second term. Toward that end, Obama’s jobs council is obviously a useful prop for the Made in America candidate. Immelt, although a life-long Republican, seems willing to go along with that. So why would the CEO be willing to help Obama position himself as a business-friendly candidate in the 2012 presidential campaign?
It turns out there is also a corporate agenda at work on the jobs council. In short, Immelt wants the president to help him sell gas turbines, jet engines, and such. The United States is not trying hard enough to boost exports, Immelt told Scott Malone of Reuters on Oct. 17, 2011. “Chancellor (Angela) Merkel flies from Berlin to Beijing, there’s 25 German CEOs that go on the plane right behind her. And they connect the dots. They play hard, they play to win,” Immelt told Malone.
But if a whiff of crony capitalism is in the air, the broader point is that Immelt is hardly the only American CEO who struggles when it comes to explaining the benefits of trade only in terms of “jobs” and “exports” to the American public. In fact, he’s rather typical.
It began with the Japan bashers in the 1980s with their barrage of bitter resentment directed at so-called “unfair” Japanese competitors. These days, of course, those Japan bashers have become China bashers. It’s not just Democrats like Obama and their allies in organized labor who consider imports politically “problematic,” as William Daley once let slip. In 2002, President George W. Bush, who also said he was for “free and fair” trade, even went to the port of New Orleans. Bush said that great port existed to export American goods, avoiding any mention of the vital role that port plays in bringing imported products up the Mississippi River. Even Ronald Reagan was for “fair trade” too, when that suited him politically — remember those “voluntary” restraints on Japanese automobile imports?
Gradually, over the past quarter century, corporate America gradually lost its voice, accepting that the fair traders were setting the terms of the debate. Now, when even the head of General Electric, for which imports are of vital importance, deliberately avoids explaining why imports are so important to his company, one can see how deeply the intellectual rot has set in. No wonder the American public has become so skeptical of trade.
Americans who are interested in honest explanations of the benefits of international trade are referred to the thinking being done in European cities like Stockholm, Geneva, and Paris.