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:

Read the rest of this article »

Made Where?

posted by
on March 13, 2012

When it comes to explaining to their citizens what international trade is all about, European leaders are way ahead of their American counterparts — so far, that they must marvel at the audacity of how it’s done in America. Last month, for example, I reported on President Barack Obama’s visit to Everett, Washington, where he praised Boeing’s new 787 Dreamliner. The president basically boasted on Feb. 17 that the Dreamliner showed how Americans build better “stuff” than foreigners. “Boeing has suppliers in all 50 states, providing goods and services like the airplane’s ground-breaking carbon fiber composite aircraft structure from Kansas, advanced jet engines from Ohio, wing components from Oklahoma, and revolutionary electrochromic windows from Alabama,” he declared. American manufacturers like Boeing, Obama added, “are realizing that even when we can’t make things cheaper than China, we can make things better. That’s how we’re going to compete globally.” When they saw that, some European readers told me they wondered what Obama had been smoking.

Here’s how that same Dreamliner has been described by the Swedish National Board of Trade, which has conducted ground-breaking research into the mutually beneficial relationship between imports and exports in modern international trade flows. “The production of this new midsize jet involves 43 suppliers spread over 135 sites around the world,” the sagacious Stockholm economists noted in one report. “The wings are produced in Japan, the engines in the United Kingdom and the United States, the flaps and ailerons in Canada and Australia, the fuselage in Japan, Italy and the United States, the horizontal stabilizers in Italy, the landing gear in France, and the doors in Sweden and France.” All in all, “a Boeing airplane is not particularly American,” as “70 percent of the components are produced abroad,” the sharp-eyed Swedes concluded.

Of course, Swedes don’t vote in U.S. presidential elections. And last week, Obama was at it again — vigorously explaining what international trade means to Americans in narrowly nationalistic terms. On March 9, the president visited Petersburg, Virginia, which is about 30 miles south of Richmond and the site of Rolls-Royce Crosspointe, one of Boeing’s suppliers of engine components for the Dreamliner. The president praised the British manufacturer for investing in America and “creating jobs here, manufacturing components for jet engines, for planes that we’re going to send all around the world.” He went on to say that what Rolls-Royce was doing in the United States represented “the kind of business cycle we want to see. Not buying stuff that’s made someplace else and racking up debt, but by inventing things and building things and selling them all around the world stamped with three proud words: ‘Made in America.'”

Made where? While that last line drew its intended applause from the southern Virginia workers, as an explanation of economic realities it was perhaps as chauvinistic — and flat-out wrong — as it gets in American politics.

Here’s why: Read the rest of this article »

Made in America?

posted by
on February 21, 2012

Consider President Barack Obama’s three favorite words: Made in America — words which he hopes will help propel him to a second term in the White House, come Nov. 6. While the politics of economic patriotism may play well in certain parts of the American heartland, the fundamental economics are a different story. Thanks to complex global supply chains, labels like Made in America, Made in China, or Mexico, or wherever, have become increasingly misleading. Obama is hardly the only politician not to recognize the fundamental economic fact of modern manufacturing life: that workers who make things in the United States couldn’t do so without access to key raw materials and component parts found outside U.S. borders. But if the president’s Republican opponents catch on to the game — which may be possible, if the economically literate Mitt Romney wins the GOP nomination — Obama could end up looking like a man whose economics learning curve remains steep.

Nobody raised questions about the president’s economic literacy last week, when he took his Made in America campaign theme on the road. On Feb. 15, Obama addressed an enthusiastic crowd including some 400 members of the United Auto Workers union who make padlocks for Master Lock. Co. in one of Milwaukee’s most blighted neighborhoods. In his State of the Union address last month, the president had praised the 91-year-old iconic Master Lock — well-known for its Super Bowl commercials showing a tough lock withstanding a bullet — for having moved about 100 jobs back to Milwaukee from China. In Milwaukee last Wednesday, Obama drew cheers when he declared, “It’s time to stop rewarding companies that ship jobs overseas, and start rewarding companies that are creating jobs right here in the United States of America.” Two days later, Obama flew to Boeing’s plant in Everett, Washington, where he boasted that “the world’s most advanced commercial airplane” is made, referring to the new 787 Dreamliner. “And companies like Boeing,” the president added, “are realizing that even when we can’t make things cheaper than China, we can make things better. That’s how we’re going to compete globally.”

When smaller concerns like Master Lock create new jobs, not in China, but in the U.S., Obama explained, the economic benefits extend beyond the corporate bottom lines. “[I]t’s also good up and down the supply chain, because if you’re making this stuff here, that means that there are producers and suppliers in and around the area who have a better chance of selling stuff here.” And when Boeing makes its Dreamliners in Washington State, the entire U.S. economy gets a boost, thanks to “nearly 11,000 small, medium and large supplier businesses,” Obama added. “Boeing has suppliers in all 50 states, providing goods and services like the airplane’s ground-breaking carbon fiber composite aircraft structure from Kansas, advanced jet engines from Ohio, wing components from Oklahoma, and revolutionary electrochromic windows from Alabama.”

To hear the president, the American economy is a self-sufficient island, where the most productive workers in the world make things to sell to envious foreigners. But in today’s world of complex international supply chains, the operating economic realities have left such traditional political rhetoric behind.

To see why, let’s first look at what could be called the political economy of Milwaukee. Read the rest of this article »

The main themes of President Barack Obama’s international-trade strategy for the November 6 presidential election are now fully established. It’s all about the 21st Century, where the buzzwords are American jobs, U.S. exports, and more American jobs. He doesn’t want America known for “buying stuff from other nations,” Obama told representatives from a dozen-plus corporate luminaries including Ford Motor Co. and Intel Corp. who assembled in the East Room of the White House on Jan. 11. “I want us to be known for making and selling products all over the world stamped with three proud words: ‘Made in America.'”

If economists would immediately retort that the president’s language was the stuff of 17th and 18th century mercantilism, practicing politicians could shoot back that hey, campaigns are not academic seminars. In that vein, the nation’s Politician in Chief furthered his plea for economic nationalism in his Jan. 24 State of the Union address, where he asked Congress to help him give tax breaks aiming at bringing back lost manufacturing jobs to US shores. More broadly, Obama will be vigorously asserting that on his watch, he has succeeded in restoring America’s traditional claims to international economic leadership. Toward that end, he will ignore his lack of focus on what should have been top priority — the truly big-money stakes involved with the World Trade Organization’s Doha Round of multilateral trade liberalization talks, which the White House has helped kill. Instead, Obama will keep touting how he managed to obtain congressional passage of three small-by-comparison trade pacts last year— with South Korea, Colombia, and Panama — that had been negotiated by predecessor George W. Bush, but had become trapped in Washington’s gridlock. Obama has also positioned himself as an an advocate of government efficiency: a reformer who is fighting for lean-and-efficient bureaucracies, pitted against an entrenched Congress and corporate lobbyists. And looking to a second term in office, Obama will advertise his focus on forging deeper ties with dynamic, forward-looking Asian-Pacific economies in a region which he asserts Bush had neglected (and which conveniently encircles China, a trading partner that the president misses no opportunity to say doesn’t “play by the rules”).

The forward-looking Asia-Pacific part of the Obama campaign strategy was clearly on display before a high-powered audience of Washington insiders who packed a conference room on K Street the morning of Jan. 4 at an event organized by the respected bipartisan Center for Strategic and International Studies. Keynote speaker Michael Froman, the deputy national security adviser for international and economic affairs, smoothly spoke of US leadership in the so-called Trans-Pacific Partnership negotiations. The TPP negotiations are designed to liberalize trade with promising Asia-Pacific countries including Singapore, New Zealand, Australia, Malaysia and Vietnam, Froman said. After the Obama administration came into office in 2009, the White House had studied the gridlock and “determined that we needed a new, 21st century approach to trade,” Froman said. “When we launched TPP,” the White House top international economic aide added, “we developed entirely new texts that reflected US interests and the competitive realities of the region…we pushed our limits and forced ourselves to try to think a bit outside the box about traditional issues.” US Trade Representative Ron Kirk and his team of trade negotiators, Froman related, “have now led 10 rounds” of TPP negotiations, boasting how in 2010 “we welcomed” emerging tiger-cub economies Malaysia and Vietnam into the trade pact.

But a close examination of what has really happened on the Obama watch strongly suggests that the White House claims to economic leadership in the TPP negotiations should not necessarily be taken at face value. For openers, the United States isn’t even a member of the trade pact. Moreover, the issues that are at the core of the White House negotiating strategy are straight out of an 18th century fascination with the mercantile world of high tariffs. It’s the same old story: sugar, steel, cotton, clothes, shoes, and a few other coddled farm lobbies. Moreover, even a cursory look at Obama’s proposals to “streamline” what he says are inefficient federal trade agencies reveals an absence of policy prescriptions truly aimed at bringing official US trade policies into line with 21st century economic realities.

Here’s the story, beginning with the White House assertions of enlightened 21st century “leadership” in the Asia-Pacific negotiations. Read the rest of this article »