September, 2003: Publius

By Greg Rushford

Published in the Rushford Report

While we have differing philosophies on free trade, I have always respected textile magnate Roger Milliken, the CEO of Milliken & Co., and his top Washington operative, Jock Nash. First, the company’s manufacturing operations are widely respected for quality. Moreover, Milliken and Nash work Capitol Hill with a gentlemanly combination of skill, persistence, and charm. And I believe that Milliken and Nash are sincere in their desires to watch over for the continued good fortunes of the company’s employees.

            Since readers of these pages are routinely subjected to my free-trade editorial bias, I asked Nash to give his side of the debate in a column which follows below:

Trade Uber Alles, Or Is It?

By Jock Nash

            With the end of the Cold War and the quick introduction of the Internet, the economics of production shifted from nationalism to globalism almost overnight. Now, capital and technology can move anywhere in the world in search of skilled labor that will work for a fraction of the price of workers in the advanced industrial nations. Now, corporations can serve their old established markets from these new low-wage manufacturing platforms in the developing world.

            As a result of this shift, most products and services produced in the developed nations, such as the United States , Japan and Europe , can be made as well and certainly cheaper in these new locales. One measure of how far along the world is with this shift is the chronic and growing U.S. manufacturing trade deficit. This deficit is running at the rate of 1.4 billion dollars a day. Overall, it now equals 5.5 percent of the U.S. Gross Domestic Product (GDP).

            A large and growing portion of this deficit is because U.S.-headquartered corporations are shifting part or all of their production overseas. Yet, most of those goods and services are destined for consumption in the U.S. market.

            In today’s open global trading system, the cost of labor is creating what economists call an absolute advantage. China and India , for instance, can provide global investors literally hundreds of millions of competent workers who will work for pennies per hour. Investors can move their technology, know-how and capital to those nations to capture the savings provided by such low-cast labor. With state-of-the art global technology, these workers are as productive as those in the developed world are. The advantage created by low wages for those nations is absolute because Japanese, European and American workers cannot work for such meager earnings. 

            The corporation that shifts its best technology and know-how to a nation with an absolute wage advantage can quickly create an absolute advantage over competitors who retain their production in the developed world. Indeed, those corporations that do not shift production are almost dooming themselves to extinction.

            The point is not that corporations are somehow doing anything wrong by shifting their production. Rather, they are merely optimizing their actions within a set of rules established by the trading nations.

            If the United States, Japan and Europe wish to retain their manufacturing industries, the jobs they provide, and the taxes they create, then a different set of global trade rules are required than those that now exist. Ideally, corporate interests and our national interests are balanced by our political system, through laws, and through our trade agreements. 

            Our American political system can do that. It did it for more than 200 years until the United States joined the World Trade Organization. Today, pressures are mounting for the United States to take once again charge of its trade policy, rather than delegating to that global body. In part, this pressure is being generated by the mounting losses in the U.S. industrial sector and the loss of literally millions of manufacturing jobs. Within the past 40 months, more than 2.5 million U.S. manufacturing workers have lost their jobs.  Most are unable to find replacement work that pays even half the wages and benefits of the jobs they lost.

            Whether the continuing decline of the U.S. industrial base and the mounting loss of good-paying manufacturing jobs will be an issue in the Presidential elections of 2004 is unknown. What is clear, however, is that the rapid and massive deterioration of our manufacturing base, and the middle class jobs that went with it, will become political issues in the near future.

            The trade debates in the United States to the extent they have occurred since the Great Depression were generally a binary discussion — that is, the protagonists were labeled as either a free trader or a protectionist.  In the common wisdom, free traders were seen as learned, Renaissance men — progressive, internationalists, fearing nothing, willing (and presumably able) to compete with anyone, anywhere, and at any time — supremely confident that the invisible hand of the market will sustain America’s role as the world’s “sole remaining superpower.”         

            Protectionists, on the other hand, are stereotyped as economic monopolists seeking to gouge consumers, modern-day Luddites unable and unwilling to compete, or xenophobes afraid of foreigners. Lee Iacocca, in his book Talking Straight, captured the spirit of that debate with this observation that, “In Washington , a legislator would rather be called a pervert than a protectionist.”

            This common wisdom about trade is changing.  People are starting to connect the dots, seeing that trade results are heavily influenced by the trade policies set by their governments. In addition, all this not going unnoticed by the politicians.

            The American voter is learning that there is only one institution in the world capable of putting their nation and them where they are inescapably vulnerable to the new corporate-driven globalization. The U.S. Congress, that branch of government closest to the people, has the Constitutional prerogative to regulate international trade. They opened our market. Only they can return normalcy out of the chaos the trade agreements they ratified have inflicted on this nation.

            Heretofore Congressional politicians have had the safest jobs in the American economy. Only a small fraction of them lose their jobs each election. As voters come to understand just how much influence Congress exerts over U.S. trade policy and the decisions of corporations, — that is, when voters begin to connect the dots between how their Representatives and Senators vote in Washington and the loss of their jobs at home, political jobs will no longer be as safe as they are today.

            Then, an honest discussion can be held about issues such as those surrounding the erection of tariffs and quotas. Free-trade can then be viewed, not as a secular religion devoted to global efficiencies, but as just another strategy for nation building, creating jobs, and expanding national wealth.

            Nations are made great, not by how much they consume, but by how much they produce.  Manufacturing, not trade, is the main source of prosperity in America .  It is worth protecting.

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