Conservative sees free trade as threat to manufacturing

Chicago Sun-Times ^ | July 12, 2003 | Thomas Roeser

[RockyMtnMan]

John E. Jones is my kind of conservative. The white-haired, vigorous banker is a fierce defender of capitalism and believes that only through hard work and a vigorous spiritual life (he's a devout evangelical) can one truly be fulfilled. At the same time, he is a devastating critic of some multinational corporations which, he says, have given us ''free trade,'' and a crusader for legislation to protect American manufacturing. In fact, free trade to him means America with its guard down; it's a threat to our economy and to the security of the nation.

And Jones has the facts to prove it. More than 56,000 U.S. manufacturing jobs were lost in June, the 35th straight month of losses due largely to foreign competition--particularly from China, where goods can be made at a fraction of the cost and sold cheaply on our market. Forty-nine states have shared in the loss of more than 2 million manufacturing jobs since July 2000. Illinois' record is devastating. In 1974, it had 1,345,000 manufacturing jobs, or 30 percent of all state jobs. By 2001, it was down to 907,000, only 15 percent of state jobs. By 2002, we were down to 870,000, and we're still dropping. This state has lost one of every 12 manufacturing jobs since July 2000, he says.

''Don't forget that the rule of thumb for each new manufacturing job is that it creates 1.6 jobs in other manufacturing and service industries. Also the loss of one manufacturing job will cause the loss of 0.8 jobs in service industries.''

Jones knows whereof he speaks; he is a manufacturer as well as a banker. His Cummins Allison Corp. is, because of its patented technology, the only U.S.-owned company that manufactures coin and currency processing equipment. His competitors have withered away to foreign ownership. Cummins Allison is now engaged in litigation to save its many patents. This could be a national security issue, Jones says. Cummins' equipment ''helps protect against the possible flooding of the world with fraudulent currency and the tracking of drug and terrorist money.''

As Jones sees it, when the U.S. economy was protected by high tariffs, effective anti-trust, anti-dumping, minimum wage and patent laws, it flourished on a relatively level playing field with world competitors.

But after World War II, ''the 'free trade, free market' doctrine was embraced . . . and by 1971, the United States became an open, unprotected economy.''

If free trade worked as touted, Jones says, ''incomes for the poor, the middle class and rich should be significantly greater . . . the growth rates of gross domestic product, per capita income and real wages per worker would all have substantially increased. This has not happened.

"Instead, growth rates for GDP and per capita income have declined and real wages per worker have turned negative. Our nation is now a net debtor rather than a net creditor as it was when protected. Over 45 percent of U.S. government treasury notes, 35 percent of U.S. corporate bonds and 13 percent of the U.S. equity market are foreign-owned, and 9 percent of U.S. corporations are subsidiaries of foreign companies. Our balance of payments deficits for 2002 was over $500 billion. We now have 6.5 million citizens looking for jobs, 2.7 million who have lost hope and stopped looking, and 4.8 million only working part-time. The real unemployment rate is probably over 10 percent--not the 6 percent reported by the government.''

Jones levels blame on segments of big business for making ''free trade sacred doctrine.'' Some ''large U.S. multinational corporations see it as a way to break the power of the unions and reduce the wages of their workers. They believe that manufacturing in poverty wage level countries will enable them to compete with high-tech and large-scale manufactured products dumped here from high-wage countries like Germany and Japan that protect their domestic markets. But this is not working. U.S. multinationals are still losing the trade war, even with access to labor that is paid at poverty-level wages.''

The answer is a return to a protected economy, Jones says. He was just getting warmed up. More of his blunt analyses next week.

[RockyMtnMan]

Yet another one for discussion.

[GOP_1900AD]

My kind of Rightist. I totally agree. And we shall be proven correct by future events.

[RockyMtnMan]

Part II of this column.

[JohnnyZ]

So the pre-WWII Great Depression economy is this guy's idea of how things ought to be? Protectionism and isolationism are great ways to let the rest of the world leapfrog over you in terms of growth and economic activity.

[LibertyAndJusticeForAll]

Another good Conservative ping.

[RockyMtnMan]

It burns me up when people claim "Free Trade" is a conservative plank. I think people are beginning to confuse conservatism with Republicanism.

[american spirit]

Where's this guy been the last 15-20 years while everyone else has been devastated by the free traitors. Sounds like his ox is due to be gored and now he's found religion.

[lelio]

This state has lost one of every 12 manufacturing jobs since July 2000

That's not bad in amongst itself as it could be due to advance in technology, making each worker more productive. But in this case it isn't as all the work is being offshored to China. Just wanted to bring that up in case someone said "If you want full employment have people shovel snow with spoons instead of shovels" (loosed quoted from an ex-Soviet leader).

[daviddennis]

In the 1970s, General Motors and all other domestic automakers were able to get away with making shoddy cars because there were no alternatives.

In the 1980s, General Motors and the other domestic automakers quite rightly got their behinds smacked thanks to foreign companies that made better products cheaper.

To me, going back to protectionism is going back to the nasty 1970s, when manufacturered products were shoddy and poor.

There are no easy answers to all this. There's no question that you can manufacturer things cheaper in China, take customer service calls cheaper in the Phillipines, and write software cheaper in India.

I went to Rio last month, and you can imagine my surprise to find out that I could live in a major tourist destination for much cheaper than I could in the US. Restaurants, bus fares and so on were about 1/3 what they cost in the US, and food was of equal or better quality. (Bus service was much better). In general, the quality of life per dollar in Brazil beats the US by a mile -- and I was in a major tourist area where prices are high!

So how can we combat this? I'm not sure. Personally, I'm thinking of leaving the country, but I know that's not a solution for the less adventurous of us. There's definitely something wrong when the cheapest house in my middle class neighborhood costs $400,000, and my greatest aspiration after the end of a successful life would be to own a tract house that used to sell for $24,000.

If we retreated to protectionism, employment and wages in the US would go up. But the prices of goods would go up even faster, and I'm convinced that on the whole we would be a lot worse off than we are now.

So in conclusion, I agree our country has problems with competitiveness, but I'm not convinced that protectionism would give us a better life in the end. I think we'd have less good stuff, and it would be a lot more expensive than it is today.

D

[RockyMtnMan]

Prices will go up anyway as people begin to lose their jobs. Companies will have to get more dollar per widget to make up for the lack of demand. Taxes will also have to be raised to support new welfare programs and tax short-falls from high income earners becoming low income earners, further increasing prices. As long as foreign countries apply tariffs to our exports prices will go up.

That's if we just keep on "Free Trading".

[lelio]

Personally, I'm thinking of leaving the country, but I know that's not a solution for the less adventurous of us. There's definitely something wrong when the cheapest house in my middle class neighborhood costs $400,000, and my greatest aspiration after the end of a successful life would be to own a tract house that used to sell for $24,000.

I had to check and make sure I wasn't logged on as "daviddennis" as I could of written the same thing. I'm I logged on now? I just got out of the shower.

You're right on that people are going to start to look to moving or importing foreign government grants here. What you saw in Rio was just scratching the surface. I'm sure if you move there you'll be taxed up the ying yang, have to hire your own private security force, etc.

What concerns me is that people are going to stay here and start asking to import more socialism as people in other countries have it easy. Free healthcare, who can argue with that?

The only thing good I can see coming out of this is that we'll have healthier small businesses from it as all the big ones shed off people, mainly as big businesses don't make the best business decisions (ie "let's ship all our IP to China, I'm sure they'll respect it").

[raybbr]

To all free-traders: (I have been asking this question for two weeks now and no one has answered)

What would our economy and our nation be like if we had a 500 billion dollar trade surplus or, an even trade instead of a 500 billion dollar deficit?!?!

I wait patiently for an answer.

[Tokhtamish]

I went to Rio last month, and you can imagine my surprise to find out that I could live in a major tourist destination for much cheaper than I could in the US. Restaurants, bus fares and so on were about 1/3 what they cost in the US, and food was of equal or better quality. (Bus service was much better). In general, the quality of life per dollar in Brazil beats the US by a mile -- and I was in a major tourist area where prices are high!

Sure a cheap labor country is great if you come from a rich country. Except for the people who live there. Didn't you notice the rich people living behind fortified walls and everyone else scratching in the garbage heaps and shantytowns outside ? Don't you know how Argentines and Brazilians actually live ?

[RockyMtnMan]

I'm waiting for them to answer my question:

What new opportunities will come along that will be able to employ a wide array of offshored professions made up of millions of degreed professionals?

Let me know if you get yours answered.

[daviddennis]

No. If people lose their jobs en masse, prices for all products will sink substantially.

When there is lower demand (since everyone has lost their job and can't afford anything), and equal supply, prices go down. Eventually, they reach an equilibrium at a lower level.

Eventually, wages will have to go down to match prices companies can get for products, and when that happens companies will be able to afford to hire more people, etc.

D

[RockyMtnMan]

You mean like Music? Low demand does not always equal lower prices, only when the producer becomes desperate to get his investment back. In the short run they tend to raise their prices because the margins are to thin to be acceptable. That's about the time they stop producing the widget altogether because there is no market for it.

You mean hire more offshore people.

[samuel_adams_us]

Have they ever leap frogged us in the last 200 years?

[dennisw]

very good

[DHerion]

Good point.

I don't see protectionism as the answer. We need to seriously reduce the cost of doing business in this country - healthcare reform, tort reform, education reform, environmental reform, tax reform, etc. Personally I think we should eliminate any tax on any business in this country (people pay their taxes anyway). Or perhaps we should have a business tax based on the percentage of workers employed here versus overseas - the more domestic workers employed by a company the lower their business tax.

Without reform or a return to some kind of protectionism (which is a double edged sword in my opinion) the s#$t is going to hit the fan and one of the two political parties will seize the issue. I'd bet my money on the Democrats with a lot of help by the lamestream media. This could be the perfect issue for Hillary Clinton in 2008.

[daviddennis]

Well, if you go down to the bottom of society here in the US, there are plenty of people rooting through dumpsters and the like.

For those who have housing in the US, it's a lot plusher than what they have in Rio, although I must say I envy the destitute in Rio the stunning ocean views those Favelas can command. If you could transfer a Favela to an equivalent location in Malibu or Santa Monica, it would be worth millions from the land value alone.

You are right that going to Rio and getting a job in the local currency is probably a non-starter. But if I could somehow take my US career offshore and charge half what I do now, it could be a win-win for everyone involved.

D