American Economic - Masthead Fighting For American Companies - Fighting for American Jobs United States Business and Industry Council
Current Trade Deficit:    
Halting American Manufacturing's Decline Requires Changing US Trade Policy
Alan Tonelson
Thursday, August 14, 2003
Photo of Alan Tonelson
Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).
It’s been great watching U.S. leaders and the media steadily recognize the crisis afflicting U.S. manufacturing. Much less great has been their failure to understand the crisis’ roots. Pointing to “imports” or “cheap foreign labor” or Chinese currency manipulation simply describes different aspects of the situation. It explains nothing.

In fact, the manufacturing crisis will never be overcome until decision-makers recognize a big root cause: the NAFTA-style trade agreements of the past decade that are actually designed to send manufacturing capacity and jobs overseas.

Some U.S. leaders, like Fed Chairman Alan Greenspan, still insist that America can safely lose most of its industry while changing into a service-based economy. But after a three-year manufacturing slump that’s cost 2.7 million jobs, officials accountable to the public are much less blase.

“The President and I understand that recovery in the U.S. manufacturing sector is crucial for sustained, robust economic growth and rising living standards for all Americans,” Commerce Secretary Don Evans said in March. The administration even assigned Under Secretary of Commerce for International Trade Grant Aldonas to study the state of American manufacturing and recommend some fixes by “the end of the summer.”

Congress is stirring as well. For example, Reps. Don Manzullo (R-Ill.) and Tim Ryan (D-Ohio) have just organized a new Manufacturing Caucus in the House. The group claims 30 members, 12 other Congressmen sent staff to the first meeting and, according to Manufacturing and Technology News, organizers expect membership to reach 60-70 shortly.

The Caucus, which hopes to supplement the work of an already existing but generally quiet House Manufacturing Task Force, talks the talk on manufacturing so far. Complains Manzullo, “[N]ot enough of our political leaders understand the ramifications of losing our industrial base.” Foreign trade barriers, moreover, are on the list of issues to be tackled.

But few Caucus members have shown much appreciation of how recent free trade agreements have helped spark the manufacturing crisis. For example, 12 of the 23 voting members who were serving during the key fast track vote of December, 2001 supported the measure – which passed the House by a single vote. Among those approving a trade negotiating blank check for the president was Caucus co-chair Manzullo.

Further, Republican Phil English of Pennsylvania bears considerable blame for ensuring fast track’s success; he sponsored a resolution that pretended to commit the Bush administration to preserving U.S. trade laws. Michigan Democrat Sander Levin, another Caucus member, crafted the critical fig-leaf human rights compromise that enabled the White House and the outsourcing lobby win the final vote on Permanent Normal Trade and WTO membership for China. Indeed, attending the Caucus’ first meeting were representatives of the National Association of Manufacturers, whose multinational leaders have pushed so hard for so many job-destroying trade deals.

How have recent trade agreements and policies helped produce the manufacturing crisis? What’s vital to remember is that imports don’t just magically appear in U.S. markets, and that cheap labor doesn’t affect American workers through some immutable law of nature. Instead, such global business and economic policy trends influence U.S. industry and American workers mainly because American trade policy has (a) given foreign producers – whether U.S. or foreign-owned – such wide open access to American customers, and (b) done such a lousy job of opening foreign markets to U.S. products.

After all, the wage-depressing effects of soaring third world workforces and towering unemployment rates would matter little to the United States if Americans were not buying products made by these workforces. Similarly, hired thugs and secret police could keep third world labor costs down by repressing  workers all they wanted and the U.S. economy would barely notice –  if the governments and companies ultimately wielding the clubs couldn’t export from these countries to the United States.

In fact, little manufacturing investment would flow to low-wage, labor-repressing countries in the first place without trade agreements that guaranteed access to American customers. As the trade flows make clear, relatively few foreign businesses produce in the third world to serve third world customers.

On the other side of the coin, more manufacturing capacity and jobs would stay and grow in the United States if domestic producers had more opportunities to sell their wares abroad. But U.S. trade policymakers have not only focused their deal-making on low-income countries too poor or too broke or  too protectionist to buy many American goods (but amply capable of being mobilized by multinational companies to supply the U.S. market). They have rarely insisted on reciprocity in trade agreements, and have failed adequately to monitor and enforce most of the market-opening pacts they have signed.

To add insult to injury, Washington has refused to use trade laws and similar policy tools effectively to combat predatory foreign economic practices that harm U.S.-based producers – like subsidization, dumping, cartelization, and intellectual property theft.

Consequently, the manufacturers that remain in the United States are handicapped in their efforts to sell abroad and reap the resulting efficiencies. And they are forced to defend their home market against rivals financed by public monies that are also shielded by tariff and nontariff trade barriers, and that regularly enjoy monopoly or oligopoly profits, sell below production costs, and steal American ideas and trademarks. All the while, Washington in effect encourages the domestic manufacturers that can do so to move production and jobs abroad by seeking trade agreements with countries valuable only as export platforms, not markets.

In its drive to negotiate still more outsourcing-dominated trade agreements, the Bush administration has made clear its determination not to link trade policy to the manufacturing crisis. And with free-trade voting records to hide or protect, most of the Congress and many of the Democratic presidential candidates aren’t anxious to do so, either. With most of the media predictably clueless or superficial, it will undoubtedly be up to domestic manufacturers and workers to connect the dots and push for measures that can actually reverse American deindustrialization, not simply echo complaints.

Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).