the truth about sending jobs overseas, how it's destroying our future, and how consumers can solve the problem.
the truth about sending jobs overseas, how it's destroying our future, and how consumers can solve the problem.
In his 2017 book, What if Things Were Made in America Again, MIAA Founder Jim Stuber invites us on a journey to answer three vital questions:
Here we invite you to discover key takeaways from the book on these questions. We hope they will provoke you to look more deeply by exploring the book, which Jim believes contains information every American must have. [To order a copy, click here. To view a talk in which Jim gives an overview of the book, click here.]
Part I - Why does it seem like everything is made somewhere else?
70 Years of Free Trade and Globalization
The book opens with a decisive turn in U.S. policy: having previously followed Britain’s example of protected industrial development, the U.S. followed the U.K. onto the road of free trade, with the enactment in 1934 of legislation authorizing the President to negotiate tariff reductions.
During the fifty years following World War II, the U.S gave whole industries away to Japan and the “Asian Tigers,” pursuing unilateral free trade and fighting communism, and then began sending them to the Caribbean to fight communism there, and to Mexico under NAFTA. Trade morphed into globalization, three billion people joined the world economy, creating the “age of oversupply,” and China changed everything by adopting just enough capitalism to become the “world’s workshop,” to the detriment of developed and developing countries alike.
The next twenty years, from 1996 to 2015, saw the effects of two decades of NAFTA in action, and the single most transformative event in the global economy, the admission of China to the World Trade Organization and grant of permanent U.S. normal trade relations, beginning in 2001. More U.S. industries were being wiped out by imports; no longer limited to basic industries like steel, aluminum and cars, now high-tech products such as circuit boards and solar photovoltaics were experiencing the same effects. All this happened because policy-makers adopted updated versions of Adam Smith’s and David Ricardo’s theories of free trade and comparative advantage that rested on assumptions wholly inapplicable to the real world.
So, how has that worked out?
The book measures the results of pursuing free trade and globalization for seventy years. We measure the trade in goods deficit, and we see how trade in services has not, and never will, make up for the trade in goods deficits.
We learn that since 1985, we have sent a net $16 trillion (in 2016 dollars) overseas. And that a handful of countries are responsible for the trade in goods deficit, with China responsible for nearly half:
As to free trade agreements, the book adds them all up. As the following chart shows, the losers far outweigh the winners:
Part II - Isn't that causing a problem?
Job Losses and their Effects
From 1990 to 2015, we lost 6.2 million, or one of every three, manufacturing jobs.
Revisiting the chart of our trade deficits, we see that the job losses began at the same time as our net imports of goods from China skyrocketed:
Recent economic studies show that, indeed, these jobs largely went to China, and Stuber proves that it is neither true that U.S. manufacturing is healthy, nor that U.S. manufacturing job losses can be accounted for by increases in productivity from automation.
Job losses to China and elsewhere are having destructive effects on individuals, families, and communities across America, effects that have exceeded economists’ expectations.
The Vicious Circle and the Hollow Economy
Nationally, six million manufacturing jobs lost has led to a cascading series of effects:
As of July 2016, we were 14.2 million jobs short of the rate of employment of the working age population in 2000.
Jobs in mid- and higher-wage industries were replaced in lower-wage industries. Many of the new jobs are in the warehouses distributing these imported foreign goods, where workers are exploited on a par with the foreign sweatshops. There is a yawning gap between ordinary Americans’ wages and cost of living, creating dependency and social ills. Consumers who are not able to make ends meet are not able to prime the pump of the economy with their spending, resulting in anemic economic growth, which has not been widely shared.
Unemployment and low wages lead to social ills. Economists Angus Deaton and Anne Case have tracked “deaths of despair” -- deaths from suicide, alcohol and drug poisoning (including opioid overdose), and alcoholic liver disease. As reported in the following chart, their research showed a dramatic increase in deaths of despair among middle-aged white non-Hispanic Americans (“WNH’s”) beginning in the year 2000 (I have added the circle for emphasis). Nearly all the increase in mortality was among the 70 percent of Americans with less than a college education and was higher among men than women.
Here again, we see the same red circle, with the deaths of despair taking off at the same time as the explosion of the Chinese trade-in-goods deficit and the sharp decline in manufacturing jobs. Here we see the charts side-by-side:
And this is not a coincidence; other research has found that these deaths of despair were significantly greater in counties with high exposure to Chinese import competition.
The cascade of effects becomes a vicious circle:
We are creating a harsh, winner-take-all society, where even winners are not assured of maintaining their status – that life in America has become a game of Chutes and Ladders, in which people climb their way up by working hard and then find themselves suddenly dropping down because someone decided that it was better to have their job performed in China or in India, or by someone imported from China or India. Shockingly, three-fifths of Americans are living week-to-week, in a hollow economy in which they are marking time at best, or slipping out of the “middle class,” and fear for even worse for their children.
Looking to the Future -- The Special Case of China
Looking to the future, we see the outsized influence of China, as it pursues the “Great Restoration” to its place of preeminence after the “Century of Humiliation.” Stuber shows how, since the “Reform and Opening,” China has acquired technology and capital with the lure of low wages and access to the Chinese market.
However, China did so while also employing state capitalism, economies of scale, low product safety standards, protectionism and violation of trade rules, and imposing enormous social costs, including harsh working conditions, occupational injury and disease, environmental degradation, and “left behind” children, and all this done in cooperation with Western firms.
By these means, the Chinese economy has surpassed that of the U.S. by some measures:
However, the Chinese economy is fraught with overcapacity, with production being dumped on the U.S. and world markets.
China is engaging in a new economic, cultural, and military imperialism and has made a recent turn toward an even more authoritarian state.
We are advised to prepare for a long haul of continued communist rule, economic mercantilism and military adventurism on China’s part. And we are asked to consider whether we are ready to have China take charge of Asia, and to pass to China the baton of world leadership. And if not, whether we should be sending them a net $370 billion a year in our trade in goods deficit.
What does the future hold?
What, then, does the future hold? We learn of more trouble with trade, in Mexico under NAFTA as firms like Ford, Carrier and Nabisco move production of everything from automobiles to air conditioners to cookies there. Firms like IVEMSA offer “turn-key” solutions for U.S. manufacturers to move operations there, at wage rates a fifth to a tenth of those in the U.S.
We learn that “Factory Asia” continues to expand at all levels of the value chain.
We learn that the “fifth actor” in all of this is the American consumer, who has been ready and willing to purchase all these foreign goods.
We can expect more job losses in manufacturing, and the manufacturing jobs are now being followed offshore by the white-collar and high-skilled jobs. We are asked, under these conditions, how to advise our children? What jobs should they train for that won’t be offshored?
Here we also meet strategic concerns, first among them the unsustainable federal debt we are piling up for our children and grandchildren.
We see that manufacturing is essential to a healthy, growing economy: “At the end of the day, we must decide, who do we want to be: Germany, or Greece?”
We see that Globalization as practiced by mercantilist countries like China and Germany has caused “global imbalances” of winners and losers, the biggest loser being the United States:
Globalization at its core is multinational companies’ pursuit of low wages for sale into high-wage countries, with the countries of the global South engaged in a “race to the bottom,” in wages and in labor conditions.
In the U.S., as industries declined, having been supplanted by the foreign industries, consumers have lost their buying power, either directly through the loss of their jobs, or indirectly, through downward pressure on their wages –the global low price, low wage economy has squeezed the vitality out of the American economy.
And it is not just the U.S.: Because the driver of globalization is the relentless pursuit of low wages, the life is being squeezed out of the global economy.
A Call to Arms
We confront head-on the immorality of “volunteering” ordinary Americans in the project of either low price or eliminating poverty abroad. We see that we are destroying our industrial base, creating “job deserts,” neighborhoods and whole towns where there are no jobs to be had, because the factories stand empty, and there is nothing to replace them. The effects are falling upon those least able to cope with them, and are spreading to others thought immune.
Stuber asserts that our academic and political elites have failed to serve the needs of ordinary Americans, and are caught in the thrall of the dogma of free trade. We are asked,
“Who will speak up for ordinary Americans?”
We are exhorted to break the thrall of free trade, and we are invited to imagine a better future.
Part III – What can be done about it?
Is there a better vision?
To imagine a vision of a better future, we are invited to stop and ask, “What do we aspire to?” Here we consider the American Dream, the ethical principles underpinning it, and how to achieve it. We consider the choice of “family” or “stakeholder” capitalism practiced in a way that includes the interests of workers and the communities where companies are located, pursues the national interest, and is focused on the long term.
We are invited to adopt a new ethic of the dignity of the individual, in which the worker is not treated as a commodity but rather as an asset, recognizing their investment of human capital alongside those who invest their financial capital. We are invited to return to the American consumer-led economy in which economic gains were widely shared: with widely shared prosperity, we create a virtuous circle.
How can we make it happen?
How do we make the leap from the vicious circle to the virtuous circle? Consumers, comprising two-thirds of the economy, can solve this problem by purchasing quality products made in America, with money we are already spending, creating jobs in the communities where they are made.
So, there is the answer, so elegant in its simplicity, that has been eluding us all these years:
Bring home $500 billion in spending, enough to balance trade, create six million jobs, take the slack out of the labor market, and start a “virtuous circle” of growth.
There is a $600 billion surplus of imports over exports of consumer goods. $500 billion of this could be brought home, enough to balance trade.
$500 billion is a big number --
The results for communities can be a wide swing from social ills and dependence to social and economic health:
But time is running out. Fortunately, there is a way forward, if we will realize the urgency of the matter. The best, and necessary, first step is to decide that we are all in this together, and then do what we must for communities across America to say,
“We make things here again.”
We invite you to join us in making that happen –
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