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The all-too-real costs of free trade to average Americans
Clyde Prestowitz is formally a Republican, but he is considered persona no grata among today's Republicans because of his opposition to corporate-dictated trade laws and treaties. An old school Eisenhower-type Republican who was, with a couple of exceptions, out-of-place in Reagan's aggressively corporate "free trade" cabinet, he has much more in common with FDR's (and later Truman, Ike, JFK, and LBJ's) philosophy of trade: managed, balanced trade with developed nations who share the same wage scales and worker rights as the US, with mechanisms built-in to prevent domestic industries from being harmed. Agreed by the era of Presidents from FDR-through-LBJ was that the wholescale movement of American industry to bowl-of-rice-a-day cheap labor nations was completely out of the question.
http://www.latimes.com/opinion/commentary/la-oe-prestowitz-sotu-trade-deficit-20140130,0,1832709.story
The all-too-real costs of free trade to average Americans
The country is not better off when trade deal gains go only to the very rich.
By Clyde Prestowitz
January 30, 2014
In his State of the Union message, President Obama suggested apprenticeships, tax reductions on new investments, and building new infrastructure as ways to increase jobs and reduce inequality in America.
But he said virtually nothing about what is probably the single biggest cause of lost jobs and stagnating earnings for all but the richest of America's citizens: the U.S. current account deficit, which includes the trade deficit.
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Yet Washington keeps negotiating so-called free-trade agreements that seem to open the U.S. market while leaving others relatively closed. A major reason for this is the classic economists' argument that the generally lower consumer prices that may arise from imports will exceed the more limited wage losses that may occur in a few specific industries, and therefore, on balance, free trade will always and everywhere be a win-win arrangement. In other words, despite the millions of jobs lost as a result of the rising U.S. trade imbalance, the overall U.S. economy is supposed to be better off today than 10 years ago because of lower prices for consumers. The argument is that the wage losses occur only in a limited number of industries, while the lower prices are available to the entire population.
This simplistic analysis is incomplete and wrong. Its key assumption is that the economy is at full employment. In such a situation, workers who lost jobs in a few industries would lose wages only for a limited period until they found new jobs at the same wages as the old jobs. Thus there would be no overall downward pressure on wages and only limited and temporary wage losses for a relatively small part of the labor force, while the whole population would be benefiting from lower consumer prices. Well, it is clear now, after a long and deep recession, that the economy is not always at full employment and that even if workers find new jobs, the pay is often lower than at their old jobs. Indeed, most of the jobs created in the last year have been in low-wage industries such as retailing and food service.
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In the past, the president has called for the doubling of exports. He would have done better Tuesday night simply to call for balancing U.S. trade, which by creating 5 million jobs would bring America to full employment and greater equality.
Clyde Prestowitz is president of the Economic Strategy Institute and served as counselor to the secretary of Commerce in the Reagan administration.
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