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Wednesday, December 08, 2004

Trade lunch

Today, I attended a lunch meeting of the Louisville Committee on Foreign Relations. The guest speaker was Alan Tonelson, who is a research fellow at the U.S. Business and Industry Council Educational Foundation.

These luncheons are supposed to be off-the-record, so I won't comment directly on his remarks. I will say that they were quite interesting and I broadly agreed with the implications of his argument. However, since Tonelson's views are quite public, I can highlight a bit of political sleight-of-hand in his standard (published) rhetoric.

Essentially, Tonelson is an economic nationalist with protectionist leanings. He writes often about the dangers of the enormous U.S. trade deficit.

As he argues, U.S. trade policy isn't really about opening markets for export purposes. Sure, there is some of that, but especially with large and poor states like China and India, the purpose of trade policy is to allow American-based transnational companies to find low cost workers.

Tonelson correctly stresses the fact that American workers are finding their jobs outsourced as a result of this policy. He also worries a lot about the enormous trade deficits created by this policy, as well as the resulting foreign debt and the declining value of the dollar. Economic catastrophe could be just around the corner.

Transnational companies, many U.S.-based, are of course walking away with a huge part of the surplus value of labor -- from Chinese labor, Indian labor, etc.

A substantial portion of those profits, on the other hand, are spent or saved in the USA. How does that effect foreign debt calculations? I'm not enough of an economist (there's an understatement) to say...but I think Tonelson's failure to grapple with it directly makes his argument seem misleading.

In any event, the manufacturing job losses are real, but Tonelson doesn't stress another enormous problem in the US. The Bush tax and budget policies have re-created enormous deficits, which does create foreign debt when T-bills are sold to Europe and China. Plus, the Bush domestic tax and economic policies have exacerbated the very same adverse distributional consequences of the trade policy.

Tonelson seems opposed to budget deficits, but I cannot find a concern with the distributional consequences of the Bush tax cuts. In fact, he seems to advocate consumption (value added) taxes that are often viewed as regressive because the poor spend so much more of their income, living as they do month-to-month instead of on a trust fund.

Bottom line: US workers lose their jobs, corporate titans profit, and then the latter get big tax cuts. I agree with Tonelson that this is a problem.

We could try to save the jobs, but I'm pretty dubious that can happen. Comparative advantage is a powerful economic force and I'm not sure that the US will expend its political power anytime soon to prevent manufacturing and tech-related jobs from going to Mexico, China or India.

However, we could have a lot of control over domestic economic and tax policy.

If "America" (if we can imagine a national trading state in this globalized economy featuring transnational businesses) found a way to distribute its enormous trade profits in a far more egalitarian fashion, then Americans would have little to worry about.

However, in reality, corporations like Walmart (which Tonelson disparages) pays its workers crappy wages without benefits to sell those cheaply produced goods. The federal government slashed welfare and refused to consider national health care even as it sends huge tax cuts to the most affluent members of society.

Sure, Walmart keeps cutting prices, which does help consumers. The $250 VCR I bought in 1987 can be replaced for well under fifty bucks nowadays. However, at some point, the US has to think seriously about bigger distributional effects of trade and how to address those consequences as a matter of national policy.

Bluntly, if transnational companies are to get the cheap labor they want, then they have to pay some costs. Higher taxes could be funneled into job retraining programs or national health insurance. How about a living wage? Perhaps a guaranteed annual income? How about a shorter work week? All those ideas and many more deserve serious attention.

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