“Free Trade” Leads to Fewer Middle Class Jobs For Americans

(By Mark McCutchan)

 With January’s backdrop of 9.0% unemployment (U6 of 16.1%), President Obama gave another  speech to an unsympathetic U.S. Chamber of Commerce Tuesday, encouraging company heads to hire and invest more in America.

American corporations, however, have discovered the secret to increased profits.  As The American Prospect’s Robert Kuttner states in an excellent post Sunday, America’s corporations no longer need America’s workers.  The only quibble I have with his assertion is the phrase “America’s corporations” – it implies they have some allegiance to America, and they don’t.  Many of today’s biggest companies continue to stay in the U.S. solely because of government support (through low effective corporate tax rates), the proximity of comparatively well-off customers, and the sunk cost of existing factories.

“American” companies have learned that the most important part of their business plan is to outsource every possible part of their operations to wherever labor is cheapest.  Over half of GE’s employees are overseas, and the trend is increasingly common in high-technology companies.

The hike in resulting corporate profits has encouraged management to outsource other “non-core” functions like IT, customer service, and now product design.  Increased worker productivity due to technology, normally considered a benefit to the economy, has also slashed the number of workers needed to get the job done.  Soon the only part of “American” companies that will be left in the U.S may be the company headquarters, staffed with well-paid executives and a few remaining personal assistants.

The hollowing-out of American manufacturing (and decline of workforce size and unionization) worsened about the time that “most favored nation” status was reinstated to China in 1980, subject to annual extensions.  Congress’ agreement to make China’s status permanent in 2000 lead the way to China’s entry into the WTO.  Member countries  are required to have low (or no) tariffs and high quotas on imports to other members. Other free trade agreements followed, like the North American Free Trade Agreement (NAFTA) of 1994.

During the the 1992 presidential debate, Ross Perot stated that passage of NAFTA would create a “giant sucking sound” from the economy, pulling jobs over the border and overseas – it turns out he was right.  Between 1994 and 2010:

  • 5.3 million U.S. manufacturing employees lost their jobs.
  • Manufacturing GDP rose from $1.1 trillion to $1.58 trillion.
  • The U.S. trade deficit with China exploded from $29.5 billion to $252 billion, reflecting the magnitude of the loss of our manufacturing base.

Meanwhile, recent financial headlines shout that American companies are making record profits.

Free trade is a good concept that can make markets more efficient and provide lower prices for consumers.  It has been used, however, to fatten the corporate bottom line, undermine the financial security of the American middle class and provide little help to the rest of the world.  The key to making free trade work for everyone is using America’s market power in the international economy to improve everyone’s living standards, environmental standards, and workers’ rights, not to lower ours.

Here are some way we could improve job growth:

* Rebuild and expand America’s infrastructure, including the high-speed rail system promoted by President Obama’s $53 billion pledge Wednesday.

* Promote real “homeland security” by creating a national industrial policy.  Picking winners is not necessary, but we need the industries that are vital to our U.S. interests to thrive.

* Repeal NAFTA and similar free trade agreements, or renegotiate them to make them work for all Americans’ financial benefit.

* Impose a tariff on imported goods, to level the playing field for U.S. workers vs. the poverty wages, poor working conditions and hazardous environmental conditions experienced by foreign workers

* Encourage job-sharing (with full health insurance coverage) through corporate tax incentives.

Such a program of economic nationalism would be difficult to pass, as it steps on plenty of corporate toes, and would require President Obama to walk the talk of post-partisanship.  However, it could also help restore the economic security of our nation’s middle class, which has taken an economic beating over the past three decades.

Please contact President Obama and your representatives, and call on them to support revitalization of our manufacturing base (with the above ideas) to put Americans back to work.

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