The Folly of a Free Trade Pact with Central America

AmericanEconomicAlert.org ^ | Wednesday, April 07, 2004 | Alan Tonelson

[Willie Green]

For education and discussion only. Not for commercial use.

The Bush administration is hailing its new planned Central American Free Trade Agreement as a “cutting edge” trade deal that will “expand U.S. opportunities in an important regional market.” Instead, CAFTA shows that U.S. trade policy has become completely divorced from the main needs of the U.S. economy, U.S. manufacturers, and American workers.

New markets for American products would indeed greatly benefit a U.S. economy still fragile after three sluggish years and a manufacturing sector that remains severely depressed. But the idea that the five Central American signatories of CAFTA can become these new markets doesn´t pass the laugh test.

El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica are not only among the world´s poorest countries, they´re among its smallest economies as well. Measured by their ability to buy U.S. products, their combined economic output totaled only $62 billion, according to the latest (2002) data. That´s less than the output of Orlando, Fla. or Bergen County, N.J.

The collective economies of the five Central American CAFTA countries are also half the size of San Diego and Phoenix. And U.S. Trade Representative Robert Zoellick´s decision to tack the Dominican Republic onto CAFTA doesn´t help much. Adding its $23.2 billion economy to the Central American 5 creates a total market still smaller than the economies of the metropolitan areas of Tampa-St. Petersburg, Fla., San Jose, Cal., and St. Louis, Mo.  ($87.5 billion, $88.3 billion, and $92.2 billion, respectively).

How in the world can economies this small, filled with people so poor, be important markets for U.S. exports, and growth engines for the $10 trillion U.S. economy?

Recent experience, however, teaches that poor, tiny countries can become major suppliers for the U.S. market, especially if CAFTA-like trade deals attract export-oriented investment seeking penny-wage workforces lacking the right to press for decent pay and working conditions. For example, from 1996 to 2003, U.S. goods imports from the six countries in question rose by nearly 63 percent, to $16.862 billion. U.S. goods exports to these countries increased by a seemingly healthy 51 percent during this period. But many of these shipments consisted of fabric sent to Central America for sewing once done in the United States, then returned to America to be sold as final products.

Essentially, U.S. companies are exporting to Central America the materials for garment production work that used to be done in U.S. factories. The results? No new final markets for U.S.-made products, the loss of tens of thousands of working-class American jobs, and higher U.S. trade deficits and international debts. At a time when manufacturing employment is feeble, U.S. debts are nearing alarming levels, and the dollar´s future strength consequently is in doubt, these are the last outcomes America needs.

The CAFTA countries won´t benefit from the new deal, either. The U.S. market for the labor-intensive goods they need to specialize in is already saturated with the imports of all the other third world countries and regions that have recently expanded trade with America – notably China. As no less than the U.S. International Trade Commission has recently reported, when global apparel quotas are removed in January, 2005, the Central Americans will face even more competitive pressure from China and its virtually endless supply of cheap labor.

The Bush administration could help workers in the United States and at least some third world regions if it would limit overall imports by setting some trade liberalization priorities. That way, the main trade liberalization benefits for third worlders could be channeled to countries of special interest – like our hemispheric neighbors in Central America or Mexico or the Caribbean.

But the White House has so far refused, and once the quotas come off, its message to Central America will undoubtedly be the same as its recent message to African exporters worried about Chinese competition: That´s your problem.

To revive its manufacturing sector and all the economic and national security benefits it generates, the United States urgently needs a new set of trade policies. Defeating the misguided Central American Free Trade Agreement is the place to start.

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).

[XBob]

84 - "where is the connection between government overspending and free trade?"

Because Chinamen and Mexicans don't pay US taxes. Duh !!

All those industries and jobs that went overseas - all those used to pay US taxes, now they don't.

[XBob]

99 - "One cannot simultaneously claim that off-shoring is good for the home country when a foreign corporation off-shores, and that it is bad for the US when a US corporation off-shores."

So, let me get this straight - you think it is better for us to send our jobs with US corporations overseas to other countries and our tax base with them, while having foreigners come here to the US to buy up our copanies and buy our politicians and government, and become our masters and our owners?

Great idea.

[XBob]

guess what I just found - with lots of stat's.:

" The answer is that 95 percent of foreign direct investment during 1999-2002 (the last four years for which data are currently available) was used to acquire existing U.S. assets and their future income streams. We are paying for our dependence on imported goods by turning over the ownership of our economy to foreigners."

http://www.freerepublic.com/focus/f-news/1114219/posts?page=1#1

[XBob]

guess what I just found - with lots of stat's.:

" It's not just the employment numbers. The Economist had an interesting article about the GNP:

Grossly Distorted Product- Are official statistics exaggerating America's growth?
page=1#1

http://www.freerepublic.com/focus/f-news/1114219/posts?page=11#11

[Toddsterpatriot]

There are Trillions of US dollars floating around the world which never reach our shores and never will.

So, we bought goods worth trillions and the stupid foreigners never come back to us to get paid? They just keep our pretty paper?

[Toddsterpatriot]

Yes machines increase productivity --- but instead of inventing machines we're importing tons of cheap labor --- going the other direction. Millions of Mexican farmers went bankrupt after NAFTA was signed --- which is one reason for the millions coming over the border.

I'm all for closing the borders right now.

[Toddsterpatriot]

When are you going to pay the $81,000 you owe in funded and unfunded national debt, since the GDP is higher?

You first. I'll use my share of federal land to pay off my share of debt.

[Toddsterpatriot]

What got better? Life was better in the 50's and 60's when everything was made here, and the father worked and earned enough to support a wife and family.

People live longer, cars are safer, houses are larger, goods are cheaper, food is cheaper, incomes are higher, we won the Cold War, I could go on and on.

The reason why a father working doesn't support a family like in the 50's is because taxes are so much higher. Also, people buy more stuff to put in their larger houses and so the wife has to work too.

[Toddsterpatriot]

Sure he can. BMW building a plant here and hiring American workers is good for the German economy because they send all the profits home.

Dell building a plant in China and hiring Chinese is bad for the American economy because we've sent all the American jobs to China.

Never mind that 100's of millions of $500 Chinese computers benefit the American buyers who used to pay $5000 for an American computer.

[XBob]

105 - "So, we bought goods worth trillions and the stupid foreigners never come back to us to get paid? They just keep our pretty paper?"

Remind me to never sell you anything or loan you any money. I don't know how to detect counterfit money and I like to deal with people who keep their promises and who are honest.

And the payback is coming - just wait, until you have to beg the chinaman boss for a job.

[XBob]

107-"I'll use my share of federal land to pay off my share of debt."

Sorry, the Japanese already own it. They bought it in the 80's.

[XBob]

People live longer, - my great grand parents all lived into their 90's, my grand parents and parents into their 80's, but I don't think I'm going to make it to my 70's.


cars are safer - you mean american cars made with american workers? I seem to remember 'safety' starting with the 55 Ford steering wheel and padded dash in the GM cars. However, the new ones really get crunched in a crash, and we need them to be safer because there are so many more of them on the road now.

, houses are larger - my goodness, how much house do you need? Houses in the 1900's - 1940's were larger than todays houses. And todays houses are made from cardboard and chip board and wont be around very long. Houses still cost about 2 years work, but the taxes have really gone up a lot, so maintenance is much higher.

goods are cheaper - sorry, I still have to work a similar amount of time to buy similar goods as we worked back then. Some goods are relatively cheaper. A new Chevy still costs me 6 months work - the same as it did in the 50's. TV's are cheaper however, but what is on them has greatly degraded. A pair of jeans still costs about 4 hours of minimum wage work, but now they are made in China.

food is cheaper - Sorry - a hamburger still costs 1/4 of an hour of minimum wage work.

incomes are higher - so are prices, a lot higher, and taxes a great lot higher

we won the Cold War - that was good, but we will lose the next one, because of outsourcing and exporting our industries.

, I could go on and on - so could I.

[XBob]

109 - "Never mind that 100's of millions of $500 Chinese computers benefit the American buyers who used to pay $5000 for an American computer."

You mean we would still be paying $5000 for computers today, without building them in China? LOL.

A very good low volume, state of the art computer still costs $5000. Just the state of the art has changed.

[ninenot]

While not EVERY evil can be blamed on "free trade," and using the 1983-2003 period for data may have its dangers, I think we all can agree on a few things:

The Feds' (and States') spending spree in this period has a cost, at least in debt service. But more important, the cost has been imposed on taxpayers AND those who pay for Federal and State regulation--those who purchase goods and services affected by such regulation--which LARGELY also happens to be the taxpayer.

Americans for Tax Reform (Grover Norquist's bunch) has maintained the "tax freedom day" database for a number of years. Last year they instituted "regulatory freedom day" in addition. IIRC, the tax/reg TOTAL burden on the US economy was slightly over 50%--that is, it was July 3rd (!!) before money you 'earned' was actually yours to spend.

Then along comes offshoring/outsourcing, whatever.

American businessmen note that the bottom line improves dramatically if one finds a place to avoid taxation and regulation. It so happens that these places ALSO have extremely cheap labor. VOILA!!! Move production overseas.

Clinton's regime of evil also has some debts to pay to Red China, which accelerated the movement to that Communist/Triad-dominated place.

Since the movement began in earnest (around 1996) the plain and simple fact is that a lot of jobs have left this country. It is ALSO true that a lot of jobs have left Western Europe for the USA--same logic, by the way.

But with the recession, things got even more difficult. In addition, WallyWorld, Home Despot, and others have exercised predatory purchasing methods.

The figures which caught MY attention are two: 1) The WashTimes/Insight reports that the median salary paid to US workers DECLINED from $45,000 to $39,000 from 4Q2001-4Q2002; and 2) the median 'hours worked' has DECLINED to around 33.1/week in the USA.

These are not good trends, and they MUST be reversed.

Reality check: it is impossible to stop the Parties of Power from self-re-election schemes, meaning that tax/reg numbers will simply NOT decrease. Given that the national debt must be paid (and State budgets must be balanced) the taxable income supporting those entities MUST be preserved or enhanced.

Not co-incidentally, this means that either we find more taxpayers, or tax the living daylights out of those which remain. Of the two, my preference is to find MORE taxpayers.

How? Easy. More value-added jobs in the USA.

This IS a matter of the national interest, which is NOT the same as the interests of GM or the Pubbies or the Democrats.

But you won't find 'the national interest' in any Party platform, nor in the GM playbook.

[ninenot]

--- but instead of inventing machines we're importing tons of cheap labor

PRECISELY what's happening with outsourcing to Red China.

Instead of enhancing manufacturing techniques and technologies, we are using cheaper labor to drive down cost.

So we can conclude that it is NOT "high-powered manufacturing" capabilities which make Red China the preference: it is just plain "cheap labor."

In fact, in a lot of the cases, it is SLAVE labor in Red China.

[ninenot]

One cannot simultaneously claim that off-shoring is good for the home country when a foreign corporation off-shores, and that it is bad for the US when a US corporation off-shores.

Oh, yes we can.

MY interests are in the USA, not England, PRChina, or Outer Uzbekistan.

Your interests may vary.

[ninenot]

Not to mention the $400 BILLION in non-repatriated earnings sitting in PRChina and India on which a few hundred US corp's have YET to pay 30% income tax.

[ninenot]

I'll use my share of federal land to pay off my share of debt

Selling it to whom: a Triad capo from PRC, a ChiCom Party in-law, or whom?

[ninenot]

Only things that have increased in real terms (and relative terms) since 1955 is tax and reg. costs.

Tax Freedom Day 1955: March 7th. TFD 2003: (approx) May 1.

That's about 60 days' earnings, or 1/6th of income.

[FITZ]

I think what would have benefitted Mexico --- and us too because then we wouldn't have millions of indigent uneducated desperate people flooding over the borders ----- would have been if instead of losing their farms to competition from the USA, that they would have little by little begun to import tractors and other farm machinery from the USA ---- at least before NAFTA, they weren't rich but were self-reliant, at least making ends meet. Now they have lost their farms and have no jobs so head to the USA to either get on welfare programs and/or take menial jobs.