Things Fall Apart: The Coming End of the Free Trade Coalition

The American Conservative ^ | September 27, 2004 | Ian Fletcher, VP, American Engineering Association

[rmlew]

Up to now, offshoring of American jobs has been a political flashpoint but, judging by the responses of both parties, has been adjudged by the powers that be to be just another annoying political issue, which changes nothing fundamental and should be handled the way political issues usually are: by jockeying for position within the established policy consensus.

The Democrats, quintessentially John Kerry, have sought to make the smallest policy proposals sufficient to position themselves as the good guys on this issue for those voters that care about it. The Republicans, because they are in office, must defend a status quo they are no more or less responsible for than the Democrats, and are defending it using the same arguments that have always been used on the free-trade issue, as if nothing has changed.

Both responses are perfectly rational within the confines of ordinary day-to-day Washington politics, which is precisely why they have occurred. Unfortunately, both are completely deluded, because offshoring is already setting off a political earthquake that will reshape American politics for a generation. For in reality, free trade is dead and the only question is which party will figure this out fast enough to collect the burial fee.

The key to understanding why free trade is dead is to be honest about the fundamental way free trade is experienced by Americans as citizens of a high-wage nation:
Free trade is cheap labor embodied in goods.

Naturally, everyone wants the labor they consume, whether directly or embodied in goods, to be cheap. But as a wage earner, they also want the labor that they are paid for to be expensive.

Whether this is “efficient,” as academic economists understand this term, or not is irrelevant to the politics. This is shown by the fact that in American history there have been long-lived and stable electoral coalitions producing both free-trade and protectionist outcomes. Economists' theories about the efficiency of free trade touch the way voters actually experience trade peripherally at best and flatly contradict it at worst.

What is relevant to the politics is that this analysis implies the possibility, in a democracy, of a stable political coalition in which one part of society treats itself to cheap labor at the expense of another part. So long as the enjoyers of cheap labor exceed the victims in number, this coalition is viable.

For example, one could have a coalition of everyone who is not a manufacturing worker (roughly 85% of the population) against everyone who is. Manufacturing workers suffer the competition from cheap foreign labor, everyone else enjoys the cheap foreign goods, and a majority is happy. At least in the short run, before everyone begins to suffer the consequences of a depleted industrial base.

You may already see what the problem is and where this is going. What if the percentage balance in the coalition isn't stable? What if we go from 15% of the population harmed and 85% benefited to 30/70? Or 50/50? Or 70/30 the other way? The coalition starts to fall apart.

Free-traders have an argument here: they will tell us that even if we go to 90% or even 100% of the population being impoverished by competition with cheap labor, we will still be better off because goods will be cheaper.

The problem is, as is intuitively obvious to any laid-off factory worker who has contemplated the cheap knick-knacks on sale at Wal-Mart, that the drop in cost of living never matches the drop in wages. Like many free-trade arguments, it is qualitatively true but quantitatively false. The mitigating factors mitigate; they just don’t mitigate enough.

Don't believe this? Let's count up how many people have voted against incumbents because they were unemployed, and compare this to how many have done so because they couldn't buy a pair of scissors for $.99. Has there ever been a demonstration in the streets about the latter?

Free traders might have half an argument here if inflation were a live political issue today, but it isn't. Allan Greenspan has been worrying about deflation, not inflation. And given that the biggest inflationary factor looming on the horizon is the coming collapse of the dollar under the weight of accumulated trade deficits, they're better off not raising the topic.

But back to our electoral math: what offshoring has done is to radically shift the percentages of the electorate who fall into the two categories. So this beggar-my-neighbor coalition is starting to fall apart.

Of course, this takes time, as offshoring all the tens of millions of jobs that can now be offshored cannot be done overnight.

But what doesn't take nearly that much time is for the fear that this is going to happen to ripple through the electorate. Right now, people are taking a wait-and-see attitude, wondering if this is going to be just another one of those crises that were supposed to end life as we know it that never actually happened.

The problem is, unlike running out of oil in 1973, this is actually going to happen. Don’t believe it? It’ll probably only take another two years of empirical data for the trend to become dispositive.

As a result, the cozy acquiescence of a majority of Americans in letting free trade destroy American wages sector-by-sector is going to end. The dividing line between the winners and the losers, which the winners thought, as recently as the dot-com boom of a few years ago, would remain stable, has grown fluid.

Worse, no-one really knows where it will one day solidify. So no-one knows – on a personal, let alone political level – how to protect themselves.

Basically, there is not much left of the American economy that is invulnerable to offshoring. There are, basically, these jobs:

1. Those services that must be performed in person: cooking, policing, bagging groceries, teaching school, prostitution etc.

2. Those activities, like construction, that are performed on physical objects too large or heavy to be economically shipped from abroad.

3. Those activities, like agriculture, mining, and transportation, that are performed on, or relative to, objects fixed in place.

4. Those activities, like the practice of law or advertising, that depend upon peculiarly American knowledge that foreigners don’t have. But even this is rapidly breaking down as law firms, for example, start to offshore work.

5. Activities of government impinging upon sovereign power, like the military, or democratic legitimacy, like Congress. But given our use of mercenaries (sorry, “civilian security contractors”) in Iraq, clearly this can be nibbled away at in surprising ways.

6. Industries where America enjoys significant technological superiority tied to local labor pools or educational institutions, a rapidly-shrinking category.

7. Owning capital. Although not really a job, it's at least an occupation, and so long as America maintains a political consensus that rules out significant expropriation of capital, owners of capital gain from consuming cheaper labor and lose nothing.

The problem is, this isn't enough. In particular, it isn't a high enough number of high-wage jobs, as most, though obviously not all, of the jobs in these seven categories are relatively low-paid. This is largely inevitable, since jobs that must be done by hand, like stocking a Wal-Mart, are difficult to automate to increase their productivity.

So our little coalition starts to fall apart. What happens next?

For a start, the bad news for Republicans is that the psychological bourgeoisie starts to shrink. I use this term to describe everyone in the economy who identifies emotionally with the owners of capital, whether or not a majority of their income is investment income. All those yuppie financial analysts who may now get offshored are an obvious example, but there are far more people in this category, people all over American suburbia.

The key psychological bargain such people have until now had with the system is that economic forces are something that happen to other people. Someone with this attitude can indulge an amazingly dispassionate concern with economic efficiency.

More obnoxiously, he can explain that the jobs being lost are only "bad" jobs, while the jobs being kept, like his, are worth keeping. This is a wonderful way to covertly congratulate himself that his existence is a worthwhile one while that of a blue-collar worker is not. Thus the galloping narcissism of the baby-boomers becomes an emotional motor of globalist economics.

But that party's over, soon. It probably has only one presidential election cycle to go.

The bad news for Democrats is that they sold out so completely to free trade under Clinton that they've thrown away their natural position, earned over 60 years, as the party that protects Americans from the rougher edges of capitalism. With the classic stupidity of the imitator, they embraced free trade just before the fad went sour.

Either party could be the first to turn on free trade and thus capture public support on this issue. The Democrats could follow Ralph Nader's idea’s; the Republicans, Pat Buchanan’s. The fact that these wildly different figures oppose free trade is a strength, not the weakness the Wall St. Journal supposes, as it means that ending free trade can be credibly sold to people on either end of the political spectrum. Or packaged into a nice balanced pitch for the middle.

You want a right-wing America First appeal? You got it. You want a hippie sob-story about exploited workers? You can have that instead. You want a moderate and reasonable “commitment to a middle-class society?” Done.

Once the issue heats up some more after a few more rounds of depressing job-creation numbers from the Bureau of Labor Statistics, the only thing that will be keeping the status quo in place is the corrupt bargain of the American political duopoly, in which each party agrees with the other to not make trade an issue. This bargain is intrinsically unstable because of the temptation to score politically by defecting from it, so one must assume one party must eventually defect from it.

The other will have no choice but to follow or face electoral extinction, and America’s experiment with free trade, which has outlived its Cold War purpose of bribing foreign nations to not go communist, will finally be over.

[Protagoras]

Better take a deep breath, your veins are popping out, and you might get another time out for namecalling.

Please: NO profanity, NO personal attacks, NO racism or violence in posts.

[1rudeboy]

It's like a "perfect storm." A stereotypical protectionist promotes policies that result in a net loss of jobs, and then claims that protectionist policies are needed because we're losing jobs.

[oceanview]

pickup truck sales are doing fine. if given the choice of selling at the current rate and employing americans, or selling a few more because they were $2000 less expsensive and employing people in Thailand and sending the americans to work at walmart - I'll pay more for the truck.

[1rudeboy]

Here's an interesting item I pulled from a 1996 article from the Heritage Foundation:

Consider for example, U.S. import quotas on automobiles, which caused the price of new American autos to increase by 41 percent from 1981 to 1984. The auto industry claims these price hikes saved up to 22,000 jobs. But they also reduced sales -- by about 1 million cars. This drop forced some 50,000 layoffs by the late 1980s. In other words, even though protectionism saved some 22,000 jobs, it caused a net job loss of 30,000. Some "protection."

Heritage Foundation

Granted, it concerns voluntary import restraints, and not tariffs, but that is a distinction without a difference. Everything has a cost. Why don't protectionists understand?

[The Old Hoosier]

Heh. Tell me about it. It's like stepping in front of an economic train or defying the law of gravity.

[oceanview]

absent the tariff on light trucks - the Japanese plants in Texas and Alabama would be in Thailand. And the Thailand made trucks would undercut the price on those made in the US by Ford and GM, so those jobs would be lost too, in addition to the ones never created for Americans at the Japanese plants.

the Heritage foundation is using an industry that was in need of restructuring and an infusion of automation in the 80s (which is what caused the job losses) - plus some claim about "sales reduced by 1 million" that they pulled out of the air - to say "see, protectionism causes job losses".

its bullshit.

[1rudeboy]

Those Japanese plants in Texas and Alabama were built at the cost of ones in Michigan and Ohio. Surely you wouldn't object to paying more for your truck in order to revitalize the Rust Belt? Why not have the government place the price of trucks at $100,000.00? Think of all the jobs you'd save!

The rest of your response is merely speculation, including the part about Thailand. But hey, what do you expect the UAW to claim?

[oceanview]

Thailand is a popular locale for construction of foreign light trucks - what the tariff was designed to stop.

you answer to everything is "lower costs for me", regardless of the costs to anyone else. any product you currently buy could be made by slave labor in Africa at lower costs, are you in favor of that? why not? why stop at having a truck made in Thailand, when there is even lower cost labor available under threat of being shot or starvation, so you can knock a few hundred bucks off your next car purchase.

your posts are the very definition of the race to the bottom.

[1rudeboy]

My posts are the very definition of the race to the bottom that exists only in your mind. Why do we produce cars here instead of elsewhere? Because it's cheaper to, much like it is cheaper to build a car in the South than in the old Midwest, a fact that the UAW attempts to disguise when it claims that a certain tariff (say, on light trucks) is needed to keep manufacturing from moving to, say, Thailand.

[oceanview]

its cheaper to produce cars in the US instead of China, is that your claim? we've made it plain that we would protect autos in this country - that's why that manufacturing is still here. subassembly production is increasingly moving to china however.

[William Terrell]

People's lives are better materialistically than they were decades ago.

People have access to a higher technology than decades ago. That's all. More fun toys does not equal a better materialist life.

Medicine is expected to provide near immortality.

Yes? So?

We have the widest industrial base in the entire world.

Bullbutter. Whole industries have left the US and more behind them because we let slave labor economies compete with us. Where do you get your information?

Are you trying to make a distinction between real and nominal wages?

I'm talking about wages a person can use to by what that person needs, and they are dropping, last I read. Several posters on this thread have pointed out comparisons, a couple to you as I recall.

Nor do you have a grasp of world economic history if you believe this nation EVER was not intimately involved with exports.

This country always has exported goods. This country has always imported goods, but never has depended on foreign trade for internal prosperity. How many times do I have to say it? We traded with each other in a large manufacturing base, and we were prosperous. This new form of trade is a dangerous experiment.

"Globalism" is a concept of the radical Left and its modern name for "Capitalism" thus I reject the concept in its entirity. I am a believer in capitalism and recognize that there is a World Economy. Though you claim to be a conservative what you advocate is vastly increased governmental control over the economy which would end in socialism.

You are a globalist if you support programs and initiatives that lead to globalism, whether you think you are or not. Globally regulated trade leads to global governance. Beside the indicators that show globalism spreading in the wake of "free trade", how can it not?

This form of "free trade" is a new thing that has not proved it can work to enrich this country. I advocate an old thing that has proved it will enrich the country, therefore I am a conservative, and you, and all globalists are liberal.

[justshutupandtakeit]

When you LIE about me I will respond. And your threats mean nothing to me. There is nothing "personal" about stating the truth which can be clearly seen from examining my comments and the corresponding LIES you tell about them.

First you whine that you don't want me to talk to you. Then, after I stop responding, you start LYING about me. What the hell is THAT if not a "personal" attack?

You can't take it at all like a man can you? Just try and pick a fight then run for cover behind the moderator.

[justshutupandtakeit]

Technological advances are not all, or even most, "toys" they have improved our lives in many ways some crucial. Too bad you haven't noticed.

It is also unfortunate that you cannot perceive the major impact on medical costs of trying to achieve immortality. IT should be obvious to any who have done anything more than the most superficial thinking on this subject.

Yes we clearly have the most diverse and powerful industrial base in the world. What nation comes close? You just look foolish trying to deny the obvious.

You are still grasping for a rational sentence wrt wages. Keep trying.

Further illustration of your ignorance of American economic history does not help your case. We are far more prosperous today than at any point in your illusionary "golden age." Your inability to understand this is part of your general lack of comprehension of our history and of economic theory and history.

"Globalism" is just another Communist boogie man, a reworked term for "imperialism" and "capitalism." It has no meaning to knowledgeable people no matter how much it gets the ignorant and foolish into a lather. It is remarkable to find some here still falling for that tripe when there is a vast amount of information available showing it to be as empty as John Edwards' head.

[Protagoras]

Take your meds, you seem agitated.

[justshutupandtakeit]

Wait..... ok after 3 prozacs you now MAKE SENSE.

[Protagoras]

Wait..... ok after 3 prozacs you now MAKE SENSE.

There ya go, the wonders of modern medicine!

Many people have trouble thinking without chemical help. Before your took your three prozacs, you would have continued to be delusional. LOL

[justshutupandtakeit]

For someone who doesn't want to talk to me and vice versa you certainly do yammer on a lot.

[Protagoras]

I'll make ya the deal right now like I have several times in the past. The deal you never agree to.

You ignore me and I'll ignore you.

That would work well for you since I wouldn't be posting the quote anymore about you saying anyone who doesn't vote for Bush isn't a Christian.