Is Protectionism Racism?

The American Cause ^ | April 11, 2005 | Patrick J. Buchanan

[LowCountryJoe]

“Xenophobia and Politics”—the headline got my attention. And the subhead convinced me I would get honorable mention: “Why Protectionism is a Lot Like Racism.”

I was not mistaken. But the main target of Steven Landsburg’s “On My Mind” column in Forbes magazine was the neo-racist ideas he had ferreted out—on John Kerry’s website.

Kerry had proposed, “Federal contracts, wherever possible, should be performed by American workers.” Landsburg was morally offended that anyone would argue that American workers should be given preference over Asian or African workers.

“It’s not just Kerry,” wrote the professor from the University of Rochester. “Both major parties (and most of the minor ones) are infested with protectionist fellow travelers who would discriminate on the basis of national origin no less virulently than David Duke or any other overt racist would discriminate on the basis of skin color. But if racism is morally repugnant—and it is—then so is xenophobia…”

Declares Landsburg: “I hold this truth to be self-evident: It is just plain ugly to care more about total strangers in Detroit than about total strangers in Juarez. ... Even if Kerry-style (or Nader-style or Buchanan-style) protectionism could improve Americans’ well-being at the expense of foreigners, it would still be wrong.”

Now I do not know what parents pay to send their kids to the University of Rochester. But if the philosophical imbecility of Landsburg is representative of the faculty, it is too much.

To be more concerned about the well-being of one’s fellow Americans is not “xenophobia,” which means a fear or hatred or foreigners. It is patriotism, which entails a special love for one’s own country and countrymen, not a hatred of any other country or people. Preferring Americans no more means hating other peoples than preferring one’s family means hating all other families. An icy indifference as to whether one’s countrymen are winning—be it in a competition for jobs or Olympic medals—is moral treason and the mark of a dead soul.

We are all born into families, clans, tribes, neighborhoods, countries, all of which—as well as the friends we make, the schools that nurture us, the churches at which we worship—have a claim upon our love and loyalty.

But the professor equates “Buy American” and “Hire Americans” programs with aggressive war. “After all, if it’s okay to enrich ourselves by denying foreigners the right to earn a living, why not enrich ourselves by invading peaceful countries and seizing their assets. ... Stealing assets is wrong, and so is stealing the right to earn a living, no matter where the victim was born.”

The professor’s piece testifies to another truth. Free-trade fanatics are running out of statistical proofs so fast they must defend their position on the grounds that, no matter if it fails America, it is a morally superior position. For look at what a soaring dependency on imports is doing to our country.

Last year’s trade deficit topped $617 billion. In January, it hit $58.3 billion, portending a deficit in 2005 of $700 billion. U.S. trade and budget deficits combined are 10 percent of GDP. We are borrowing $2 billion a day abroad to subsidize our lifestyle. The American consumer has never been more indebted—in credit cards, auto loans, mortgages.

The dollar has lost a third of its value against the euro in three years. Gold is back close to $450 an ounce, a run-up of 70 percent. Oil is bumping up against $55 a barrel. When South Korea and then Japan’s Koizumi hinted their treasuries might diversify reserves and hold a lesser share in dollars, the Dow experienced what pilots call, as you grab the arm rests and hold on for dear life, “a little choppiness.” The last fruits of free-trade globalism may be financial collapse.

Under Bush, 2.8 million manufacturing jobs, one in six, have been lost. Real wages of working Americans are stagnant. Two-thirds of a million textile and apparel workers face wipeout from Chinese imports that are now unrestricted. As Paul Craig Roberts writes, the jobs being created pay less and demand less in education and training than the jobs being outsourced. Our workers are being sacrificed on the altar of globalism. Says Landsburg: tough luck!

If economics professors are so fanatic about free trade, why not eliminate their tenure and import English-speaking economics professors from India at half the pay? For as Landsburg instructs us, “It is plain ugly to care more” about him than a total stranger.

Moreover, the stranger might come to love America and even prefer America, which some deracinated academics find so racist a sentiment.

[LowCountryJoe]

No Mr. Buchanan, I do not consider you a racist but I do consider you a xenophobe (in the ‘fear’ and not ‘hate’ sense). The problem I have with you, Mr. Buchanan, is not with your patriotism, it’s with your ignorance; the economic policies that you advocate and support are decisively non-patriotic if you were to just examine the evidence. [see below]

"Bad News" on the Trade Deficit Often Means Good News on the Economy

by Daniel Griswold, director, Center for Trade Policy Studies, Cato Institute

Worries persist that the record U.S. trade deficit is weighing down the nation's economy, depressing output, and sending jobs overseas. Those worries have only increased in recent weeks as various measures of the deficit have reached new records. On December 14, the Commerce Department announced that the monthly trade deficit in goods and services for October had reached a record $55.5 billion,[1] and two days later the department announced that the U.S. current account deficit for the third quarter had reached $164.1 billion,[2] also a record. The two related deficits are virtually certain to set annual records approaching $600 billion by the time the full year's trade accounts are tallied in early 2005.[3]

Concern about the impact of the trade deficit on growth is rooted in the assumption that rising imports displace domestic production in the U.S. economy, acting as a drag on the growth of real gross domestic product. As one wire service reported after the recent release of October's record trade deficit number, "such a large trade deficit also threatened to be more of a drag on the domestic economy than first thought and could see analysts trim back expectations for GDP growth this quarter."[4]

How valid is the widespread assumption that a growing trade deficit means slower economic growth? Hard evidence of such a connection appears to be lacking. In fact, an analysis of economic data from the last quarter century shows that a growing current account deficit (as a percent of GDP) is actually associated with faster, not slower, economic growth, as well as rising manufacturing output and falling unemployment.

Testing the Conventional Wisdom

In 8 of the years since 1980, the U.S. current account balance has moved in a positive direction (i.e., the deficit has shrunk or "improved") as a share of GDP from the previous year. In 16 of those years, it has moved in a negative direction (i.e., the deficit has grown or "worsened"). Of those years in which the balance moved in a negative direction, 10 have seen a moderate movement of between 0.0 and 0.5 percentage points, and 6 have seen a more rapid movement of 0.7 to 1.3 percentage points.[5]

How has the U.S. economy fared under each of those three current account scenarios? To address that question, Table 1 lists the size of the current account as a share of GDP for each year since 1980, along with the change in the current account percentage, real GDP,[6] manufacturing output,[7] and the unemployment rate[8] from the previous year. (Changes in manufacturing output and the unemployment rate are measured from December to December to more fully capture the trend of that year.) The years are grouped in three categories, according to the magnitude of change in the current account balance as a share of GDP.

As the table illustrates, by all three measures of economic performance–GDP, manufacturing output, and the unemployment rate–the U.S. economy performs better in years when the current account deficit is rising as a share of GDP than in years when it is shrinking. And it performs especially well in years when the current account deficit is rising most rapidly.

Trade Deficits, GDP, Manufacturing, and Unemployment
By the most basic measure of economic performance, the change in real GDP, evidence points to a stronger economy in years in which the current account deficit is rising. In those years since 1980 when the current account deficit declined as a share of GDP, the economy grew each year by an average of 1.9 percent. In those in which the current account deficit grew moderately, real GDP grew at an annual average of 3.0 percent. In those years in which the deficit most rapidly "deteriorated," to borrow another popular characterization, real GDP grew by a robust annual average of 4.4 percent–a rate more than double the growth in years when the deficit was "improving." Four of the five best years for GDP growth since 1980 have occurred in the same years when the current account deficit was growing most rapidly.

The same pattern emerges in the manufacturing sector. It has become the conventional wisdom that a trade deficit hurts manufacturing because imports presumably displace domestic production, but the plain evidence of the past quarter century contradicts that presumption. Manufacturing output actually declined slightly on average in those years in which the current account deficit shrank. In contrast, it grew by 4.1 percent in years when the current account deficit grew moderately and by a brisk 5.3 percent when the deficit grew rapidly. In fact, five of the six years that saw a decline in manufacturing output occurred in years in which the current account deficit was declining.

The pattern also applies in the politically sensitive area of employment. Again, the conventional wisdom holds that a trade deficit destroys jobs by supposedly shipping them overseas. But again the evidence suggests something quite different. In those years of an "improving" current account deficit, the unemployment rate on average jumped by 0.8 percentage points. In years when the deficit moderately "worsened," the unemployment rate fell by an average of 0.2 points, and in years when the deficit grew the most rapidly, the unemployment rate fell by an even larger average of 0.7 points. Indeed, in 7 of the 8 years in which the current account deficit "improved," the unemployment rate went up; in 13 of the 16 years in which the current account deficit "worsened," the unemployment rate went down.

The year 2004 appears to fit the pattern comfortably. Through the first three quarters of the year, January through September, the current account deficit averaged 5.5 percent of GDP, a 0.6 percentage point shift in the negative direction from 2003.[9] That would place 2004 somewhere between a moderate and rapid growth of the current account deficit. Befitting the pattern, economic performance through the first three quarters of the year was also moderate to robust. Real GDP grew an average annual rate of 3.9 percent during the first three quarters.[10] Manufacturing output grew during those same three quarters at an annual rate of 5.4 percent from the previous year,[11] while the unemployment rate was on a pace to drop by 0.4 percentage points during the full year.[12]

In 2004, as in previous years, a rising current account deficit may have been bad news to headline writers, but it appears to have accompanied good news for the U.S. economy, its factories, and its workers.

A Growing Economy, a Growing Trade Deficit

Evidence from the past 25 years directly contradicts the assumption that trade deficits impose a drag on the U.S. economy. Contrary to prevailing assumptions, "worsening" trade deficits are associated with faster GDP and manufacturing growth and more rapidly declining unemployment, while "improving" trade deficits are associated with slower GDP and manufacturing growth and rising unemployment.

The evidence does not suggest that expanding trade deficits cause the superior economic performance. More plausibly, causation runs the other direction. An expanding economy fuels demand by American consumers and producers to buy more imports as well as domestically produced goods and services while rising domestic output attracts the foreign investment that finances an expanding current account deficit. In contrast, slowing domestic demand not only depresses output and employment growth but also demand for imports and the inflow of foreign investment.

Nor does the evidence address the question of how persistent and rising current account deficits may affect the U.S. economy in the long run. The "sustainability" of the U.S. current account deficit has been addressed elsewhere in Cato studies.[13] But whatever negative impact the deficit may have in the long run, there is no evidence that it poses a drag on the economy in the short run.

Misperceptions about the trade deficit and the economy can tempt policymakers to "do something" about the deficit that would only hurt economic growth. The most obvious example would be raising barriers to imports in the mistaken belief that protectionism would cut the trade deficit and spur the economy. Even if higher trade barriers could somehow trim the trade deficit, there is simply no evidence that such a policy goal would deliver faster growth in GDP, manufacturing, and employment.

[1]U.S. Commerce Department, "U.S. International Trade in Goods and Services Highlights," news release, December 14, 2004, www.census.gov/indicator/www/ustrade.html.
[2]U.S. Commerce Department, "U.S. International Transactions: Third Quarter 2004," Bureau of Economic Analysis, news release, December 16, 2004, www.bea.doc.gov/bea/di/home/bop.htm.

[3]The trade deficit is a subset of the current account deficit. It includes imports and exports of goods and services. The current account is the broadest measure of U.S. international transac-tions, including goods, services, income on foreign investment, and unilateral transfers such as foreign aid. The two measures are closely related and can be used interchangeably for the pur-pose of this analysis.

[4]Reuters, "Trade Gap Widens, Industrial Output Up," December 14, 2004.

[5]For the current account balance and nominal GDP for the years 1980 through 2002, see Council of Economic Advisers, The Economic Report of the President 2004 (Washington: U.S. Government Printing Office, February 2004), Tables B-1 and B- 103. For 2003, see Joint Economic Committee of Congress, Economic Indicators, pp. 1 and 36, www.gpoaccess.gov/indica-tors/ 04novbro.html. The current account balance for 1991 was adjusted by - $41 billion to remove the one-time payments to the U.S. government that year by Gulf War allies.

[6]For changes in real GDP through 2002, see Council of Economic Advisers, Table B4, p. 289. For changes in 2003 and the first three quarters of 2004, see U.S. Commerce Department, Bureau of Economic Analysis, "National Economic Accounts: Gross Domestic Product," Table 1, www.bea.doc.gov/bea/dn/home/gdp.htm.

[7]For the index of manufacturing output (seasonally adjusted) in December of each year, see U.S. Federal Reserve Board, "Statistics: Releases and Historical Data," G.17 Supplement, Table B00004, www.federalreserve.gov/releases/g17/ipdisk/ip.sa.

[8]For the unemployment rate in December of each year, see U.S. Bureau of Labor Statistics, "Labor Force Statistics from Current Population Survey," Unemployment Rate: Civilian Labor Force, Table LNS14000000, data.bls.gov/cgi-bin/surveymost?ln.

[9]For nominal GDP through the first three quarters of 2004, see U.S. Commerce Department, Bureau of Economic Analysis, "National Economic Accounts: Gross Domestic Product," December 22, 2004, Table 3, www.bea.doc.gov/bea/dn/home/gdp.htm. For the current account balance through the first three quarters of 2004, see U.S. Commerce Department, "U.S. International Transactions: Third Quarter 2004."

[10]See U.S. Commerce Department, Bureau of Economic Analysis, "National Economic Accounts: Gross Domestic Product," December 22, 2004, Table 1. According to the BEA, real GDP grew 4.5 percent in the first quarter of 2004, 3.3 per-cent in the second, and 4.0 in the third, for an average growth of 3.9 percent.

[11]See U.S. Federal Reserve Board.

[12]See U.S. Bureau of Labor Statistics.

[13]Daniel T. Griswold, "America's Record Trade Deficit: A Symbol of Economic Strength," Cato Trade Policy Analysis no. 12, February 9, 2001, pp. 10-14.

[Alberta's Child]

Under Bush, 2.8 million manufacturing jobs, one in six, have been lost. Real wages of working Americans are stagnant. Two-thirds of a million textile and apparel workers face wipeout from Chinese imports that are now unrestricted.

I'm no blanket apologist of free trade, but numbers like this are very misleading. The U.S. did not "lose" 2.8 million manufacturing jobs to foreign competition -- it "lost" most of them to efficiency improvements right here in the U.S. The strongest evidence of this is that U.S. manufacturing input was higher in 2004 than in 2001 -- which means we've manufactured more products with 2.8 million fewer "manufacturing" employees.

The other thing to remember is that employees are classified by the industry in which they work, not the job they perform. So an accountant for General Motors is considered a "manufacturing employee" even if he's never picked up a wrench in his life. So if General Motors decides to lay off 500 accountants and instead use a major accounting firm to do the same work (maybe even using the same people!), the net result is a loss of 500 "manufacturing" jobs that never existed in the first place.

[Lazamataz]

Asking that question is racism.

[LowCountryJoe]

The full text from the piece that ran in Forbes - the piece Pat Buchanan is responding to - can be found on an FR thread found here, if you're interested in reading it.

[starfish923]

It's reverse racism. There is such a hatred of all Euro-Christians that it has been taken to extremes. It's a sad SELF-hatred of our own culture, tradition, history, race and religion. We wouldn't be having this conversation if we actually HAD a culture, like every other country on the planet does. But, since we are a nation of immigrants, we can rightly claim that we have none.
We MIGHT HAVE considered ourselves "European," but, apparently, that just isn't good enough.....too splintered. So, our history of being multi-ethnic and mono-cultured (that is, Euro-Christian) haa been slowly altered to the chaos of being multi-cultured.
The secularists chip away at our religion and moral values and the racists chip away at our culture and race. Those secularists and racists, by the way, are of ALL races, ALL religions, both genders and both parties.
The culture war continues and we lose.

[KevinDavis]

No, but protetionism is stupid..

[Vn_survivor_67-68]

Buchanan is right.

Soon, all these countries with formerly American jobs will no longer have the American market to export the fruits of their formerly American jobs to......so we will then see them whining about finding a new "market" for their slave-labor-produced inferior products. International trade agreements and myths/lies and MFN are rapidly liquidating America.

[LowCountryJoe]

ping

[LowCountryJoe]

But at least our trade deficit will turn to surplus, we'll be someone else bitch, and the protectionists can finally be happy, right?

[Finalapproach29er]

"Bad News" on the Trade Deficit Often Means Good News
-----
George Orwell knew the time would come when bad is good and good is bad. You free traders are frightening group. You all name-call as you and this professor both did.

Name calling is a sign of weakness.

The rich people got theirs. The international buzzards are going to pick Americas carcass clean by about 2012-15. Then
we'll have 35% Lords and 65% serfs. Just like the good old days before the union era.

I suspect in a few years the proposal will be floated to turn the 8 hour work day into a 12 hour work day.

American workers are going to be castrated if this isn't stoped. No thanks.

[Vn_survivor_67-68]

NO.

Because by then, our (physical brick and mortar) industrial base will be so small as to be ineffective.

There are other serious effects thus far, for example, CHINA is financing its agenda largely through the largesse of one william jefferson clinton, who granted MFN to our enemy.......how many American jobs, factories, and technologies was THAT alone?

[L98Fiero]

Good points.

Until 120 years ago, our whole economy was based on agriculture and raw materials. Afer that, we had manufacturing as an economic base. Now, it is changing again.

Some folks see the latest change as bad, some as good. I just see it as inevitable.

[redgolum]

I suspect in a few years the proposal will be floated to turn the 8 hour work day into a 12 hour work day.

Who can afford to have their employees work just an 8 hour day? I have not been working an 8 hour day since I was 16!

[Mase]

Buchanan is right.

International trade agreements and myths/lies and MFN are rapidly liquidating America.

====

Ten Myths about Jobs and Outsourcing:

Myth #4: Free trade, free labor, and free capital harm the U.S. economy.

Fact: Economic freedom is necessary for economic growth, new jobs, and higher living standards.

A study conducted for the 2004 Index of Economic Freedom confirms a strong, positive relationship between economic freedom and per capita GDP. Countries that adopt policies antithetical to economic freedom, including trying to protect jobs of a few from outsourcing, tend to retard economic growth, which leads to fewer jobs.

Myth #6: Outsourcing is a one-way street.

Fact: Outsourcing works both ways.

The number of jobs coming from other countries to the U.S. (jobs “insourced”) is growing at a faster rate than jobs lost overseas. According to the Organization for International Investment, the numbers of manufacturing jobs insourced to the United States grew by 82 percent, while the number outsourced overseas grew by only 23 percent.[5] Moreover, these insourced jobs are often higher-paying than those outsourced.[6]

Myth #7: American manufacturing jobs are moving to poor nations, especially China.

Fact: Nations are losing manufacturing jobs worldwide, even China.

America is not alone in experiencing declines in manufacturing jobs. U.S. manufacturing employment declined 11 percent between 1995 and 2002, which is identical to the average world decline.[7] China has seen a sharper decline, losing 15 percent of its industrial jobs over the same period.

Ten Myths about Jobs and Outsourcing

[Vn_survivor_67-68]

LOL!

The "Facts" you posted are merely restatements of the same rhetoric that got us into this mess in the first place. My God, man.....its an easy empirical call, unless one is predisposed to the liquidation of America.

[superiorslots]

Quote: I suspect in a few years the proposal will be floated to turn the 8 hour work day into a 12 hour work day.

Wal mart is trying to push through a 16 hour day for their truck drivers versus the current 14 hours allowed.

[superiorslots]

Your Quote: Fact: Nations are losing manufacturing jobs worldwide, even China.

You free traitors are so full of it. Yeah china may be loosing manufacturing jobs due to better production but so many companies are moving over there the unemployed are immediatly rehired. See the FR post below.


Help Wanted: China Finds Itself With a Labor Shortage

Posted by neverdem
On News/Activism 04/03/2005 2:42:43 PM PDT · 56 replies · 1,031+ views

[superiorslots]

Yeah just like Bush's old economic secretary that tried to have hamgurger making classified as manufacturing to boost numbers.

[Mase]

The "Facts" you posted are merely restatements of the same rhetoric that got us into this mess in the first place

==

What mess are your referring to?

From Bruce Bartlett:

In July, economist Martin N. Baily, chairman of the Council of Economic Advisers under President Clinton, looked at who benefits from outsourcing. He found that for every $1 spent by a U.S. corporation on outsourcing to India, only 33 cents stayed in India. The other 67 cents came back to the U.S. in the form of cost savings, new exports, and repatriated profits. However, productivity gains add another 45 to 47 cents of value to the U.S. economy. Thus, on balance, the U.S. economy gains $1.12 to $1.14 for every $1 invested in outsourcing.

In August, economist Charles Schultze, chairman of the CEA under President Carter, looked at the number of jobs lost to outsourcing. He found that between the end of 2000 and the end of 2003, at most 215,000 service-sector jobs were lost. This is a minuscule amount in a working population of close to 150 million. Moreover, Schultze says, the productivity gains produced by outsourcing raised real incomes and living standards in the U.S. He concluded that outsourcing cannot be blamed for the “jobless recovery.”

Also in August, the nonpartisan Public Policy Institute of California looked at the costs and benefits of restricting outsourcing. It found that the cost of restricting outsourcing would greatly exceed any gains. Policies targeted toward those affected by outsourcing are far preferable to a ban on outsourcing. For this reason, California Gov. Arnold Schwarzenegger recently vetoed several bills that would have restricted outsourcing in that state.

In September, International Monetary Fund economists Mary Amiti and Shang-Jin Wei did the most thorough study of outsourcing to date for the prestigious National Bureau of Economic Research. These are their findings:

U.S. imports of computing services — the most controversial area of outsourcing — came to just four-tenths of 1 percent of the gross domestic product in 2003.

In 2002, the U.S. was the world’s largest exporter of computer services, which added almost $60 billion to our exports. By contrast, India’s total exports in this area came to less than $20 billion and China’s were just over $10 billion.

China and India, the two countries most blamed for outsourcing, actually outsource more than we do — six-tenths of 1 percent of GDP for the former and 2.4 percent of GDP for the latter.

Contrary to popular belief, the U.S. is a large recipient of outsourcing from other countries — i.e., insourcing. In 2002, the U.S. ran a healthy trade surplus in this area — receiving $22 billion more in outsourcing from other countries than it paid in outsourcing to other countries.

The number of jobs gained from outsourcing approximately equals the number of jobs lost.

The Federal Reserve Bank of Kansas City did the most recent study of outsourcing. It concluded that outsourcing has no permanent employment effects, although there can be temporary displacements.

Finally, press reports indicate that the outsourcing boom may have already peaked. A Sept. 22 report in the Wall Street Journal said that Chinese workers are now demanding better pay and more time off, which has sharply raised the number of labor disputes. This is quickly eroding the cost advantage of outsourcing to China.

An Oct. 7 report in the Financial Times said that General Electric, which pioneered outsourcing to India, has decided to sell its international outsourcing business. It found that the savings from outsourcing were mostly one-time gains that tended to dissipate over time. One reason is high employee turnover. Call centers operated by GE in India lost 40 to 50 percent of their workers every year.

Outsourcing Myths Debunked

[Alberta's Child]

Buchanan was exposed as a fraud back in the 1990s when he traveled all over the Rust Belt complaining about the loss of U.S. manufacturing jobs -- then climbed into his Mercedes-Benz and drove back to his comfortable home in the Beltway suburbs.