Left for Dead in Danville: How Globalism Is Killing Working Class America

The city of Danville, Virginia sits in the bellybutton of the Blue Ridge Mountains, a hat-toss over the North Carolina border and about 85 miles northwest of Raleigh. It’s low hill country and Danville straddles the frothy, chocolate-milk waters of the Dan River. Downtown, once a booming trade district, today is a decomposed industrial husk, a tidy cluster of silent rectangles ensnared by broad, ghostly thoroughfares built for a time in the not-so-distant past when people and goods poured in and out of town. Those days are gone, perhaps never to return.

The story of Danville is one echoed in countless communities across the country, a gutted middle class left for dead in the wake of sweeping international trade deals in Washington, applauded by liberal economists and a lockstep media portraying such policies as inevitable, ultimately good, and a win for the American consumer–a narrative usually coupled with condescending and disdainful attitudes toward displaced workers for a perceived inability to sprint ahead with the times.

1. It declined even during the longest post-WW2 economic boom in U.S. history.

2. It peaked at a time that nobody could credibly claim was the heyday of U.S. economic power.

Between the end of WWII and 1979, the US government took several actions that caused many manufacturing jobs to move elsewhere. The electronics industry that was booming in the US after WWII until around the mid '70s moved a huge amount of its production to Japan due to government action aimed at rebuilding Japan as a Cold War ally.

In the 1960s, Mexico set up its Maquiladora zone in northern Mexico aimed at attracting US factories and jobs with cheap labor and lax regulation. It worked, many plants were moved there well before NAFTA.

The US adopted many other favorable policies post-WWII to help rebuild Europe and other nations, actions that opened the US to cheaper goods and caused many US plants to be moved overseas, starting in the 1950s and '60.

we're also seeing employers all over this country complaining that they can't fill their open positions.

True, but that is a very recent development brought about by Trump's tax cuts, reduced regulation and his America First approach to trade.

Few still pretend that NAFTA did not cause a large number of US factories and jobs to relocate to Mexico, as well as attracting foreign plants which produce mostly for the US market. Reducing the tariffs were just an invitation for US plants to move to Mexico and export to the US.

There still are many manufacturing jobs that those with few skills can perform. It’s a pity so many jobs have been lost, particularly in textiles, apparel and light manufacturing.

And there are some people who would be difficult to turn into good employees, but I think our government’s policy should be to create incentives to hire Americans and not to allow more and more foreign workers in. There should be a nationwide program to move as many able bodied US citizens who aren’t working into productive jobs as possible.

Our $20 trillion in debt and near 20% real unemployment are realities we can’t ignore forever, and now we have a chance to make some progress toward reducing those.

All I know is my personal economy declined severely after the effects of NAFTA went full-blown and China got full admission into GATT in the late 1990s.

Many others made the same empirical observation.

I went digging (hours and hours worth of scholarly research) and found plenty of correlation in the FRED archives between US household wealth (in real terms, gold-indexed) and when the US cuts import tariffs. There is a definitive (coincidence = impossible) negative correlation between cutting tariffs and US household prosperity.

I’d dig it all back up for you, but I don’t have time for that anymore. You’re just going to have to take my word for it.

Now we have Trump and things are looking up in “flyover country” for the first time in decades. It had absolutely nothing to do with societal factors. Pure macroeconomics (government shenanigans) at play.

It’s no mistake we now have the lowest unemployment numbers in decades.

I don't question any of that. My point was establishing a direct correlation between NAFTA and a decline in manufacturing employment in the U.S. I don't think it's easy to make that connection at all. U.S. industrial output is higher today than it has ever been. We just produce a lot of things with fewer workers than we did 50 years ago.

I suspect automation -- not outsourcing -- has been the single biggest factor in declining U.S. manufacturing employment since World War II.

I also think the invention of the shipping container in the 1950s has had a far bigger impact on shifting trade patterns than most people realize.

My point was establishing a direct correlation between NAFTA and a decline in manufacturing employment in the U.S.

It's very simply. NAFTA significantly reduced or eliminated tariffs on imports from Mexico, making lower production costs in Mexico even lower, and even more attractive for US transnationals to move production and jobs from the US to Mexico.

And all you have to do for further evidence is look at your first post mentioning the small trade surplus the US had with Mexico in 1992 that is now a $60 billion plus deficit. Unless you think Mexico developed vast new, home grown industries that began selling billions in goods to the US, then what is the only other explanation?

The explanation is US transnationals moving production and jobs to Mexico and also some foreign firms setting up in Mexico to produce products primarily for export to the US.

Automation has gradually increased as a factor, but our starting point is 1993 with NAFTA. And we have larger populations and just more demand for goods now, and products that didn't exist a few decades back, so total industrial output doesn't tell us much without taking into account many other factors, nor does total manufacturing employment.

But it's very simple to conclude that many US plants and jobs did move to Mexico after passage of NAFTA. And nothing you are discussing changes that reality. You're trying to tangle that simple fact up with many other factors that have nothing to do with whether US plants and jobs were moved to Mexico.

There have been many ups and downs in US manufacturing employment since NAFTA passed. NAFTA was one of the downs.

Go back and look at the numbers in Post #51. U.S. exports to Mexico grew from $40.5 billion to $243 billion over the 25 years from 1992-2017. That's a six-fold increase. What were we exporting there, if Mexico suddenly had a major cost advantage after NAFTA was signed?

And keep in mind that after NAFTA was adopted, one of Mexico's biggest exports to the U.S. became crude oil ... which doesn't involve much manufacturing employment at all. So the trade deficits were driven by a lot of complicated factors here.

The long story short here is this:

We had $75.5 billion of cross-border trade between the two countries in 1992, and the U.S. had a small trade surplus with Mexico.

We had $557 billion of cross-border trade in 2017, with a $60 billion trade deficit for the U.S.

My question is: Which of these two scenarios is actually better for the U.S.? Would you give up $480 billion of trade to restore a surplus with this trading partner?

Like I said ... I have yet to see an objective analysis of this issue that makes the case either way ... plenty of anecdotes from various industries and/or geographic locations (the article at the top of this thread, for example), but nothing comprehensive that tells the entire story.

Would you give up $480 billion of trade to restore a surplus with this trading partner?

Not sure what figures you're using. In 2017, the US trade in goods with Mexico was $243.3 billion in exports and $314.3 billion in imports for a deficit of $71.0 billion.

2017 : U.S. trade in goods with Mexico

And a critical question is what is the make-up of that $243.3 million is exports to Mexico as there is substantial cross border movement of parts going to US factories in Mexico for final assembly.

Another key question with Mexico and others is: of the imports from a nation, what amount of the total is from US owned factories and what part is an authentic product of the exporting nation.

And, again, there is no doubt that the reduction or elimination by NAFTA of tariffs on goods coming from Mexico caused the "giant sucking sound" of US plants and jobs moving to Mexico, economic activity once in the US moved to Mexico.

The US would be better off if most of that exported economic activity were still taking place here. It is not new economic activity, but largely relocated economic activity. Mexico has not created large, new home grown industries making products the world wants since NAFTA was passed. The increase in goods being exported comes largely from US plants relocated to Mexico.

Here are a couple of articles that support what I've been saying. The US/Mexico trade is not new economic activity, but economic activity exported from the US to Mexico. And the same parts and partial assembled goods are crossing the border more than once, and probably being counted more than once as exports and imports (unless they do value added calculations which I doubt).

40% of a Mexican import is American

Remove car imports, and U.S.-Mexico trade deficit disappears

And this from the second article.

Indeed, cars beat the next top four import categories -- electronic parts, food, computers and TVs -- by a mile. Even if you add the value of those four categories together, they still fall short of the value of all the cars brought across the border, according to figures compiled by Capital Economics. Their value would total a little over $71 billion.

Now how much of the autos and those other major categories do you think are actual Mexican products? How many Mexican brand cars have you owned, or Mexican brand computers or cell phones? Much of the food would probably be Mexican, though much would probably be US branded (And Hershey's chocolate).

A huge amount of this US/Mexico trade is nothing but USA brand parts and finished goods being move back and forth across the border, economic activity that was once most all located in the US. Plus, some of the goods are produced by foreign owned companies in Mexico and exported to the US.

My question is: Which of these two scenarios is actually better for the U.S.? Would you give up $480 billion of trade to restore a surplus with this trading partner?

A mostly irrelevant question because if the economic activity had not been moved to Mexico, it would be taking place elsewhere, much of it back in the USA, and the USA would be much better off.

First ... the $480 billion figure in Post #89 is from the same source as the one you posted. It's the difference between the 2017 U.S.-Mexico trade figure (combined in both directions) and the 1992 trade figure. Basically, I was asking if we'd really be better off if we just went back to the world of 1992.

Secondly ... the auto import figures actually make my point about the difficulty of objectively comparing the pre-NAFTA and post-NAFTA scenarios. Think about it:

1. The period after 1992 has seen an enormous investment in new auto plants in the U.S. -- which actually flies in the face of this idea that the auto industry sees Mexico as a cheap alternative to the U.S. due to the elimination of tariffs under NAFTA.

2. Most of these plants are foreign manufacturers. So the migration of auto assembly operations south of the border has really been a phenomenon just for Big Three companies.

3. These companies haven't moved operations to Mexico for cheaper labor in an unconstrained enviroment. They've moved them there because the only way they can afford to pay enormous UAW compensation packages north of the border is by offsetting these costs with cheap labor south of the border. In effect, the only way to stay in business while paying UAW workers $70/hour is to have fewer of them on the job ... and moving production to places like Mexico where they can pay $5/hour for the same work.

3. Foreign manufacturers don't have the same issue because most of their plants are in non-union states, and they aren't paying $70/hour to anyone.

In other words, the auto import situation in the U.S. is almost entirely driven by union labor agreements here in the U.S.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.