October 1, 2004
HEY, NO FAIR!
Free trade is not all it's cracked up to be (Robert Kuttner, International Herald Tribune, October 1st, 2004)
"Free trade is not always a win-win situation," Samuelson concludes. It is particularly a problem, he says, in a world where large countries with far lower wages, like India and China, are increasingly able to make almost any product or offer almost any service performed in the United States.If America trades freely with them, then the powerful drag of their far lower wages will begin dragging down U.S. average wages. The U.S. economy may still grow, he calculates, but at a lower rate than it otherwise would have.
Samuelson stops short of spelling out remedies. However, his blowing open of this debate has done a profound service. But what, then, should Americans do to defend their living standard in the face of the ability of India and China to make almost anything they make at a fraction of the wage?First, they might insist that everyone play by the rules, which China emphatically doesn't. China both subsidizes and protects.
Second, America might try to get them to raise their domestic wages in proportion to their rising productivity and thus produce for a more affluent domestic market (which also might buy more American products).On the home front, the government could invest more in the creation of high-wage service jobs that America needs and that can't be exported - like better-paid preschool teachers and nursing home workers - and to raise the wages of all low-paid workers through higher minimum-wage laws and enforcement of the right to unionize.
We would presumably all agree that everyone should play by the same rules, which is why the Third World might have a few trenchant things to say about agricultural subsidies. But the interesting point here is that Mr. Kuttner thinks the average poor Chinese or Indian will, with deft diplomacy, see the intrinsic fairness of ordering the world so that North Americans can continue to enjoy their comfort and security irrespective of the labors, ingenuity or sacrifices of the rest of the world. If not, we must construct a global statist economy to preserve the status quo.
The yellow peril never really goes away, does it?
Posted by Peter Burnet at October 1, 2004 6:52 PMThe second point is the salient one.
Although there's a lag between growth in developing economies and demand for American goods and services, in the long run everyone in the world is far better off if everyone in China, India, and Africa enjoys Western-style affluence.
Further, second-world manufacturing might depress wage growth in America, but it also depresses price increases for goods.
Americans still enjoy the same standard of living, just at a lower nominal income level.
Individuals working full time for the US' minimum wage can afford a new car, thanks to the Koreans, a new computer, thanks to the Taiwanese, and a new wardrobe, thanks to third world sweatshops.
Posted by: Michael Herdegen at October 1, 2004 7:35 PMMichael:
They are only sweatshops in NY and LA, not in Karachi and Tegucigalpa
Posted by: ratbert at October 1, 2004 10:24 PMI think we have a very long wait before we see a political figure justify the long-term reduction in the standard of living of ordinary Americans, so that people can live in decent conditions in Vientiane or Managua. In a world with free trade, what happens to the unskilled and semi-skilled laborers in the US? What happens to the techies whose jobs get outsourced to India or China? What happens to the jobs of those people who serviced those workers and techies in the US?
Posted by: Bart at October 2, 2004 7:17 AMFree trade doesn't mean that Americans not look after the economic interests of its citizens. We are only now starting to pressure China to float its currency. That should have been a pre-requisite to acheiving MFN trading status. We've been practicing unilateral free trade, which like unilateral disarmament is a sucker's game.
Instead of using the opening of trade with China to make our manufacturing industry more competitive on the world stage, we've happily let it migrate overseas. The strong dollar policy has been a disaster for us. We're all giddy with cheap imported consumer goods, and have been oblivious to the long term damage that the lost manufacturing base will have on our ability to maintain our standard of living.
Posted by: Robert Duquette at October 2, 2004 1:30 PMIt's strange. I know of several people who went to school to learn computers. After a few years of working in Silicon Valley, they lost their jobs, and now they work construction and live with their parents.
Posted by: Vince at October 2, 2004 4:49 PMRobert:
Except that America isn't losing her industrial base.
It's true that manufacturing using methods first dreamt up in the nineteenth century has moved out of the US, but America is still a world leader in precision manufacturing.
There are many fewer people employed in manufacturing than at many times in the past, but the level of output is still quite high.
Posted by: Michael Herdegen at October 3, 2004 9:56 PM