Great, thanks!
Define “Made in America”. I’ll wait.
Until then, think about this: if American cotton is sent to a textile mill in China, and that material is then made into a t-shirt in Bangladesh, and someone in the US prints a pretty picture on it before they sell it to you, is that “made in America”?
How about if Scottish wool is made into Harris tweed, which is cut and sewn into a suit by a robot in China by a company whose servers, website, bank account, and employees all reside in the US, is that “made in America”?
Our global economy is quite literally global. There are very few consumer items whose entire supply chain exists in one single country. That just isn’t the world we live in. Even things labeled “made in America” are mostly lies. Every single step in the creation of that item may have happened elsewhere, but if a Mexican immigrant makes a few dollars an hour gluing the parts together in California, you’ll get the pretty Stars and Stripes “Made in America” label and pay a hefty premium for it. Is that really what you want?
I’m a big fan of keeping the economy efficient. Protectionism runs counter to this.
The thing that bothers me is that you can buy a pack of socks at WalMart for less but that only works if you have the job to pay for them.
Eventually wages, etc. in China will rise enough that the dominance in making things cheap there will lose out.
It’s going to take a while.
This is the issue. The transition we are seeing is happening very fast. A slower transition would allow the differences to work out more smoothly. There is no way to change this, especially at this point.
We just need to ride it out. 50 years from now it will be very different.
(And as mentioned, way too many jobs losses in many areas are blamed on the wrong things. Automaking, timber, etc. are losing jobs to automation far more than anything else. The ratio of output to number of workers in these fields is rising rapidly. Total production is the same or rising. That means workers are being fired since they aren’t needed anymore. Not to government interference or anything. Coal workers have been hit harder by automation than falling demand.)
I’m reminded of a (possibly apocryphal) story.
The President of Ford Motor Co is leading a group of dignitaries through a shiny new section of factory where the very first industrial robots in Detroit are welding car bodies. Among the group of bigwigs is the President of the UAW, a Mr. Woodcock.
Mr. Ford: Well Mr. Woodcock, good luck getting *these *guys to join your union. <chortle>.
Mr. Woodcock: Well Mr. Ford, good luck getting them to buy your cars.
Freakonomics and Planet Money just had some good episodes on the topic, including some good discussions with labor economists.
The gist was similar to what several other people mentioned already: it happened too fast, and entire communities were left behind. If the jobs were lost over the course of several generations, from every part of the country, it would have been much easier for the laid off workers to find jobs in other sectors.
Ignoring the question of economic lubrication, there’s also the factor of the “race to the bottom”.
Say that two companies who are in direct competition are both investigating a move overseas. One of them decides to make the move and the other does not (to support the American worker, or for whatever other reason). Based on this disparity in decisions, one company will be able to sell more cheaply than the other. Minus some sort of technological revolution, the company who stayed in the US and who is selling a very similar product at a higher price really doesn’t have anything to compete with. So far as the customer is concerned, they’re just the same product, for more.
Eventually, the American-only company becomes non-competitive and closes their doors. All of their workers are laid off. They will employ zero Americans, whereas the company who offshored may still have some number of employees in the US - even if they are purely administrative.
If we compare the cases where both companies stayed in the US or both moved part of their industry abroad, both are better for Americans than the middle-ground where there is a mix-and-match of companies staying and going.
If you’re in a country which doesn’t have strongly protectionist measures, then every company is at risk of becoming uncompetitive to the one of their competitors who decides to take the plunge. Once one of them moves abroad, all of them more or less have to go as well.
Conversely, if you’re in a country which does have strongly protectionist measures then businesses in countries that don’t will have a price advantage over your domestically produced goods, because they’ll be taking advantage of global wage disparities while yours won’t. So now the government has to not only keep its domestic businesses from sending jobs oversees, they also have to block foreign products from their market. This, then, limits quality and availability.
In a global economy, natural resources come from wherever they are naturally prevalent. Particular goods and technologies come from the places where there is a history of practice and a lot of hands-on experience. If Turkey wanted to get into the semiconductor business, they have a long uphill battle to match the technology which most people are used to today, let alone keeping pace with ongoing developments. And that’s supposing that they have access to the natural resources they need, and that they aren’t trying to split their population among so many different industries that they simply don’t have the manpower to keep up with global technology.
Given that technological innovation is the key component of better medicine, a better standard of living, etc. falling behind is not a good thing.
Another technological innovation that has to be taken into consideration in international trade: giant-ass container ships that hold so much cargo that the per-unit shipping cost is cheap enough to move almost anything across an ocean economically.
And new jobs now exist, designing and manufacturing robots, that didn’t exist before. The end result is more productivity all around.
It’s not just a news bias, it’s a fundamental information bias. This is a fundamental problem in economics often called the Broken Window Fallacy. Basically, some effects are easy to see, and some are not. It’s easy to see that a person who used to be employed in a factory that has closed is affected by the closure of that factory. It’s much harder to see that that factory closing is part of a pattern of industrial change that’s leading to more efficient production and making most people’s lives better on net. It’s easy to see people who are unemployed because the company they work for was out-competed by a foreign company. It’s hard to see people who are employed (or better employed) because they company they work for is exporting more.
It’s not just that no one is going to read a story about air conditioners being slightly cheaper. It’s that it’s difficult to even prove the connection between trade policies and a specific price reduction.
The economic winners of freer trade are well dispersed and hard to catalog. The losers are clear and obvious.
Thanks for your analysis, which I agree with. This part is helpful in remembering how to think about the question.
iamthewalrus(:3=, that is also helpful.
This makes me think of an idea in Japan about earthquakes redistributing money. And in Japanese mythology, it is said that a giant catfish living beneath the Japanese islands causes earthquakes, so there are lots of traditional prints showing catfish showering down gold after an earthquake.
I’m quoting this post in full because it’s worth re-reading. The OP’s question was about free trade and I focused on that but if you want to know what happened to manufacturing jobs in America, you are right that automation and technological improvement is the bigger story. The United States makes more manufactured goods than ever but it uses fewer people due to better technology.
Of course, it’s unfair to say we aren’t leading on innovation. I don’t know if there’s an empirical answer to who’s leading but we are innovating a lot, which allows us to make more goods with less labor. That’s tough if you are the labor but it’s hardly a failure of American innovation.
Ideally we would recognize that manufacturing jobs aren’t coming back in the same number and we would train those people to do better jobs in a modern economy. We can use some of the same skills to install solar panels. We can retrain others to provide healthcare or work with new technology.
But, in truth, it will be really hard to retrain every underemployed former autoworker as a software engineer. It’s not because they aren’t smart enough to do the work. They are. It’s but because (1) it might take years of retraining to make an autoworker into an engineer and if you are dealing with a guy 25 years into a 45 year career, four years of retraining doesn’t leave a lot of time to repay the investment and (2) if we retrain that many displaced workers to do those high-paying engineering jobs, we will likely push down wages in that field until the jobs aren’t that desirable anymore.
Again, one solution is to recognize the costs and benefits of globalization and technology, and then to capture some portion of those benefits to provide a social safety net to the people bearing the losses. That means retraining for some. It might just mean supplementing the wages of laid off workers who go from well-paid at the Ford assembly plant to Wal-Mart. It might mean universal health care so that even people who get sick don’t have to worry about choosing between medicine and rent.
Thanks for that. I’m glad you appreciated my post too.
I did not comment on the balance of trade, which is really outside the discussion. My point is that there are items which typically fall outside the free trade discussion, but can have as big an impact as (and function very similarly to) tariffs, which free trade seeks to eliminate. Not addressing the balance of trade does not in fact make this point invalid, economically or otherwise.
My argument certainly wasn’t (nor was anyone else’s, I don’t think) that the ideal outcome for any particular player is a consistent trade surplus. All that means is that you accumulate a big pile of colored paper representing other countries’ currency.
To further articulate my point, perhaps if trade is not fair, it shouldn’t be free. In other words, tariffs can be a way to force other countries to adhere to similar standards, allowing for Mtd true cometition.
This isn’t really true, and mixing in union-management politics into the mix does a disservice to clarify the situation.
Automation is being phased in due to the ability to manufacture a higher quality product, faster. That accounts for about 99% of the decision making when investing in an automation line. All the human factors you mentioned up there are not really factors, in fact robots also need upgrades, maintenance downtime and expenditures, need to be operated in a safe manner, both for people around them and for themselves, etc.
And another: people who are making a good living at home will not need to emigrate someplace else in order to feed themselves and their children. It’s a big reason for the slowing-down of Mexican emigration.
But if you leave out the balance of trade your point isn’t very meaningful, which is why I brought it up though you hadn’t. Let’s say there’s ‘unfairness’ in a trading partner’s practice, and leave aside for a moment the total subjectivity and lack of economic definition of ‘unfairness’. So what? Other countries should adhere to similar standards why exactly? If the fair trading country sells them just as much stuff as it buys, why does it matter if the trade is ‘fair’? I think in trying to think about that one could start to understand why there’s no validity to requiring free trade to be based on some comprehensive ‘fairness’.
Bolding mine.
In general I agree that “fair” is a vacuous concept, at least as used by pols and activists.
Ref the bolded part, the assumption is that unfair trade cannot produce balanced trade. IOW, your IF is impossible and therefore your THEN is false/irrelevant to real world conditions. And I think this assumption has a pretty good chance of being true as it relates to direct labor costs and to environmental standards. You will certainly find the captains of industry arguing so. Doubly so that even slightly higher rates of corporate taxation make basing enterprise *here *versus *there *totally unfeasible.
The obvious problem is defining the boundaries of “fairness”. The US worker has a vastly larger home market than does the German or English or French worker. And more installed capital per worker. The German worker has better apprenticeship training and health care. The Chinese worker has, well, a willingness to work for 10% of what the US or German worker will.
How do we trade off all these differences to arrive at a master formula for “fairness”? As you say, it can’t be done.
This is the real point:
As with AGW, the environment (world of work) is changing faster than the ecosystem (workers) can automatically and spontaneously adapt. So we need to either slow the rate of change, or provide some artificial help to ameliorate the consequences of changes we can’t / won’t prevent.
We are also seeing a secular change that the returns to capital are going up and the returns to labor are going down. As tech in all its forms gets ever fancier that trend will only continue and grow, perhaps at an increasing rate. What we see today is but an early dress rehearsal for the dislocations to come as AI begins to make small inroads in white-collar jobs just as increasing automation has made vast dislocations in blue-collar jobs. And as the falling cost of transport (coupled with the ever-reducing weight of a dollar of production) has made planet-wide supply chains economically possible and therefore put every laborer and every regulatory regime into direct competition with every other.
If capital (and hence its returns) were widely distributed amongst the population these developments would be OK. When the 0.1% own 3/4ths of it, and thereby derive 3/4ths of the total benefit there’s going to be social dislocation.
The solution therefore is obvious. There must be a mechanism that causes (substantially) all the populace to participate in the returns to capital. There are lots of ideas on how that might be done. But that will be necessary soon enough. Best to start thinking seriously now, while there’s still a civic bargain that includes most, if no longer all, citizens.
Here’s a 4 year old link that has more detail on global and regional household wealth distribution. Zerohedge.
I overstated the concentration of wealth above. Four years ago the top 0.6% owned 40%. Things have gotten more concentrated since then, but I can’t quickly find good data.
The wealth “pyramid” looks more like an Eiffel tower or maybe a bill spike (https://www.google.com/search?hl=en&site=imghp&tbm=isch&source=hp&q=bill+spike&oq=bill+spike). When, in a few years, substantially all the economic returns to all economic activity are distributed that same way we’re going to have … issues.
Sorry to triple post; I realize I lost a couple sentences in editing and pulled my punch on the first part replying to Corry El. Quoting myself for context:
… But that doesn’t mean these differences are economically irrelevant. They absolutely DO feed into how trade flows operate, and more importantly, how they evolve over time. So they are legitimate areas for economic and social policy to consider.