Free Trade Doubts

A recent Wall Street Journal article highlighted the increasing anxiety the free trade agenda is causing, even in areas that have been considered to be “free trade winners”. The focus of the article was the state of Iowa, where agricultural exports and farm manufacturing exports have made the state a net winner in the trade wars.

Iowa, as much as any other state, is on the plus side of the ledger, says James Leach, a 30 year Republican congressman from Iowa who now runs Harvard University’s Institute of Politics. ‘It would be highly ironic if protectionist candidates prevailed in the Iowa caucuses.’

Iowa has John Deere and Maytag as major employers, but despite the increasing demand the manufacturing sector has some problems that have created unease even amongst those that continue to do well.

But the past couple of decades have seen a steady decline in once prized factory jobs, from a high of 252,700 in 1999 to 231,000 today. Just this year, Iowa lost about 1800 jobs when appliance maker Maytag, now owned by Whirpool Corp., shuttered its plant in its home town of Newton. (The jobs moved to Ohio, but foreign competition was a key reason Maytag was acquired by Whirpool.) Wages haven’t kept pace with inflation, and employers here, as elsewhere, have been paring health and retirement benefits.

Even those currently employed express grave doubts about the future.

The moods of even the most fortunate workers are clouded by unease. At Morg’s Diner in downtown Waterloo (pop. 68,747) Deere & Co. worker Tim McBride, 51 years old, knows he is one of trades winners. Thanks to record commodity prices and large overseas demand for crops, Deere has been adding 25 workers a week. Mr. McBride expects to earn about $85,000 this year as a member of a team that improves productivity and quality at the companies drive-train plant. But a year long layoff in 1984, when a strong dollar was crimping U.S. exports, seared him. More than two decades later, Mr. McBride worries that foreign competition could again put him out of a job. Tucking into a butter drenched pancake, he laments the ease with which a global economy enables companies to shift jobs to lower cost countries. ‘If the people in the United States worked for a dollar an hour, we still couldn’t compete,’ says Mr. McBride.

The Journal article also talks of the tension created by tiered compensation labor agreements, agreed to by the U.A.W. at the Deere plant in Waterloo. New hires mix with veteran workers who make substantially more. Again, many of those entry level workers blame the effects of globalization for depressing wages.

So where does that lead the candidates running for President?

“My sense is that the families of Iowa have now concluded that the modest benefit to them from cheaper goods that flow through Wal-Mart have been overwhelmed by stagnating wages,” says Leo Hindery, the former cable-tv chief who is now the top economic policy advisor to Mr. Edwards. “Iowa, like a lot of states, looks back at NAFTA and says,’NAFTA did not work as promised.’ ” Mr. Edwards criticizes NAFTA, which eliminated tariffs and other barriers between the U.S., Canada, and Mexico, as bad for workers, saying it needs to be “revised” to include labor and environmental standards.

Both Hillary and Barack have criticized NAFTA, and both have been critical of Chinese currency manipulation. Even the Republicans have joined some of the trade criticism, with McCain and Huckabee both at least giving lip service to the damage being done to American workers by free trade. Romney, on the other hand, continues to extoll the virtues of free trade, calling for additional trade deals, and he leads the Republican pack in Iowa. Guiliani, through a spokesperson, spoke favorably of trade deals and hit the Democrats.

“Trade is a valid issue to discuss,” says David Malpass, an economic advisor to former New York Mayor Rudy Giuliani, another Republican candidate. ” The mayor wants to discuss it in optimistic, growth oriented terms, rather than taking the attitude that Americans can’t compete with the Chinese, which is at the core of the Democrats position.”

It appears that Rudy feels that displacement and wage depression are simply part of the “growth agenda”, which should endear him to the Republican Club for Growth, but probably will not help him in industrial areas hard hit by foreign “competition”. I just cannot see the logic of allowing our dominant marketplace to be used to foster foreign job growth (at the direct expense of our labor force) and then borrowing the money to buy all of these foreign products. It is a policy that in my view is leading us to the brink of a huge drop in living standards in the United States in spite of some of the obvious benefits of free trade.

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