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TONELSON: Defining trade-policy failure out of existence
Question of the Day
Even though the spotlight has shifted toward Mitt Romney's tax returns and Rep. Paul Ryan's Medicare plans, job offshoring and related issues are sure to re-emerge in campaign 2012's climactic phase.
Whenever barnstorming through industrial battlegrounds like Ohio (and especially Ohio), the national standard-bearers will resume extolling domestic manufacturing, vowing to combat China's trade cheating, etc. And most of the commentariat will keep scolding them for pandering to ignorant, xenophobic voters — apparently for fear that the barbarians might actually one day overthrow America's current international economic policy regime.
No one can know if the chattering class's alarm will ever be justified. But after five years of dismal national economic performance, another question has become at least as compelling: What would it take to persuade the trade status quo's defenders that the riffraff is right about their favored policies?
After all, evidence of failure isn't exactly scarce — even if often ignored by the national media. For example, is the nation's approach to the international economy — highlighted by expanding trade with even stubbornly protectionist countries, coddling predatory foreign practices like currency manipulation, and defending American interests mainly through sporadic World Trade Organization complaints — promoting economic growth for this growth-starved economy?
That's not what the national income accounts show. As soon as the recovery technically began rebounding in mid-2009, so did the U.S. trade deficit. And long-standing economic doctrine holds that expanding trade deficits subtract from growth. Indeed, the trade deficit's current resurgence has slowed economic expansion by nearly 12 percent, after inflation — not chump change, given the overall 1.5 percent annualized real growth rate.
Are America's trade policies at least easing the jobs crisis? Nobel Laureate Michael Spence has looked at the 1990-2008 period — roughly from current trade policies' inception to the financial crisis' outbreak. His conclusion: Only about 2 percent of the 27.3 million net new U.S. jobs created during that period came in sectors of the economy substantially affected by trade flows. Government data, moreover, show that the economy's most trade-exposed sector — manufacturing — lost nearly 5 million jobs in those years.
But at least trade is making America more productive, right? Recorded U.S. productivity growth is related to trade expansion, but mainly not in ways that strengthen the economy. According to the U.S. Labor Department, which calculates productivity, between 1997 and 2006 (a major trade-expansion period), nearly a quarter of the reported average annual growth in manufacturing labor productivity stemmed not from technological progress, or managerial innovations, but from job offshoring.
For the Labor Department's productivity formula didn't incorporate the mounting foreign-labor content of goods considered "Made in America." It simply subtracted the American labor content — i.e., workers — that this production offshoring replaced, and concluded that the overall worker hours needed to make these goods had shrunk. The department's methodology still blithely defines much foreign-labor content out of existence.
Purist trade supporters, of course, care less about the welfare of individual economies than about the world's collective welfare — ostensibly best guaranteed by the global efficiencies fostered by unfettered trade. But the latest World Trade Organization data show that from 2000 through 2010, the biggest global export winners were countries where governments dominate economic activity — like China and South Korea. The biggest losers' list is filled with more market-oriented countries, such as the United States, Britain and Canada. So either governments now allocate capital and resources better than the private sector. Or trade is backfiring from this global efficiency standpoint, too.
Given the record, the commentariat's failure to acknowledge even the possibility of trade-policy failure should worry all Americans. After all, the determination to ignore all contrary evidence is a time-honored way to defend religions and ideologies. But a promising formula for national economic success? Not so much.
• Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. Author of "The Race to the Bottom," Mr. Tonelson also is a contributor to the council's website, www.AmericanEconomicAlert.org.
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