- The Washington Times - Tuesday, February 25, 2003

President Bush's recent press conference on strengthening America's economy used cargo boxes as props with their true "Made in China" labels covered over, showing theoretical "Made in USA" labels.
This was just another act in a decade-old vaudeville routine of naive "free trade" theories. Increasingly, only the excuses are really made in America.
Americans borrowed and spent $2.4 trillion more for goods and services than we made in just the past decade. America is now the world's largest debtor, by far. And we are today borrowing or selling off assets at the record rate of $1 million per minute that's one-half trillion dollars a year just to sustain our great lifestyle.
Free Trade Vaudevillians shout that "foreign direct investment" (FDI) in the United States shows investor confidence. But the details reveal virtually all FDI is merely acquiring firms like Chrysler and Paine Webber for their worldwide assets.
Commerce Department reports show foreign trade has reduced gross domestic product (GDP) growth in 10 of the last 11 years, for an unprecedented total loss of more than 5 percent of GDP. The trade deficit likely reduced the meager growth rate in the last quarter of 2002 by more than one full percentage point.
This is the key reason that even during the asset-bubble economy of the 1990s, with a massive rise in private debt that has not vanished, U.S. growth trailed far behind world growth and was only one-third of China's growth rate.
Replaced by imports, U.S. output has not kept up with population growth and our own market. Last year, U.S. production of autos, trucks and parts fell $123 billion short of our own domestic market needs. We paid $203 billion for foreign-made automotive goods and earned just $80 billion from exports. Our $152 billion deficit shortfall just for office machines, TVs and clothing was triple our surplus for all traded services which has fallen to an 11-year low.
Federal Reserve Chairman Alan Greenspan and others have finally spoken out about the immense pressures this unsustainable trade deficit puts on financial markets. Some catalyst terrorism, an accident, a rumor could cause interest rates to soar, the dollar to plunge and global financial markets to go into another of their now too familiar crises.
But the real, looming economic problems created by our huge and sustained trade deficits are far worse than immediate financial concerns.
The best global corporations and new technologies radically transformed trade from when it was mostly between developed countries and driven by who made the best product. Trade now undermines, rather than raises, current and future prosperity as firms outsource their most productive research, industries and jobs to places like China, which are far less productive but have vastly lower regulatory and wage costs.
Long gone are the days when the United States imported mostly oil and basic commodities while producing a surplus of sophisticated, high-value-added goods and services for export. Commerce Department data show the United States plunged into trade deficit last year even for our most advanced technology products, such as navigational and communication devices, high-tech machine tools and medical equipment.
Last year, Americans paid $28 billion more for computers and computer parts than we earned from exports. This was $5 billion more than our entire net earnings from so-called intellectual property royalties and fees on all software, movies and Wal-Mart franchise fees abroad.
Outsourcing and imports are destroying millions of our best, most productive jobs in electronics, machinery, aircraft, autos, computer programming and engineering. They are being replaced by low-wage, labor-intensive jobs that cannot be outsourced in areas like healthcare, education, criminal justice, home repair, building security and local government.
This downward shift, and the price pressures on those jobs that remain, is why wages are now barely keeping up with inflation rather than growing by 4 percent per year as they did a generation ago. The shift also undermines tax receipts, worsening the exploding federal, state and local debt problems and service cutbacks.
There always have been people opposed to laws that require a minimum wage, prevent dumping toxic sludge in our streets, assure food safety or prevent predatory pricing from driving out competition. Many of these people have found support in the free-trade movement, both by outsourcing their production to China and other countries, where dictators or others prevent enforcement of such laws, and by declaring that now we must eliminate our own U.S. laws to be "competitive."
Extreme, unregulated global commerce is clearly hurting United States and world prosperity. It must be immediately and forcefully reformed in the best pragmatic traditions that made our country great.

Charles W. McMillion is president and chief economist of MBG Information Services, and former associate director of the Johns Hopkins University Policy Institute.


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