Free trade is constantly being blamed for America’s trade deficits and static living standards. It’s not true!
First, it’s questionable that living standards have not increased. Consider the iPhone, Uber, and Amazon’s time saving convenience and prices—all these effects upon living standards can’t really be measured and economists’ analyses don’t include events which they can’t measure. Their profession is built upon measuring what they are able to measure. Secondly, average Americans see imports from China and Mexico first hand at Walmart when shopping for simple household goods. They don’t see the multi-billion dollars of exports of jet aircraft, armaments, movies (just one can earn the U.S. some half a billion dollars), computer chips, oil drilling equipment, some $130 billion of agricultural exports, and vast other quantities of hi-tech goods and knowledge products. Foreign tourist spending in America is also less noticeable to many.
Moreover trade deficit statistics are very misleading, as Time reports, as China’s apparent billions of export surplus includes iPhones. But actually only $10 on each phone is “earned” by China for its assembling; inputs of costly vital parts come mainly from Japan, Korea, Germany, and the U.S. But their costs as Chinese imports are not shown in the trade deficit figures with America. Most of the cost and profits stay in America from the intellectual property rights and patents. Manual assembly lines in China lower the cost enough as to make them affordable for millions; if they were assembled in America, as Donald Trump proposes, their cost would be prohibitive. An excellent article in Slate explains Apple and the whole framework of modern world trade. Appreciation of China’s currency would have almost no effect on the end price of an iPhone as this study shows in a detailed breakdown of the manufacturing process and the non-Chinese inputs.
Beyond all the above, Big Media rarely explains the stifling, monumental costs of many Washington impositions and regulations. These add tremendously to the costs, particularly for American manufacturers. Services are less burdened, which is one reason for their exponential growth and export surpluses.
Here are six reasons for stagnant growth:
1) America’s monopolistic and dysfunctional health care costs eat up double the percent of gross national income that they do in Europe, some 17 percent. Several years ago, I wrote how Canadian auto workers’ health insurance costs were just 10 percent of what American car companies pay. Every American worker is costing his or her employer some $10,000 for health insurance plus now they must pay all sorts of co-pays and deductibles. Ford pays some $15,000 per year per worker. Imagine these costs for our manufacturers compared to foreign competitors. Indeed it shows the tremendous productivity of American workers that we create as many jobs as we do.
2) Free trade is often blamed for the decline of blue collar jobs in America. Actually robotics and information technology are the major causes. But it is the Environmental Protection Administration that is the next major cause of lost and non-created jobs. The number of ways is incalculable (see my article “The EPA Job Killers”). The EPA likes jobs such as working at computers or flipping hamburgers. But not ones involving bending metal or digging in the earth. Just one new regulation, cutting ozone levels from .0075 to .006 particles per million, will cost industry from $20 to $100 billion per year. Think how horizontal fracking for oil and gas is virtually prohibited on all federal lands, some half of the country west of the Mississippi. Yet this is one of the greatest inventions of the 21st century, making America energy independent and providing low cost energy into the foreseeable future. In a similar vein, the EPA enforces Clean Air Act limits over the desolate Arctic Ocean at the same level as in densely populated cities. The ruling caused Shell Oil to lose a year in its Arctic drilling program.
The cost in businesses which never start up is unknown but high. I have written how new mining ventures are virtually prohibited on Western lands. Yet mining could provide lots of very well paying blue collar jobs and cut our trade deficit in mineral imports. (The Competitive Enterprise Institute has explained this well in “Ten Thousand Commandments –An Annual Snapshot of the Federal Regulatory State.”)
3) Spurious lawsuits are another great burden for American exporters. We are so accustomed to them now that few commentators write about their costs and taking of executive focus and time. Some of them may indeed make life safer for some Americans, but we should not blame “unfair” foreign competition when we add up the costs of lawsuits or defensive measures, such as in medicine, for example.
4) Our education system does not prepare young people for high-tech or even high-grade manufacturing. Good basic skills with math and reading comprehension are necessary today even for factory workers, as machines take over the dull, repetitive jobs. Just try reading today the labels on home chemicals or furniture. Manufacturers are crying for prepared workers. Some two million jobs are unfilled today because of lack of basic education, what used to be provided by 8th grade in the old days. Also industry does not train workers like it once did, in fear that the costs won’t help the short term bottom line of profits upon which stock prices and so many bonuses for executives are usually based. Industry trade publications recognize this problem. Think of reports of how German corporations are less fearful of hostile takeovers, and so invest very heavily in worker training. Washington could help this situation by adjusting tax laws so that training costs did not impinge upon corporate earnings.
5) The politics of global warming (now called climate change) is causing major non-recoverable expenses. Obama’s veto of the Keystone XL pipeline not only cost very well paid construction jobs, it also means using resources less economically, e.g. shipping oil by costly rail instead. Extreme environmentalists, spurred on by their victory in shutting down coal mines, are doing all they can to shut down horizontal fracking of oil and gas wells with new regulations. This, when the breakthrough has brought America energy independence and the long term prosperity which comes from cheap energy. Together with the iPhone, these two technologies have put the American economy back on top of the world.
6) New threats from Obama’s Washington are looming all the time. For example, a new enormous burden is being generated by the pay-equity police. Companies will have to report incredibly minute details to “prove” different pay for different jobs. This does not mean that they are discriminating against women. Just imagine the complications from new lawsuits! The Wall Street Journal reports how companies “will be required to report on employees by 14 different gender/race/ethnicity groups, within 12 pay bands and 10 occupational categories. The companies will also have to report the number of hours worked per employee—even for salaried staff, whose hours now are not normally tracked. Firms with multiple locations will have to complete such forms for each branch with more than 50 employees…” Just imagine how many other destructive arrows are in the government’s quivers and aimed at increasing manufacturers’ costs.
Job creation in America, particularly blue collar jobs, could be vastly increased by rebuilding our crumbling infrastructure. Here again it is government regulations (often municipal union rules as well) which make for incredible costs and years of delays. An interesting study shows how Europeans build their infrastructure for many times less cost that America’s. An extreme example is the comparison of the cost of a tunnel in Berlin, $250 million per kilometer, compared to $1.3 billion in New York City, or five times as much.
Increased world trade has also helped bring relief from starvation and disease to billions of human beings. In 1990 a third of the human race lived in extreme poverty; today it is 10 percent according to a World Bank study. We should, in a religious sense, be very proud of what American policies and free market ideology helped accomplish for mankind. In a strategic sense we should help and be more secure by having prosperous, stable neighbors. Isn’t that worth some tradeoffs? Think, if we shared borders with some of those miserable nations of Asia and Africa, how insecure we would be.
Even partially correcting some of the above issues would vastly increase the competitiveness of “Made in America” goods and stop many jobs from going overseas. The challenge comes not from China but from ourselves. Cutting off foreign imports won’t bring a net increase of American jobs. Foreign nations would retaliate against our exports, but also would have less money to import American goods and services. World trade and prosperity, including ours, would decline precipitously as it did in the 1930s from a similar protectionist program, Smoot Hawley.
Jon Basil Utley is publisher of The American Conservative.