Angus King H’07, a distinguished lecturer at the College since 2004, is a regular contributor to the Bowdoin Daily Sun. In his latest post, the former two-term governor of Maine argues that free trade isn’t all that it’s cracked up to be.
Imagine the governor of one of our states going to the Congress and making the following argument:
“We are a small state that is struggling economically; we’re predominantly rural and would like to expand our manufacturing base. But it’s hard because we’re subject to those onerous federal environmental laws, which make building factories more expensive, as well as those pesky federal safety and wage and hour laws, which drive up the cost of labor.
“So we would appreciate it if you would exempt us from all those laws; then, we could attract jobs from the rest of the U.S. and sell our products for less than what they would cost to make in the other states. Consumers in the other states would get cheaper goods and we’d get lots of new jobs. And maybe, eventually, our economy will improve to the point where we can buy stuff from the other states as well. So how about it?”
Sound preposterous? Absolutely; the guy would be laughed out of Congress and not even get through the door at the White House. And yet, this is essentially what happens when we sign a free trade agreement with another country, especially one with minimal environmental and labor laws. In terms of trade and access to our markets they are, in effect, becoming states—no tariffs, no borders, no hassles—but very special states, indeed, exempt from the rules that apply to their competitors unlucky enough to still be located in one of the original 50.
…what have been the results of this deal over the past couple of decades? Nothing less than the hollowing out of the American economy.
Pretty nice deal—rights (including access to the richest market in the world) without responsibilities.
And what have been the results of this deal over the past couple of decades? Nothing less than the hollowing out of the American economy. It now appears that the financial boom of the nineties was largely fake—little real value was created (but a lot of people got very rich without producing anything)—and it papered over (literally, in many cases) the real story of the last twenty years, which is the stunning decline in U.S. manufacturing. Between 2001 and 2009, we lost over 42,000 factories (you read that right, it’s factories) and more than five and a half million manufacturing jobs, representing an amazing 32% decline in manufacturing employment in less than a decade.
Obviously, this isn’t just about trade. Technology itself, for example, eliminates jobs by making workers more productive. But it’s hard to argue that trade policy didn’t have a lot to do with it when the identical products that were once made here are now made offshore, often under the same label. Just here in Maine, Hathaway Shirt, Cole Haan, Bass and Dexter shoes, as well as countless small wood processing mills come easily to mind.
This came home to me in less abstract terms the day I went to the closing of the Hathaway Shirt factory in Waterville. (I always felt that if I got to go to the celebrations—ribbon-cuttings and such—I should also go on the not-so-fun days as well). After reassuring the workers that we would provide training and transition support and that better opportunities were around the corner, I went down the line of the soon-to-be-jobless workers shaking hands. Most were downcast but reasonably cordial, until I got to one woman toward the end of the line. She refused my offered hand, looked me in the eye and said, “Why should I shake hands with someone who let them ship my job away?”
I had no good answer, and I still don’t.
The classical concept of open markets and free trade makes perfect sense between societies on more or less the same political, economic and social level—the U.S. and Canada, Germany and France, the UK and Denmark. Healthy competition will make businesses in each country more creative and productive and consumers in each country will gain the benefit of the efficiency and productivity engendered by the competition. But all those countries share a baseline of rules, assumptions, and economic expectations so the competition is all about productivity, not who can have the lowest environmental standards or labor costs.
(By the way, this is why the no-federal-regulation-of-anything philosophy that is emerging in the Republican presidential campaign is so dangerous. It’s my opening case multiplied by 50—and the race to the bottom among states (all in the name of being “business-friendly”) would make your head spin. “Wetland laws in Vermont slowing your construction plans? Come on down to Texas and get your permits before you even apply!” I have first-hand knowledge here; I vetoed increases in Maine’s minimum wage laws more than once out of concern that if we were substantially above the national baseline, it would add to the perception that we were anti-business. In other words, the pressure is already there; take away the nationwide standards that form a floor on environmental and labor issues and it will be “Back to the Future”—fifteen years from now will look more like 1920 than anything we’ve experienced in our lifetimes.)
A one-third decline in manufacturing jobs in eight years ain’t evolution, it’s revolution and a most unpleasant one at that.
Now, I understand that protectionism is generally not a good idea and that the Smoot-Hawley Tariff contributed to the severity of the Great Depression. I also know that businesses move and seek lower cost locales wherever possible and had been doing so long before NAFTA and the admission of China to the WTO (the empty mills in New England pre-date both), but two things make the current situation different: time and the living standards gap between us and our new trading partners.
By time, I mean the acceleration of the time it takes for major economic changes to take place. The shift of textiles, shoes and furniture from New England to the American south took a couple of generations, from the late forties to the late nineties. This gave individuals, communities and the region time to adjust while the changes took place. Now, the changes are much more abrupt—the economy of a whole town or region wiped out in matter of months or a few years instead a more gradual change over decades. A one-third decline in manufacturing jobs in eight years ain’t evolution, it’s revolution and a most unpleasant one at that.
The second difference between the current situation and historical trends is the vast gap between the laws and expectations of industrialized countries and those of the desperate-to-catch-up third world. Environmental protection costs money; keeping workers safe costs money; paying workers a wage sufficient to survive economically in our economy costs money—and there is simply no way our manufacturers can compete over the long run with their counterparts (often other U.S. companies) in places where these costs are either minimal or non-existent.
I remember being approached by a Maine manufacturer of tools who wanted me to understand why he had outsourced one of the parts of his product to China. “Most people don’t understand the cost difference,” he said. “Here, the part costs me about $14.00. Having it made there, the identical part is about $3.50, delivered.” I literally felt a cold shiver pass through me, and subsequent events haven’t made it feel much better.
I’m convinced that one of the reasons this keeps happening is that our media and political elites are physically located in places largely immune to the real impacts of this reverse tidal wave. They literally don’t see it. If the Congress met in Dayton, Ohio, or Schenectady or Wilton, Maine, or any one of thousands of struggling towns scattered throughout the country, I suspect they would be much more reluctant to let this happen without more of a fight.
So should we slap high tariffs on imported goods or quotas to restrict what comes in? Probably too late for that in most cases—and the result would be an immediate increase in prices which probably wouldn’t be the best thing as we struggle to get out of the recession we’ve been in off and on for the past ten years. But as we talk about new deals and the renewal of old ones, I think we should be much more aggressive about the price of admission to our markets—some measurable progress on environmental laws (do you have clean air and water standards or not?), real labor protections, and respect for intellectual property would be a good place to start.
We wouldn’t let Maine or Mississippi duck the standards; why should Colombia get a pass?