Griswold on NAFTA, Manufacturing, and Ohio

by Don Boudreaux on March 1, 2008

in Trade

In today’s Wall Street Journal, Dan Griswold, the outstanding trade scholar at the Cato Institute, exposes Clinton’s and Obama’s anti-trade yammerings in Ohio for what they are: ignorance informed only by the grotesque desire to win political office by pandering to many voters’ delusions.

Here are some key passages:

But tinkering with a 14-year-old trade agreement [NAFTA] will
not bring an industrial renaissance to Youngstown and other Rust Belt
cites. The relative decline of those regions dates back to the 1960s
and 1970s, when the American economy began a transition from heavy
industry toward an information-based service economy.

Ohio workers would pay a heavy price for pulling out
of Nafta. Canada and Mexico are the top two markets for exports from
Ohio, accounting for more than half of the state’s exports in 2006.
According to the Ohio Department of Development, 283,500 workers in the
state earn their living in the export sector, with machinery, car
parts, aircraft engines and optical/medical equipment among the leading
exports. A trade showdown would put those good-paying jobs at risk.

Since Nafta took effect on Jan. 1, 1994, the U.S.
economy has added a net 26 million new jobs. The average real hourly
compensation (wages and benefits) of workers has climbed 23%. Real
median household net worth has increased by a third. Of course, Nafta
was not the primary driver of all that good news. But it is a useful
counterpoint to the sense that large numbers of Americans have been
"devastated" by Nafta and other trade agreements.

In recent years, U.S. manufacturers have enjoyed record
output, revenue, exports and profits. Since Nafta, U.S. manufacturing
investment in Mexico has averaged a modest $2 billion a year — a tiny
fraction of the $150 billion or more those same companies invest
annually in domestic manufacturing capacity. American factories
actually added a net half-million new manufacturing jobs in the five
years after Nafta.

The loss of manufacturing jobs in Ohio and elsewhere
since 2000 is the result of increased automation and our own domestic
slowdown. U.S. factories are producing more and better stuff with fewer
workers because their workers have become so much more productive.

Behind this trend has been a shift of production down
South to nonunion, right-to-work states, and up the value chain to more
technology-intensive products. After 15 years of expanding trade, U.S.
factories today are producing fewer shirts, shoes and lower-end
auto-parts, and more pharmaceuticals, chemicals, semiconductors and
sophisticated machinery and equipment.

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{ 36 comments }

OregonGuy March 1, 2008 at 11:10 am

Has Lou Dobbs been sent a copy of this?

Seriously. Hasn't Mr. Dobbs received at least some part of an economist's classical education? Even it he can't work with models, the historical evidence of the pernicious impact of the Corn Laws would give one clear,historical evidence that trade barriers tend to do more harm than good.

Or does he simply save himself from being wrong by not jumping to this conclusion?

David White March 1, 2008 at 2:03 pm

However much I hate to disagree with Mr. Griswold (who just happens to be my first cousin), government-negotiated trade agreements only facilitate the wage arbitrage that is gutting the American middle class. Coupled with the Fed's relentless depreciation of the "dollar" (i.e., the unconstitutional Federal Reserve Note that has lost over 96% of its value since it was created, 30% of that coming in the last eight years), it is clear to those whose eyes aren't wide shut that after years of exporting jobs, hence inflation, to slave-laborers overseas, inflation is now coming home to roost, even as the job exodus accelerates.

In the end, it's all about a 37-year-old global monetary fraud based on work-free (non-savings-based) money and credit. And as the welfare-warfare colossus built on that fraud collapses under the weightlessness of its accordingly counterfeit money, Americans are going to come face to face to what Ayn Rand well knew:

"We can evade reality, but we cannot evade the consequences of evading reality."

(Trouble is, the American people, being too docile, dumbed-down, and dependent to know what's happening to them, will demand even more reality evasion. And their professional reality evaders in Washington will of course be only too happy to provide it.)

FreedomLover March 1, 2008 at 2:41 pm

Correlation is not causation. I feel NAFTA has very little to do with the net job creation. Job creation is more of a function of overall good business climate(taxes, regulation) and free trade policy with the whole world.

David White:

It's true that unfettered globalization has led to wage arbitrage for many types of jobs. However, new types of jobs are also being created that you and I aren't even aware of. The current unemployment rate as of Jan 2008 is 4.9% which most economists consider full employment.

FreedomLover March 1, 2008 at 2:46 pm

Has Lou Dobbs been sent a copy of this?

Seriously. Hasn't Mr. Dobbs received at least some part of an economist's classical education? Even it he can't work with models, the historical evidence of the pernicious impact of the Corn Laws would give one clear,historical evidence that trade barriers tend to do more harm than good.

Or does he simply save himself from being wrong by not jumping to this conclusion?

Posted by: OregonGuy | Mar 1, 2008 11:10:58 AM

Dobbs is appealing to those who have lost their jobs due to off shoring, outsourcing. They are angry men who must be appeased by someone. Dobbs fills the bill. Hey look if I lost my job to to offshoring and was already 50 and not about to improve my skills to compete with young guys I'd be pissed off and mad as hell. Since I'm not in that position, of course I approve of trade policies, I'm not hurting.

Martin Brock March 1, 2008 at 2:54 pm

If trade is so free, why don't Indian software developers immigrate to the U.S. in droves? Our population density is a small fraction of theirs, our infrastructure is far better developed, our housing stock is overbuilt and our software development industry is far more mature. As a senior developer, this influx would undoubtedly help my career, while preventing it simply encourages an exodus of the entire industry.

Why can't Arabs run ports here?

Why can't Chinese buy network equipment suppliers?

Because "free trade" treaties don't free trade. They manage trade.

Ohio will lose jobs when Hillary "pressures" Canada to accept more environmental and labor standards? Hah! They're pressuring us! Furthermore, the author knows it, so his spin on this "pressure" is every bit as disingenuous and politically motivated as Hillary's.

jpm March 1, 2008 at 2:54 pm

"Dobbs is appealing to those who have lost their jobs due to off shoring, outsourcing. They are angry men who must be appeased by someone." "Since I'm not in that position, of course"

No Dobbs isn't appealing to those angry men. He is appealing to those who would like to believe the myth that they exist during his period of historically full employment.

FreedomLover March 1, 2008 at 3:04 pm

jpm:

Are you saying that there aren't legions of angry white men whose jobs have been offshored?

Martin:

Are you are software developer?

Martin Brock March 1, 2008 at 3:46 pm

Are you are software developer?

Yes.

David White March 1, 2008 at 4:02 pm

FreedomLover,

I read an article recently (sorry, can't remember where) about how college students are training for jobs that don't exist yet. So I don't argue your point, except to say that fewer and fewer of those jobs are being created in the US (which I also read recently).

If you believe the government's unemployment figures, though, then I assume you also believe its inflation figures. I don't:

http://www.shadowstats.com

Martin Brock March 1, 2008 at 4:27 pm

I read an article recently (sorry, can't remember where) about how college students are training for jobs that don't exist yet.

College students always train for jobs that don't exist yet.

save_the_rustbelt March 1, 2008 at 5:29 pm

Clinton, Obama and McCain are running around Ohio promising everyone two chickens in every pot and a pony.

As long as the federal government is determined to reduce the real incomes of blue collar workers with trade deals and illegals none of this chatter matters much.

Politically (not economically) the losers from trade and technology are going to go with the populist message.

Please note that when Griswold wants to brag about economic statistics he uses national statistics rather than Ohio statistics.

Even George Bush, dumb as a brick, understand the income inequality problems we face. He just doesn't care.

The best way to protect free trade is to keep workers out of bankruptcy court and foreclosure proceedings. It is likely too late for that, populism has arrived.

Randy March 1, 2008 at 6:22 pm

Rustbelt,

Re; "…populism has arrived."

You mean, Fascism has arrived. Populism, since the time of the caesars, is a word describing a situation in which large groups of people lose faith in themselves and turn to a "leader". The "leader", of course, promises to fulfill their every desire – as soon as they give him (or her) the power to make the necessary "changes".

David White March 1, 2008 at 6:36 pm

Martin Brock:

"College students always train for jobs that don't exist yet."

Yes, but if you're training for a job that a technician in India or a robot in Indiana can do just as well, but cheaper, what, in fact, are you training for?

Or to put it another way, how can Don Bourdreaux ask "What's the Buzz?" and then defend the buzz coming out of the Stato Institute?

Martin Brock March 1, 2008 at 8:00 pm

Yes, but if you're training for a job that a technician in India or a robot in Indiana can do just as well, but cheaper, what, in fact, are you training for?

The wrong job. I don't know how old you are, but the competition probably isn't as perilous as you think.

First, I've been hearing the same scary story since I entered the work force in '84. Then the yellow perils were Japan, South Korea and other Asian Tigers. India and China were still perceived to be quasi-socialist basket cases. I'm still working. I've never had trouble finding work, even under some extraordinary personal circumstances, and I don't see a scarcity of opportunity or even a real decline in my income. It could happen, but it has never happened before, and it doesn't seem to be happening now.

Second, the more giants like China and India grow, the more pressure for further growth accelerates, and this growth requires their resources. China has five times our population, and the top 20% is roughly in the same league as the entire U.S. Increasingly, both internal and external pressures will drive China to produce more for its own consumption and less for export.

The internal pressure comes from a growing middle class hungry to consume what it now produces and a huge peasant population hungry for the same development that the top 20% already enjoys. The external pressure is the trade deficit and the falling dollar. We won't allow Chinese authorities actually to invest its dollar reserve in the U.S., except to pay us to wage wars they oppose.

Increasingly, the Chinese surplus is counterproductive from their perspective, because all they get from us is paper that they're only entitled to give back to us. We'll never repay the Federal debt. We monetize it, print money to repay it, and then we don't even let foreigners spend the dollars in the U.S. as they please.

Third, you hear a lot about how "hollowed out" the U.S. economy has become, how it's all a house of cards about to collapse. I don't really believe that. Sure, we import a lot, but we're highly developed with enviable infrastructure in reality. As the dollar falls, we may backtrack a little along the economic trajectory, importing less and producing more of what we produced previously and now import, but moving backward along this trajectory is much easier than moving forward.

The danger is that foreign economies leapfrog us and advance so far along a progressive economic trajectory that we can't easily backtrack to produce what they sell us, because we've never produced anything like it before. I don't worry much about it now, but I do worry that our own globalization of monopoly rights (like patents) will come back to bite us, so when we need to backtrack, we'll find that we've passed a law against it. We can produce TVs as they were 20 years ago, but we can't produce the better TVs that foreign producers sell us now, even though retooling to produce them would be easy enough for us.

Finally, the U.S. still has a tiny population density and much more developed transportation and communication infrastructure and housing stock. Our public education system leaves something to be desired, but formal education is probably oversold anyway. By most developmental measures, we're better positioned to grow. We really want to encourage increasingly productive factors in India, China and elsewhere to move here, so we can form synergistic organizations with them benefiting all of us. They're richer just by moving here, and we're richer by working with them here instead of working with them halfway around the world in different time zones.

"Free trade" doesn't have this effect. Instead, it can sell the right to produce for American consumption. Not only do we not produce what we consume. We may not produce what we consume, because some other nation owns rights to produce that our own corporatists sold them or rights following these rights in a developmental sequence. This reverse colonization is a scary prospect that we hardly ever discuss.

Or to put it another way, how can Don Bourdreaux ask "What's the Buzz?" and then defend the buzz coming out of the Stato Institute?

Better question.

David White March 1, 2008 at 8:49 pm

Martin Brock:

"China has five times our population, and the top 20% is roughly in the same league as the entire U.S. Increasingly, both internal and external pressures will drive China to produce more for its own consumption and less for export."

And thus do you provide the rationale for why you will indeed "see a scarcity of opportunity or even a real decline in [your] income." Why? Because the US economy is so in hock to the PBOC and other foreign central banks that without their purchases of US government debt (now around $3 billion a day) US bond prices will collapse and bond yields, thus interest rates, will skyrocket, collapsing both the US government and the US economy. China knows this and is only biding its time until the vendor-financing of its US exports has become intolerable — which Helicopter Ben is assuring will happen sooner rather than later.

Bear in mind: "The world's greatest superpower" is now the greatest debtor nation in human history. Therefore, what you are witnessing on a daily basis in Washington is but the rearrangement of deck chairs on the Titanic.

I hope you can work your way through it. Seriously.

Martin Brock March 1, 2008 at 10:20 pm

And thus do you provide the rationale for why you will indeed "see a scarcity of opportunity or even a real decline in [your] income." Why? Because the US economy is so in hock to the PBOC and other foreign central banks that without their purchases of US government debt (now around $3 billion a day) US bond prices will collapse and bond yields, thus interest rates, will skyrocket, collapsing both the US government and the US economy.

My real income could fall, because I'm very attached to Chinese and other imports. This fall could be painful but not catastrophic, particularly since all of my friends and neighbors would fall with me. Misery loves company.

The hock makes little difference, because we'll never pay it back. U.S. Treasury bond prices won't collapse, because the Fed will buy them, just as they're doing right now. The Fed won't throw U.S. citizens out of work in droves to keep Chinese central bankers happy, and the Chinese wouldn't really benefit anyway. They have all of these dollars now, and they're stuck with 'em. Reminds me of my favorite lines in Animal House.

"Hu, you can't spend your whole life worrying about your mistakes! You fucked up – you trusted us! Hey, make the best of it! Maybe we can help."

The problem is inflation, because the Fed creates the money from nothing; however, the money goes to Chinese bankers who can only use it to buy things denominated in dollars, and we won't sell them 3Com and other U.S. firms they'd like to buy, so they must find something else to buy or line their bird cages with the cash while we inflate the value out of it.

Collapsing the U.S. government? Woo hoo!

I hope you can work your way through it. Seriously.

I'll live through it at least.

Randy March 2, 2008 at 3:19 am

Martin,

My favorite lines too :)

FreedomLover March 2, 2008 at 4:15 am

Martin:

For once you're the voice of moderation. I would never have thought it based on your previous posting. Taking a happy pill today?

Martin Brock March 2, 2008 at 8:33 am

For once you're the voice of moderation.

I'm always responding skeptically to the posts I read, so I'm always the voice of moderation. Roberts is a happy talker, and that's fine with me, but it's still a bias warranting skepticism. I read Julian Simon too, and I have no store of gold, water and sea rations buried in my backyard, but our emperors still have no clothes. Despite Cheney's pollyannish defense of the empire, deficits do matter. This concern is not equivalent to David's nightmare, but it's definitely worth keeping in mind.

Martin Brock March 2, 2008 at 8:49 am

Please read this as much of Skeptical Optimist as possible.

So here's a dose of skepticism for the Skeptical Optimist. The first post I read is "Politician-proof privatization for Social Security", but the "privatization" he recommends is nothing but a lot of nominally "private accounts" stuffed with more Treasury notes. This approach does not privatize what Social Security actually statized in the first place, and it doesn't really privatize anything.

This variety of Social Security "privatization" is worse than what we have now, not better. It's not therefore the end of civilization as we know it, and neither is the existing program. There are far more than two answers to every question, so here's just one more.

http://www.knology.net/~marbrock/psupp.htm

Conventional Social Security "privatizers" don't face reality any more than proponents of the statist quo. Practically all of us are in denial. Hardly anyone faces reality. Facing reality is extremely rare.

The biggest difference between a two party state and a one party state is one party.

Sam Grove March 2, 2008 at 10:32 am

The biggest difference between a two party state and a one party state is one party.

A Canadian suggested to me that they were better off because they have more political parties and are not confined in choice to two parties like the U.S.

I replied that he has: "a choice between socialism and……socialism".

The big threat from the national debt is if the government screws up the economy such that future revenues decline and we become unable to support entitlement beneficiaries.

David White March 2, 2008 at 11:45 am

Jason:

"I hope you and everyone that keeps saying that CPI is bogus is putting their money where there mouth is because that would be an amazing arbitrage."

I made a major investment in the precious metals sector two years ago, when gold was below $500 an ounce, and will continue to buy on the dips in anticipation of five-figure (or higher) gold in the coming years.

But let me cut to the chase by saying that I agree with financial analyst and money manager Jim Puplava — http://www.financialsense.com/fsn/main.html — who predicts that the US will be entering a hyperinflationary depression (yes, the "D" word) by 2010. Why? Because as the Global Fiat Fraud begins to implode, the US government has no choice but to inflate its way out of its tens of trillions of dollars in debt and welfare-warfare liabilities. Follow this series for a quantified analysis (as well as learn how to profit from "inflation arbitrage"):

http://www.financialsense.com/fsu/editorials/amerman/2008/0221.html

http://www.financialsense.com/fsu/editorials/amerman/2008/0228.html

Lastly, I'll give you ten to one odds on a "dollar" that the Federal Reserve Note doesn't see its hundredth birthday.

How's that for putting my money where my mouth is?

dlb March 2, 2008 at 12:34 pm

i have $1000 to place on the david white wager. david, you may pick the date (january 1, 2014??).

Sorry, I'm happy to to change the wager to 1000 euros.

David White March 2, 2008 at 1:33 pm

dlb,

I offered the bet to Jason (on a single "dollar" to keep it friendly while making my point). And in the event that I lose, that ten "dollars" won't be near what it's worth today.

Which is to say that with every passing day, we're playing more and more with Monopoly money, the next version of which will be this:

http://worldnetdaily.com/news/article.asp?ARTICLE_ID=57980

mpkomara March 2, 2008 at 4:30 pm

David White, if you can't put 1,000 dollars up against that bet, then you can't say you are "putting money where your mouth is". And, by the way, I've got another 1,000 dollars behind dlb on this one.

mpkomara March 2, 2008 at 4:31 pm

David White, if you can't put 1,000 dollars up against that bet, then you can't say you are "putting money where your mouth is". And, by the way, I've got another 1,000 dollars behind dlb on this one.

David White March 2, 2008 at 6:18 pm

I have more than put my money where my mouth is on betting against the "dollar" and its counterfeits elsewhere around the word. And if Vegas were putting odds on whether the FRN will see its hundredth birthday, the odds would be the reverse, only more so, as "American exceptionalism" — http://en.wikipedia.org/wiki/American_exceptionalism — is still running rampant.

A sucker I'm not, in other words, so don't try to play me as one.

Martin Brock March 2, 2008 at 7:36 pm

I agree that David's bet on gold is consistent with an expectation of inflation, he has put his money where his mouth is. Honestly, I think should he sell now, because I believe markets are reasonably efficient, and he's already doubled his money, but that's his call. I don't pretend to know the future price of gold, but I wouldn't let any bet ride too long.

I am worried about inflating consumer prices, because I agree that rent-generating assets have inflated, and I expect this inflation to precede consumer price inflation. I don't expect a hyperinflationary depression, but a stagflationary recession on the order of the seventies seems uncomfortably possible, and the times are very different now. In the late seventies, the baby boom was still entering the workforce. Now, it's starting to leave and demanding rents. The demographic situation is worse in Japan, but we've already seen similar circumstances play out there, and the Japanese had no empire left. We live in interesting times.

David White March 2, 2008 at 8:31 pm

Martin,

Some bedtime (or Monday morning) reading:

http://www.safehaven.com/article-5205.htm

Gil March 2, 2008 at 9:16 pm

Hey DW as I asked in another topic at this site went to the tune of 'why would I any more confident of paper money because it has the words THIS IS BACKED BY GOLD on it?'. Why for that matter should I feel any more confident that digital entries are backed by gold? How do I really know there's gold backing it up? And so on . . . As far I'm concerned unless gold and silver coins are circulating at present weight increments then it's all the same.

But then again. What sort of financial event would cause everyone to circulate gold and silver? Probably the sort that if you didn't buy and guns & ammo and food cans to go with your gold & silver then you're in big trouble.

James Hanley March 2, 2008 at 9:20 pm

If I may be forgiven for plumping my own blog, I wrote a similar commentary recently, pointing out that Canada and Mexico are the top two export targets of my own state of Michigan.

mpkomara March 3, 2008 at 1:51 am

>Lastly, I'll give you ten to one odds on a "dollar" that the Federal Reserve Note doesn't see its hundredth birthday.

How's that for putting my money where my mouth is?>

I will take the bet with you. 1000 dollars.

David White March 3, 2008 at 8:17 am

Gil,

Digital gold is already here — e.g., goldmoney.com — the soundness of which is determined by the firm's submission to independent audits. One accordingly has confidence in the firm or one doesn't, its reputation being absolutely essential to its success. Which is precisely as it should be in a free market.

For more, go here:

http://www.cipe.org/publications/ert/e32/e32_2.pdf

As to "what sort of financial event would cause everyone to circulate gold and silver," it need only be inflation to the point that merchants begin accepting payment in them as a hedge, even offering discounts in order to accumulate them. But you're also right about guns, ammo, and food, not to mention fuel. Here's a new novel about life after Peak Oil:

http://www.amazon.com/World-Made-James-Howard-Kunstler/dp/0871139782

Greg March 3, 2008 at 8:45 am

I will offer 10:1 odds on a 1:10 event of your choosing.

Greg March 3, 2008 at 8:46 am

Oops, that was careless of me. I'm out.

mpkomara March 3, 2008 at 9:15 am

greg, you forgot to add a "money where mouth is" type cliche in between the time you offered the bet and when you stopped offering.

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