TRADE: TRIALS AND TRIUMPHS

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International trade restrictions. According to one study, 93% of economists think such restrictions are a bad

idea because they reduce economic welfare. They believe the trade is the way to produce more, better, and

cheaper stuff and services for us all. The phrase often used to justify trade is “comparative advantage,” an idea

that comes up throughout economic says Northwestern Professor Robert Gordon.

Robert Gordon

The real way to talk about comparative advantage is to talk about everyday people, and how about the

example of a lawyer? A woman lawyer, very talented at law but also able to type twice as fast as her male

secretary and what should she do? Should she be doing the typing? No. She should be out winning trials and

winning law cases and that male secretary plotting along at half the speed should be doing the typing because

she probably makes ten times as much as he does.

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And if she is making ten times as much, it means that to the economy, the lawyering is worth ten times as

much as the typing. The typist has a comparative advantage in typing because he can make more that way

than as a lawyer, which without a law degree can make a dime at. The lawyer has an obvious comparative

advantage in lawyering because no one will pay her that much to type. So both parties are better off by

specializing and then trading the fruits of what they do. But if this is the way to go within our country’s borders,

why is trade consistently discouraged across borders by the various forms of what is called “protectionism”?

Because countries all over the world are under pressure to protect their local companies and workers from

foreign competition. They do so in several standard ways.

By imposing quotas, a ceiling on the amount of something that can be imported from another country or

imposing tariffs, taxes on all imports coming into a country or instituting other non-tariff barriers like subsidies

to domestic industries so they can price their goods below foreign competitors. For example, the U.S. imposed

tariffs on corn brooms made in Mexico to hike their price and thus, discourage Americans from buying them.

Why? Because the jobs of corn broom workers like those in this Alabama factory were threatened by corn

broom workers in Mexico making one-sixth what these folks were.

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I would not wish to compete, not with the kind of way that the Mexicans are earning, you know, a dollar. I can

live off —

Male Speaker

The same holds true in loads of industries, from textiles to steel. Why did free trade President George W. Bush

slap at 30% import tax on billions of dollars worth of steel from abroad in 2002? To protect American

steelworkers who are losing their job because of cheaper foreign imports.

Dan DiMicco is CEO of Nucor Steel, a low-cost U.S. producer, which historically oppose protectionism, but

even his company had began to feel the heat.

Dan DiMicco

The problem was things got to such an extreme with the flood of imports and the destruction of the pricing in

the marketplace that we had no choice but to get involved. They had something like 32 companies in this

country, the entire industry virtually in bankruptcy.

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In our reporting, we have heard the same story from industry after industry, including textiles.

Jock Nash

In the year 2001, 146,000 textile workers in and — workers lost their jobs. In fact, in our industry, we lost more

jobs in 20 months than exist in the steel industry.

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In short, protectionism prevails because of politics despite the fact that over time, the gains from trade benefit

people the world over, those who pursue their comparative advantage in rich countries and poor ones and

those everywhere who pay lower prices as a result. But it is easy to take the gains for granted. Imported goods

at the mall may be a bargain, but how often do consumers thank free trade for the money they are saving even

though it saves so many consumers so much. Economist Kent Ford.

Kent Ford

They get a bigger selection, they get a lower price. Trade benefits our exporting industries, Ford’s products,

airplanes, high tech, IBM, McDonalds, Kentucky Fried Chicken, Coca-Cola.

Male Speaker

So Americans win across the board, but the loses from trade are concentrated, painful, and obvious, American

workers lose their jobs. As in the steel industry, which President Bush tried to protect, but then Europe

threatened to retaliate with tariffs against us, Japan and China made threats as well. Meanwhile, back in the

inferno, noted trade economist Robert Lawrence thought the U.S. tariff heights, plus Europe’s threats of

counter-tariffs might trigger a trade war, which would make us all worse off.

Robert Lawrence

What I really worry about is that our governments, the United States and Europe are going to get very caught

up in fighting individual battles in retaliating and in fact, engage in a tit for tat confrontation, which could

escalate over time.

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But CEO Dan DiMicco says foreign competitors have been using non-tariff barriers like government subsidies

to engage in unfair trade with the U.S.

Dan DiMicco

This is not a matter of tit for tat. We have already been tatted in a big way. I do not know how better I can put

that and maintain a sense of humor, okay?

Male Speaker

Moreover, say critics of so-called free trade, it can be unfair in another way when poorer countries exploit their

workers to keep their wages down. Economist Thea Lee.

Thea Lee

Labor can be cheap because the government has made a conscious decision to deny workers the right to have

a political voice, to organize unions, to bargain collectively or they are using prison labor, forced labor,

indentured child labor on a wholesale basis and that is wrong.

Male Speaker

So you have no problem with free trade in principle, but it should have rules to ensure basic human rights in a

place like China, say, or to make sure the environment is not ruined.

Thea Lee

Exactly

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What is hard to dispute, however, is that the removal of barriers to trade seems to have increased economic

growth. After World War II, tariffs averaged a hefty 40% on manufactured goods across the globe. Over the

decades, they have been brought down to today’s 4% or so, while the U.S., Europe, and Japan have

prospered because of low tariffs, say economist like Professor Lawrence.

Robert Lawrence

The United States has never been more open as an economy and the United States has never been more

prosperous. We do not try to make everything ourselves. We buy from the rest of the world and we sell to the

rest of the world. Sure, some competition is not perfectly fair and we do need rules of the game in order to deal

with unfair competition, but by and large, I think it would be extremely foolish for us to think we could withdraw

and retreat back into a Fortress America.

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Economists like Lawrence agree that countries will always be under pressure to protect domestic industries,

like say agriculture, but that is why the World Trade Organization was created, to regulate the rules of the

game. Indeed, in late 2003, the WTO based in Belgium ruled against the U.S. steel tariffs as illegal. U.S. steel

producers and workers denounced the decision as meddling with the sovereign affairs of America but the U.S.

government then lifted the tariffs making American steel users like auto companies happy. Lifting the tariffs

meant cheaper steel for the cars they sell, mainly to the fellow Americans.

Increasingly however, it is not just manufacturing or farm jobs that countries have been trying to protect. More

and more of the world’s jobs are in the service sector, more than 80% of jobs in the U.S. Service workers have

long thought they were safe from international competition. A convenient case in point, my dry cleaner in

Brooklyn, Massachusetts to whom global competition has long been an abstraction.

Carl Levine

It does not mean anything. People are going to come in here, they want to look good, they want a good

product and that is what we offer them.

Male Speaker

So you care about what happens in Brooklyn?

Carl Levine

That is my main concern is, how I am going to make a living here and then I worry about the outside world.

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Carl’s assistant Jimmy Clark underscores the obvious. “What is to worry about? Competition from some super

efficient dry cleaner in Japan?”

Male Speaker

They will still be in Japan and we will still have Brooklyn.

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Economists like Robert Lawrence point the jobs like these to reassure Americans about the limit of the threat

from workers abroad.

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Most of these people are in the service economy, most Americans work in the service economy, only about

15% of Americans are employed in manufacturing, only about 2% are employed in agriculture and those are

sectors which are severely subject international competition. For the rest of us, they may be some elements of

international competition, but by and large, our economy is self-contained.

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But foreign competition is now threatening U.S. service jobs as never before. The internet and the

telecommunications revolution have meant that more and more service work can be sent anywhere in the

world. That has led to call centers in India for instance, where they do fulfillment for U.S. catalog companies.

Female Speaker

The black bra and the CD recorder will be delivered by 6 PM, Friday.

Male Speaker

There is even a website, Elance.com, where companies from anywhere in the world can post requests for

software jobs, design services, accounting, and get bids from anywhere in the world. And then there is the

Pittsburgh firm that sends doctor’s dictations to India to be transcribed. As this promotional video shows, it has

set up shop in four Indian cities because workers there have a comparative advantage in typing.

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Its software engineers are among the best in the world. English is the primary language. There is high

computer literacy, excellent internet connections, and an experienced transcription workforce. The time

difference between the United States and India is also an added value.

Female Speaker

While we are sleeping, they are working.

Female Speaker

For the first time, medical transcription truly has 24-hour coverage.

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The Indian workers are doing the job for a fraction of the U.S. cost by capitalizing on their comparative

advantage. Typing for a few bucks an hour is their best most valuable work alternative. So they type while the

U.S. medical personnel exploit their comparative advantage providing healthcare, but as this new global

competition in services grows, it is leading U.S. service workers to call for protection. Software engineer Judy

Adelstein is trying to form a union for high tech workers, speaks for many of them.

Judy Adelstein

This country on one side of its mouth that talks about how wonderful and we care about everybody, we are

building, rebuilding a rack and we are doing this and we are doing that, but they do not care about their own

people, okay? So do not talk at two sides of your mouth, okay? Do not talk — capitalism works. It works for you

because you are rich. The corporations are on the country. It does not work for the rest of the people.

Male Speaker

Judy Adelstein’s husband is also a software engineer. He lost his job due to 9/11. Two years later, he had not

found another.

Scott Adelstein

I mean, how do you explain 350 resumes and no job? Maybe just seeing how much experience I have and my

salary, and saying, “Well, why should we pay him this kind of money when we can get someone for a lot

cheaper?”

Male Speaker

What kind of money?

Scott Adelstein

$52,000.

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But the answer for a U.S. worker like Scott Adelstein say free trade economists and businessmen alike is to

reinvent himself economically so he is always a step ahead of the competition, whether it is local or global.

Wall Street money manager Rajiv Chaudry who came to the U.S. from India precisely because of the

opportunities here thinks U.S. workers will continue to create new forms of comparative advantage.

Rajiv Chaudry

The internet was created in the United States, not in any other country in the world, and because of the

internet, 10 years later, we have created — we have really refashioned our own economy and not in the

process of refashioning the global economy. As a result, you know, millions of jobs have been created in this

country as well as outside, so I do not know what the next big thing is going to be, but I can tell you one thing.

It is going to come from this country and it is going to create a lot of jobs in the United States.

Male Speaker

Try telling that to Scott Adelstein, however. What was he doing when we last saw him?

Scott Adelstein

I am doing stock work for retailer.

Male Speaker

Meaning?

Scott Adelstein

Kmart.

Male Speaker

Kmart?

Scott Adelstein

Right.

Male Speaker

What exactly do you do?

Scott Adelstein

Stocking the shelves, pricing goods, and I work in nights.

Male Speaker

Are you embarrassed? I mean, you said retail, stocking, I did not know what you meant at first.

Scott Adelstein

Yeah, well, you know, it is just that, you know.

Male Speaker

You did not want to tell right away.

Scott Adelstein

Right.

Judy Adelstein

He is embarrassed, I think, with good reason. He is an educated person.

Male Speaker

An educated person who is competing against the increasingly educated counterparts abroad and who feels

threatened by and therefore, suspicious of free trade regardless of the wide spread long-term benefits, almost

all economists assure us free trade inevitably brings.

REFERENCES McGraw-Hill Education: Trade: Trials and Triumphs

L i c e n s e d u n d e r a C r e a t i v e C o m m o n s A t t r i b u t i o n 3 . 0 L i c e n s e .