Straight talk on trade: "lightning rods for myriad grievances"

The Wrong Trade Wars: NAFTA and globalization aren't totally to blame.


The latest evidence of the gap between political rhetoric and economic reality is the Democratic-controlled House's decision to set aside, indefinitely, the free-trade agreement negotiated with Colombia by the Bush administration. On economic grounds there's no reason to reject the agreement. Colombia's exports already enter the U.S. market duty-free under the 1991 Andean Trade Preference Act. Meanwhile, many U.S. exports to Colombia face stiff tariffs—up to 35 percent on autos, 15 percent on tractors and 10 percent on computers—most of which would ultimately go to zero under the agreement.

The tariffs dampen demand for U.S. exports by raising their price and putting them at a competitive disadvantage. Whirlpool annually exports about $50 million worth of refrigerators, washer-dryers and dishwashers to Colombia from plants in Ohio, Arkansas and Iowa. On a $1,000 refrigerator, a 20 percent tariff raises the retail price $200 in a fiercely competitive market with appliances also supplied by local firms and imports from Korea and elsewhere. (Why does Colombia want the agreement? Answer: Congress has to renew Colombia's present duty-free status periodically. The agreement would make it permanent.)

Yet, it's politically convenient to oppose the trade agreement, because the popular imagery is that trade destroys U.S. jobs. The loss of almost 4 million U.S. manufacturing jobs since 1998 seems easy to explain by cheap imports or the flight of plants to Mexico, China and other poorer countries. The truth is murkier. Although this has occurred, job losses also stem from greater efficiency (fewer workers producing more goods) and slumping domestic demand (for communications equipment and computers after the dot-com bust and for housing materials and vehicles now). Nor has falling factory employment crippled overall U.S. job creation.

Look at the numbers. From 1998 to 2007, total nonfarm payroll employment rose by 12 million, and unemployment averaged only 4.9 percent—despite the 4 million lost factory jobs. In that period, U.S. manufacturing output rose 22 percent.

No matter. Globalization and trade have become lightning rods for myriad grievances (job insecurity, wage inequality, eroding fringe benefits).

Comment: Robert J. Samuelson is a contributing editor of Newsweek and Washington Post where he has written about business and economic issues since 1977.

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