Machine Design

Biggest U.S. export: Middle-class workers

Alan Tonelson has a tough job. As a research fellow at the U.S. Business and Industry Council's educational foundation, he is trying to spread the word about U.S. trade agreements that he says have been nothing less than disastrous for domestic manufacturers.

But the topic of trade agreements put most people to sleep. And besides, "When I talk to manufacturers, they say business is pretty good right now," he shrugs.

Better enjoy it while it lasts. Good times for U.S. manufacturers are temporary. They stem from "unprecedented stimulus poured into the economy by Washington. But this record stimulus has not brought record growth rates. Many of the benefits have landed overseas," he says.

Blame foreign trade agreements for the lower growth rates. You might think trade agreements would be good things, opening up foreign markets to U.S. goods. It hasn't worked out that way. "The Japanese market, for example, remains hermetically sealed to us. And there has never been a serious proposal for a free-trade agreement with Europe," says Tonelson. Trade agreements with poor countries have been particularly harmful to U.S. manufacturers. "People in those countries don't have any money. They can't afford our products," he argues. So trade agreements with these countries end up being one-sided. Free-trade agreements eliminate the possibility of taxing or putting a quota on imports from those countries, so they effectively serve as incentives to set up factories there. And that is exactly what has happened.

"The agreements have basically become outsourcing deals," says Tonelson. "Multinationals and retailers have been the biggest proponents of free-trade agreements. Their argument has been that consumers benefit from cheap goods that come out of them. But no country has ever consumed its way to wealth," he says. "The flip side of outsourcing is that the big outsourcers are firing their best customers, the middle-class work-ers, or sending them down the wage scale."

One might ask how all this free-trade stuff got started. Tonelson traces the roots of the idea back to the Cold War and the need to promote a free world regardless of the cost. "Those were different times. The U.S. economy back then comprised a much bigger percentage of the world economy. We could afford to export jobs. Things have changed but the attitude of our trade negotiators has not," he says.

Consider one recommendation of the Iraq Study Group: It suggested promoting both Iran and Pakistan into the World Trade Organization so those countries can more easily export to the U.S.

Tonelson's take on this idea: "Even if we sent all our jobs to the Third World, there wouldn't be enough of them to make a dent in poverty."

Instead, he thinks the U.S. should put a moratorium on further trade talks and start creating jobs at home that are worth creating. That's not happening today. "The current number-one engine of job growth in the U.S. is government and government-subsidized services. It can't be good news that the least dynamic sectors of the economy are the ones growing the most jobs," Tonelson observes.

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