Free trade encourages outsourcing


By Edward D. Murphy

Tuesday, April 24, 2007



Free trade agreements have done wonders for exports. The problem is that the country's biggest export has become jobs, a leading opponent of the open trade deals is telling Mainers this week.
Alan Tonelson, a research fellow at the U.S. Business and Industry Council Educational Foundation, said the trade agreements should be called "outsourcing agreements," because that's their practical effect.
Tonelson spoke Monday night at the University of Maine and is speaking today at a meeting of the Maine Citizen Trade Policy Commission. The title of his book neatly summarizes his take on free trade agreements: "The Race to the Bottom -- Why a Global Worker Surplus and Uncontrolled Free Trade are Sinking America's Living Standards."
Tonelson argues that trade agreements have run amok. The country is trying to line up more of the agreements, which allow exports and imports to flow unfettered, without thinking of the consequences, he said.
In theory, free trade agreements allow the free market to work.
Countries are supposed to eliminate their tariffs -- taxes on imports that are designed to protect domestic industries by raising the price of imports --Ýalong with subsidies and other methods that are used to tilt the playing field toward goods made at home. Without those elements artificially shaping the market, consumers can choose between domestic and foreign goods based on price and quality.
It's a fine arrangement if the free trade agreement is between relative equals, Tonelson said, but that's not the case when one party is the United States.
He said the U.S. free trade agreement with Mexico is a good example of why the deals are bad for the United States.
Tonelson said Mexico's economy is about 3 percent the size of the U.S. economy. Mexico also has higher unemployment rates, keeping wages low, and most Mexicans have much less disposable income than Americans.
So it doesn't really benefit U.S. companies to gain open access to the Mexican market, since eliminating tariffs isn't likely to bring huge increases in sales, he said. By contrast, taking away the tariffs from the U.S. market opens up a huge mass of potential customers, with money, for Mexican businesses.
Of course, not everyone shares Tonelson's view.
There are studies that show that the North American Free Trade Agreement has boosted business on both sides of the border. A study by the Congressional Budget Office that sought to separate the impact of NAFTA from other factors found that the agreement boosted U.S. exports to Mexico by $10.3 billion, or 11.3 percent, in 2001. Imports from Mexico, the CBO said, grew by $9.4 billion, or 7.7 percent, because of NAFTA.
But Tonelson believes the most successful export from the United States under NAFTA has been the plants and factories that make products.
U.S. manufacturers can set up factories in Mexico, he said, hire workers for pennies on the dollar compared to U.S. labor, and be relatively unfettered by the lax -- or nonexistent -- labor and environmental laws south of the border. Then they can simply ship the products back to the primary market in the United States.
"There were a zillion arguments made" in support of the agreements, Tonelson said. "The notion that it will be a major engine of growth for the U.S. economy is just not true."
Taking a longer view, the situation is dangerous, Tonelson said. Manufacturing jobs are among the best paying jobs in the country, and the service sector jobs that replace them generally pay less and offer fewer benefits.
"We're moving toward a place where consumption can't possibly keep up," Tonelson said, and the loss of manufacturing capability overseas reduces the level of investment and the gains in productivity for a company's operations that stay in the United States.
The solution, Tonelson said, is to take away the administration's ability to negotiate "fast track" trade agreements with other countries and return the power to Congress. That authority -- which allows the president to negotiate agreements and send them to Congress for up or down votes only -- is set to expire in June, but the Bush administration wants it renewed.
Tonelson also suggests establishing a blue ribbon panel to set guidelines and requirements for new agreements.
That won't be easy, or cheap, Tonelson said, since it would likely raise the cost of U.S. consumer goods.
But the alternative will be worse, he argued.
"On our present course, we'll almost assuredly bankrupt our children," he said.
Staff Writer Edward D. Murphy can be contacted at 791-6465 or at: emurphy@pressherald.com


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