An opinion column entitled "Second Thoughts About Free Trade" recently appeared in the New York Times. Authored by Senator Charles Schumer (D-NY) and Paul Craig Roberts, a conservative author and former Treasury official in the Reagan Administration, the article pointed out three major developments that have dramatically changed the world economy.
First, the world is far more politically stable, allowing capital to flow more freely around the world. Second, educational exchange programs and strong educational institutions in the less-developed areas of the world are generating tens of millions of intelligent, motivated workers in places like India and China. Third, inexpensive, high-bandwidth communications make it feasible to locate and manage large workforces anywhere in the world.
This has led to a massive offshore movement of manufacturing and software engineering. The authors argue that this means, "any worker whose job does not require daily face-to-face interaction is now in jeopardy of being replaced by a lower-paid, equally skilled worker thousands of miles away." American corporations are taking advantage of this situation by shifting hundreds of billions of dollars of production offshore. Moreover, despite the protests from unions and many others representing the newly unemployed, this shift is likely to accelerate in coming years.
While the authors don't have a solution to this comparatively new problem for the American worker, they do point out that this new, highly educated, cyber world changes the debate about free trade in a profound way. Hundreds of millions of exploited, underpaid workers are keeping the wages down for not only American workers but also their own countrymen. This also helps explain the so-called jobless recovery. There are plenty of jobs being created. The problem is that they are in Canton, China — not Canton, Ohio.
While a number of new regional and bilateral trade agreements are being negotiated, the support and arguments for further trade agreements are changing. Many workers, as well as small and medium-sized U.S. companies who thought that they would reap the benefit of free trade, have yet to see a reward.
It doesn't help the cause of free trade when we fail to protest the fact that the Chinese keep their currency pegged to the dollar at a level that results in under-valuation by as much as 40%. Not only does the under-valuation distort bilateral trade between our two nations, it also induces other Asian nations to intervene to keep their currency cheap in defense of their own market share.
Today's economic world is changing rapidly, and I'm not convinced that the U.S. Government is adequately responding. Our regulatory system allows unfettered trade in foreign parts, components, and finished products, but our visa system places many impediments in the way of foreign buyers who want to visit American factories to possibly buy U.S. industrial products. Our export-control system closes many Chinese factories to bids from U.S. companies but fails to obtain cooperation from European competitors, who sell freely to those same factories. The trade agenda is filled with proposed new multilateral agreements, but the argument for freer trade has been undermined in recent years by what seems to be a weak response to unfair trade practices. I believe the trade-road ahead is going to be strewn with obstacles and difficult to travel over the coming years.
By Dr. Paul Freedenberg Vice President-Government Relations AMT—The Association For Manufacturing Technology