Foreign Trade Angst

[Fieldmouse]

A MINORITY VIEW
BY WALTER E. WILLIAMS
RELEASE: WEDNESDAY, APRIL 16, 2008, AND THEREAFTER

Foreign Trade Angst

Presidential candidates Hillary Clinton and Barack Obama, pandering to anti-trade activists, suggest that should they become president, they will restrict trade agreements. Before you buy into their promised paradise, there are a few trade questions you might consider.

Suppose you were choosing a country to live in. Which country would you prefer: a country that has the world champing at the bit to put its money into or one where the world is unwilling to invest? Let's look at the numbers.

The United States is the world's largest recipient of foreign direct investment. According the Economic Report of the President, in 2004, foreigners owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They produced $515 billion of goods and services, accounting for 5.7 percent of total U.S. private output, and employed 5.1 million workers, or 4.7 percent of the U.S. workforce in 2004. According to the Congressional Research Service, in 2006 alone, foreign investors spent $184 billion investing in U.S. businesses and real estate, the highest amount foreign investors have spent since 2000. My question to Clinton, Obama and the anti-trade lobby is, would Americans be better off if there were no foreign investment in our country?

According to the Bureau of Labor Statistics, between 1996 and 2006, about 15 million jobs were lost and 17 million created each year. That's an annual net creation of 2 million jobs. Roughly 3 percent of the jobs lost were a result of foreign competition. Most were lost because of technology, domestic competition and changes in consumer tastes.

Some of the gain in jobs is a result of "insourcing". Foreign companies, such as Nissan, Honda, Nokia, and Novartis, set up plants, hire American workers and pay them wages higher than the national average. According to Dartmouth College professor Matthew Slaughter, "insourced" jobs paid a salary 32 percent higher than the average U.S. salary. So here's my question to anti-traders: If "outsourcing" is harmful to the U.S., it must also be harmful to European countries and ***an; would you advise them to take their jobs back home?

Wal-Mart has become the whipping boy for political demagogues, unions and anti-traders. I suggest that they have the wrong target. The correct target is revealed by answering the question: "Why does Wal-Mart exist and prosper?" Wal-Mart exists and prospers because tens of millions of Americans find Wal-Mart to be a suitable source of goods and services. Clinton, Obama, unions and anti-traders should direct their outrage and condemnation at the tens of millions of Americans who shop at Wal-Mart and keep it in business.

There's great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, and it's mainly a result of technological innovation, and it's a worldwide phenomenon. Daniel W. Drezner, professor of political science at the University of Chicago, in "The Outsourcing Bogeyman" (Foreign Affairs, May/June 2004), notes that U.S. manufacturing employment between 1995 and 2002 fell by 11 percent. Globally, manufacturing job loss averaged 11 percent. China lost 15 percent of its manufacturing jobs, 4.5 million manufacturing jobs compared with the loss of 3.1 million in the U.S. Job loss is the trend among the top 10 manufacturing countries who produce 75 percent of the world's manufacturing output (the U.S., ***an, Germany, China, Britain, France, Italy, Korea, Canada and Mexico).

But guess what -- globally, manufacturing output rose by 30 percent during the same period. According to research by the Federal Reserve Bank of St. Louis, U.S. manufacturing output increased by 100 percent between 1987 and today. Technological progress and innovation is the primary cause for the decrease in manufacturing jobs. Should we save manufacturing jobs by outlawing labor-saving equipment and technology?

Economist Joseph Schumpeter referred to this process witnessed in market economies as "creative destruction," where technology, innovation and trade destroy some jobs while creating others. While the process works hardships on some people, any attempt to impede the process will make all of us worse off.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

[Alsatian]

A clear trend for a long time has been the movement ofour economy from working on things -- manufacturing, etc. -- to working on or processing information. This is a clear, definite shift, as clear and definite as the shift away from agriculture as the mainstay of the American economy. Most of us don't derive a significant portion of our income from agriculture any longer; used to be probably 95% of us derived our principle income/sustenance from our direct involvement in agriculture. I know some will deride this and decry this kind of change, but this isn't going to change the trend and the change that is happening, and has been happening for many, many years.

For those young enough to adapt, take heed and get the best education you can. This is what will best protect and take care of you going forwards, not decrying the loss of former manufacturing prowess. It is very like an arms race: you need to stay a step ahead of your competition in foreign lands. The reason you get paid more than an Indian peasant a month off the farm or a Chinese peasant a week off the farm working in an Asian waffer fab is because you have a good education. Well, in many Asian nations the general population is not simply coming in off the farm with no education. The bar is rising, and that has implications for 20 years down the road. Certainly in Confucian cultures -- China, Korea, SE Asia -- education is a very deeply ingrained value, and people make great sacrifices to obtain the best and most extensive education for their children or themselves. Their is no birthright of a higher standard of living, and if we don't distinguish ourselves in some way, there are others who will be able to replace us at a lower cost.

I'm not sure that is a fair reply, Fieldmouse. My intention is not to hijack your theme here.

[Fieldmouse]

Great response. Exactly what I was looking for. When you talk about the move away from farms, that began in the early 1800's believe it or not. Farming is not the wealth of a nation at all. For thousands of years, farming was the main wealth/industry. However, when you look back and measure GDP per individual and plot that on a chart you will see a flat line. However, in the early 1800's, a new trend began and real wealth was created and that GDP per individual line shot up exponentially. We went into manufacturing, communications and transportation has gotten better. We haven't seen anything yet, though. The internet and computers are going to blow this thing wide open.