D. Dowd Muska


The Tōhoku Tragedy’s Free-Trade Lesson

March 24, 2011

Tonawanda, New York is nowhere near Sendai, Japan. Yet thousands of miles of ocean and land haven’t protected the Empire State town from one effect of the Tōhoku earthquake-tsunami.

GM’s Tonawanda engine plant is scaling back production. It laid off -- temporarily, one hopes -- almost 10 percent of its employees. The reason: Supply-chain problems have forced GM’s Shreveport, Louisiana facility to suspend assembly of Chevrolet and GMC pickups.

Aviation factories are at risk, too. In comments to The Seattle Times, a Boeing executive revealed his worries about deliveries of parts for the company’s aircraft. Japanese manufacturers, wrote aerospace reporter Dominic Gates, “are major suppliers of parts for all Boeing jets, but particularly to the 787 Dreamliner, 777 and 767 programs.”

Evidently, “American trucks” and “American planes” aren’t quite as red, white, and blue as protectionists believe.

As the nation crawls and claws its way out of a brutal recession, Japan’s catastrophe highlights the importance of eschewing the autarky lobby’s “solutions” for persistent unemployment and weak income growth. The earthquake-tsunami has offered a glimpse at the likely results of additional trade barriers.

Rent-seeking CEOs, greedy union bosses, and well-intentioned but economically clueless activists are eager to shelter domestic companies and workers, but each “victory” for their side produces layoffs and price hikes. If economic vigor is to be restored, free-trade policies must not be sacrificed. When costs are weighed against benefits, globalization is a very good thing for America.

Take “insourcing.” Unfamiliar with the term? Don’t be embarrassed; an army of protectionists labors to suppress the fact that 5.6 million of your countrymen are employed by foreign corporations.

Prompted by the Organization for International Investment’s latest State Jobs Study, the (Mobile) Press-Register recently surveyed the data along coastal Alabama. It found that “around 13,000 employees and permanent contractors now work for international firms” in metropolitan Mobile. Teutonic firms find the entire state irresistible -- the AlabamaGermany Partnership, formed in 1989 after the construction of a Mercedes-Benz plant near Tuscaloosa, has 250 members. Over 12,000 Alabamans are on the payrolls of German conglomerates. And more positions are on the way. Steelmaker ThyssenKrupp is building a $5 billion complex in Calvert, and hiring thousands.

“We doesn’t make anything anymore” hokum is easily belied by actual statistics -- our country remains the world’s top maker of stuff, and manufacturing employment rose in 2010. Free trade isn’t destroying U.S. factories -- rather, it plays a key role in keeping them competitive. The Consuming Industries Trade Action Coalition (CITAC) was founded to fight for “open and competitive international markets for raw materials, components and finished products that are priorities to American business.” In 2009, the group bravely fought the president’s boneheaded decision to impose a tariff of up to 35 percent on Chinese tires. The penalty, CITAC argued, would “do nothing to stimulate the U.S. economy but will cost U.S. jobs in other sectors.” Last November, the coalition made note of federal research that found exports from small- and medium-sized enterprises support 4 million workers: “The report underscores the importance of the United States refraining from imposing unnecessary trade restrictions. Members of Congress should take note that many of these businesses must have access to globally competitively priced resources and products to compete with their overseas competitors. Also, unnecessary or unfair trade restrictions will lead other countries to impose their own trade restrictions.”

Finally, free trade is a boon for services, the Rodney Dangerfield of the economy. The sector may not get any respect, but it’s where the majority of us work. And more accountants, engineers, financial consultants, lawyers, insurance agents, environmental scientists, and architects are going abroad for clients. There’s a surplus in services -- $161.4 billion in 2008, according to the U.S. International Trade Commission.

Americans are connected, in immeasurable ways, to economies on every inhabited continent. Caterpillar’s sales of heavy equipment to developing countries are surging. World Wrestling Entertainment is wildly popular in China. Starbucks is selling coffee in El Salvador. Over 100 Norwegian companies serve Houston’s oil sector. In 2010, 500,000 Brazilians visited South Florida -- and they spent over $1 billion. German multinationals don’t limit themselves to Alabama. Lanxess manufactures rubber products in deep-red Texas, and Eppendorf makes biotech equipment in bonkers-blue Connecticut.

The economic dislocations caused by the Tōhoku earthquake-tsunami are, of course, trifling matters when compared to the destruction of thousands of lives. But the double-barreled natural disaster provides a reminder that turning back the clock on globalization would have real-world consequences. Just ask GM employees in Tonawanda.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

# # # # #