(What’s Left of) Our Economy: The Laughable EU-Japan Trade Deal

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agriculture, automotive, driverless cars, EU, European Union, fake news, Financial Times, free trade agreements, G20, globalization, Japan, Mainstream Media, Trade, Trump, Wolfgang Munchau, {What's Left of) Our Economy

It seems like the economic policy world is all abuzz about the news that the European Union (EU) and Japan have agreed to the broad outlines of a trade agreement. That’s odd, to put it mildly, since reviewing what’s known about the deal for about five minutes is enough to debunk the notion that it’s a global economic game-changer – and the related claims that it will represents a stinging rebuke to President Trump’s moves toward a more results-oriented U.S. trade policy.

It’s true that the EU and Japan are enormous economic entities. They’re also high-income entities. But they haven’t been very dynamic economic entities. From 2005 to 2016, the former increased its output by just under 28 percent (in euro terms) before factoring in inflation. The latter has grown by less than 2.50 percent in yen terms. By contrast, the United States (which hasn’t been killing it, either) has boosted its current dollar gross domestic product by 41.82 percent during this period in U.S. dollars. 

They’re also regions that tend to run trade surpluses – although massive energy imports following the Fukushima nuclear plant disaster have generally tipped Japan’s total trade into deficit. So from a macro-economic standpoint there’s a major question regarding how willing they are to open their markets significantly on a net basis – especially given how slow their overall growth has been. Maybe that’s why one joint European-Japanese effort to estimate their welfare effects came out with results that barely move the needle. And interestingly, this study projects that the United States will be a net winner.

But the strangest aspect of the prospective deal, especially from the EU perspective, concerns the specific trade flows that are apparently targeted. For Brussels is aiming mainly to boost its exports of food products like meat, wine, and dairy, and in return has been willing to lower its automotive tariffs. The agreement has even been nicknamed the “cars for cheese” deal.

In other words, the Europeans supposedly believe they’ll prosper – and show the Trump administration a thing or two – by giving pride of place to industries that, however politically powerful, have relatively little ability to generate big positive spillovers to the rest of the economy, and welcoming more predatory competition to an industry with phenomenal potential to foster future innovation and productivity growth. (Think “driverless cars.”) In fact, this quid pro quo is so bad for Europe that it casts considerable doubt as to whether its terms will be honored.

Also interesting – for all the European ire about the steel tariffs being mulled by the United States (which runs a big trade deficit in this sector), Brussels has said little about the industry during its trade talks with Japan (which runs a big surplus).

Financial Times columnist Wolfgang Munchau has admirably dissented from the Mainstream Media groupthink and dismissed the EU-Japan deal as “a shameful attempt at manipulation” of the narrative surrounding the recent G20 summit that was hyped by journalists exhibiting “confirmation bias” of their pro-internationalist, anti-Trump views. On this side of the pond, we’ve come up with a simpler description: fake news.

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(What’s Left of) Our Economy: And the Labor Shortage/Immigration Beat Goes On

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CNN.com, fake news, illegal immigrants, illegal immigration, Immigration, labor shortages, productivity, wages, {What's Left of) Our Economy

Here’s yet another Open Borders- and amnesty-friendly article from the Mainstream Media that simply doesn’t add up – this time from CNN.com. In this story about a small San Francisco-area manufacturer who claims that he lost a tenth of his employees due to a 2011 government raid in search of illegal immigrant workers, one whopping inconsistency in particular stands out. It concerns the wages paid by the employer Emerald Packaging of Union City, California.

Emerald’s owner, claims that the company is still suffering from the personnel losses because he can’t find adequate replacements. And the CNN reporters’ sympathy for his supposed plight – and the obvious difficulties encountered by his illegal workers – was made clear by the article’s melodramatic headline: “RAIDED: Immigration agents showed up at Kevin Kelly’s factory and he lost his star workers.”

RealityChek regulars know by now that such claims of labor shortages due to restrictive immigration policies are usually open and shut tip-offs that the business in question is paying inadequate wages, or has refused to automate and become more productive. As I’ve noted repeatedly, mainstream economic theory teaches that when the demand for anything – including labor – exceeds the supply, the price of that commodity (in this case the wage and/or non-wage benefits) tends to rise until a new equilibrium is restored. Alternatively, businesses tend to substitute capital (typically in the form of technology) for what they view as overly expensive labor.

Kelly emphatically denied to the CNN reporter that he’s been skimping on wages by using illegal workers: “When people say these companies are hiring illegal labor because they want to keep their costs down… in our case that argument is complete bulls–t.”

In fact, according to Kelly, the jobs that illegals were filling – and that in some cases have remained unfilled – “aren’t cheap positions.” He added that “They range from $15 an hour entry-level jobs to $35 an hour for experienced mechanics. ‘With overtime of $27 to $35 an hour, you can make pretty good money of $75,000 to over $100,000 a year.’”

But his claims started to fall apart – not that CNN picked up on this – the instant he started discussing in detail the employee whose departure he felt most keenly – an assistant foreman named Miguel Gonzalez.

As the CNN article tells it, “Gonzalez had worked for Emerald Packaging for over 20 years. He started as a box handler, moving and storing product pallets and factory supplies, and worked his way up to assistant foreman. He was a gifted mechanic and Kelly relied on him to help keep the factory running.” Further, he could:

>”walk into my office and tell me what’s going on in the facility.”

>Gonzales was “Keen to learn and move up the ranks [and] routinely took on extra work and hours. He also rarely missed work, even returning to the factory floor just two days after his first child, Casandra, was born.”

>Soon after Gonzalez’ hiring, “he showed initiative by tinkering with and fixing up the machines on the factory floor on his own time to help them operate better. Two years into the job, he was promoted into a role where he learned to set up, repair and maintain the factory equipment.”

>”Over time, [he] taught himself every aspect of the business, including payments and shipping.”

>In Kelly’s words, “He was the single best machine mechanic we had.”

>”Losing him had an immediate impact on production because there just wasn’t anybody of Miguel’s caliber to replace him. There just wasn’t,” said Kelly.

And what was this supremely talented “star worker” making in 2011, after twenty years of superlative performance? Twenty-two dollars per hour. (He also received healthcare and retirement benefits.) According to the Labor Department’s data, that wage is somewhat ($2.50 per hour) more than the average hourly wage (before inflation) for all workers in the plastics packaging manufacturing sector that year, and a little over six dollars an hour more than non-supervisory workers alone make. (It’s not clear whether an assistant foreman qualifies in the Labor Department’s eyes as a supervisory or a non-supervisory worker.) But that $22 per hour is also about $13 dollars an hour less than what Kelly said he pays “experienced mechanics” nowadays (five years later).

There’s no doubt that some businesses that hire illegal immigrants need every body they can get, and there’s no doubt that some illegal immigrants are earning good wages largely as a result. But when a news organization plainly convinced of the desperate need for illegal workers touts a single alleged example of this dire situation that’s so full of gaping holes, Americans are more than entitled to start wondering whether this narrative as a whole is fake news.