(What’s Left of) Our Economy: The Real Messages of that Business Letter Opposing Tariffs on China

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American Chamber of Commerce in China, Business Roundtable, China, currency manipulation, National Association of Manufacturers, offshoring, protectionism, tariffs, Trade, Trump, U.S. Chamber of Commerce, US-China Business Council, {What's Left of) Our Economy

Forty-five American business groups have just sent a letter to top Trump administration officials urging them not to impose “sweeping tariffs” on China in response to its longstanding and widespread theft of U.S. “trade secrets and other intellectual property.” That’s not especially newsy, since large elements of the American business community have long opposed any measures that would rock what they consider to be a highly profitable boat – the business they do with the People’s Republic.

Here’s what’s much more newsworthy: The list of signers is missing some of the leading lights of the U.S. trade association world, including the Business Roundtable, the National Association of Manufacturers, and two leading China-specific groups – the US-China Business Council, and the American Chamber of Commerce in China (which is distinct from the U.S. Chamber of Commerce, an organization that did sign).

Since the membership of the U.S. Chamber in particular is so all-inclusive, it’s possible that its name on the letter was thought to suffice for many companies belonging to those other groups that are absent. But these companies have never been shy about practicing double- and even triple-counting. So it’s also possible that the above absences indicate that the American business community – and especially the multinational companies that have so powerfully influenced U.S. Trade policy with China for decades – is seriously divided on the tariff issue.

What’s also noteworthy is the letter’s statement that “Tariffs would not only affect Chinese shippers but also harm U.S. companies that sell component pieces of final products exported from China.” In other words, the letter is implicitly acknowledging that many of its signers have been among those companies that have long spearheaded the offshoring of American jobs and entire supply chains to China.

Their offshoring focus of course explains much of their staunch opposition to vigorous Washington responses to such cut-and-dry protectionist Chinese practices as currency manipulation: Although this trade predation has damaged America’s domestic production base, these businesses’ China-based operations have been major beneficiaries.

Similarly, the strong interest of so many of these companies in continuing to coddle China’s mercantilism at the domestic economy’s expense explains the seeming paradox of their main policy message to President Trump: On the one hand, they “continue to have serious concerns regarding China’s trade policies and practices” and admit that their persistence endangers “U.S. global competitiveness, innovation, productivity, and cybersecurity.”

And on the other, they insist that American countermeasures be limited to steps – like “measured, commercially meaningful actions consistent with international obligations” and working “with like-minded partners to address common concerns with China’s trade and investment policies” – that have been tried for years, and that so far have produced nothing but failure.

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(What’s Left of) Our Economy: Some Rare Big Media Realism on Globalization

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globalization, Immigration, Jobs, Labor Department, NAFTA, North American Free Trade Agreement, offshoring, Pankaj Mishra, Sarah Chaney, strikes, The New York Times Magazine, The Race to the Bottom, The Wall Street Journal, Trade, unions, wages, {What's Left of) Our Economy

Every now and then, the Mainstream Media and the establishment conventional wisdom it parrots show some signs of approaching an understanding of how trade liberalization and globalization really work. Happily, this past week was one of those weeks.

The first of these two signs came in The New York Times Magazine, in the form of an article by Pankaj Mishra, who weirdly isn’t identified in the on-line version of the piece, but who appears to be a prominent Indian writer. Its theme: The world’s leading economies – including the United States in the first two-thirds of its history and now China – have nearly all experienced their greatest rises to prosperity and power based on policies that rejected orthodox free trade principles.

To anyone who has seriously followed the trade and globalization debate over the last quarter century, the case for this claim is anything but new. It’s been made by numerous leading scholars and other analysts. What is new is for this argument to be showcased in such a high profile media outlet. On the one hand, if this kind of information was presented to readers remotely as often as the trade and globalization conventional wisdom, American policies today might be vastly different – and the economy much sounder.

On the other, because of Donald Trump’s political success, the chances of moving U.S. trade policy onto a more realistic foundation seem higher than at any time since the 1930s. So if Mishra and The Times Magazine wind up speeding up that process to any extent, and aiding the adoption by Washington, D.C. of policies that factor in this reality, more power to them.

The second sign came in a Wall Street Journal story on findings I’d spotlighted on Friday – a Labor Department study on the virtual disappearance of major labor actions like strikes from the national economic scene. In her own report on the Labor study, Journal correspondent Sarah Chaney quoted a scholar of labor relations as noting that (in her words) “one major impediment to work stoppages…is globalization.”

To which my immediate reaction was “bingo!” – along with a sense of vindication. Way back in the late-1990s, when I was researching my book The Race to the Bottom, it became clear as can be to me that most efforts to measure globalization’s impact on the U.S. economy were missing a key point: A job doesn’t have to be either eliminated by foreign competition (whether predatory or not) or offshored for American trade policies to have affected employment or wage levels. The mere prospect of offshoring in particular, and its increased likelihood as a result of trade agreements aimed at encouraging it, would also matter, and often decisively.

Wages would be the principal victim, since workers aware that their jobs could easily be sent overseas, to lower cost locations like Mexico (via NAFTA, the North American Free Trade Agreement) or China (through numerous trade liberalization decisions taken since the early 1990s) would hardly be aggressive in pressing for better pay either by striking or taking any similar actions.

And in the book, I cited some evidence for this proposition: A 1992 survey by The Wall Street Journal finding that “one-fourth of almost 500 American corporate executives polled admitted they were ‘very likely’ or ‘somewhat likely’ to use NAFTA as a bargaining chip to hold down wages”; and a 1996 report commissioned by NAFTA’s own Labor Secretariat finding that “more than half the firms…surveyed used threats to shut down U.S. operations as weapons to fight union-organizing drives.”

Moreover, it should be just as obvious that mass immigration creates the same kind of wage-depressing force.

The next step for the establishment and its media messengers to take is to recognize that the very national economic openness for which they have pushed means that terms like “the American labor market,” at least used conventionally, have become largely meaningless. In addition, supposed mysteries like continued wage stagnation during a long economic recovery featuring near-historic lows in the headline jobless rate aren’t so mysterious at all.

In fact, that supposed national labor market has for decades consisted both of American workers inside the country’s borders and all the other workers around the world that have been made available to employers by trade and immigration policies. So if you want a labor market truly capable to pushing wage growth back up to historical norms, no measures are more important than turning that labor market more genuinely national once again.

(What’s Left of) Our Economy: The Big Messages Being Sent by a Jetsons-Like Invention

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Aeolus Robotics, automation, capital spending, Consumer Electronics Show, Democrats, domestic workers, economics, Fight for 15, Immigration, innovation, Jobs, minimum wage, offshoring, Open Borders, robots, Roomba, Rosey, technology, The Jetsons, Trade, Washington Post, {What's Left of) Our Economy

Along with the rest of the world, I just got another reminder that the future is arriving a lot faster than most of us expect. And that’s got especially big implications for related points I’ve long been making about U.S. immigration policy and efforts to boost the country’s minimum wage.

For many years, when I’ve spoken about immigration policy, I’ve used the following argument to explain the relationship between the mass immigration America has fostered for so long (including winking at illegal immigration) and the productivity gains and technological progress needed to ensure that living standards can improve in a sustainable (not bubbly) way:

“Does anyone remember Rosey, the robot maid on the 1960s TV cartoon show, ‘The Jetsons’? Did you ever wonder why, decades later, there’s still no Rosey – or anything better than a Roomba? A major reason has to be that, with so many legally and illegally present housekeepers and housekeeper candidates available, and willing to work so cheaply, there’s been little incentive to automate domestic work.”

It was my way of using pop culture to illustrate why a big spur to technological progress (and the higher productivity it tends to bring) for the United States in particular has been the scarce labor situation that’s existed for most of American history. With workers in chronically short supply, and therefore increasingly expensive to hire, U.S. businesses were constantly looking for labor saving devices that could cut their costs. And American inventors were terrific at seizing the opportunity and providing them.

In other words, the U.S. economy was behaving exactly the way the textbooks said it should. When labor became too costly, business stepped up its search for ways to substitute capital (which often meant) technology, for those overly dear workers. More recently, as labor has become more abundant (and therefore, all else equal, cheaper), this dynamic has often shifted into reverse.

Incidentally, mass immigration policies aren’t solely to blame. Offshoring-friendly international trade deals like the North American Free Trade Agreement (NAFTA), and similar trade policies (like coddling China’s trade predation) have also greatly expanded the amount of workers realistically available to American employers, especially in sectors like manufacturing. And it’s surely no coincidence that business spending on equipment and machines and the like (called capital spending) has been a notable weakness lately in the U.S. economy. (In fact, although many factories in China are automating rapidly – because of wage increases – this report makes clear that labor surpluses are still slowing its pace in some important Chinese manufacturing industries.)

What has this to do with Rosey? Simple. As this Washington Post piece from last week shows, she’s here – or just about here. For at the latest annual Consumer Electronics Show (one of the tech industry’s major events), a company called Aeolus Robotics unveiled a device that looks awfully similar. According to the Post reporter, this “child-sized” machine

“performed domestic duties such as mopping, picking up stuffed animals off the floor and moving furniture, and, perhaps most impressively, retrieving drinks from the fridge using an intricate-looking grabbing arm — all without human assistance.”

The robot – billed as “the first multi-functional robot that can act like a human being” – still doesn’t crack wise in a New York accent, like the cartoon Rosey. But how far off can that be?

Technology and labor costs hardly move in lockstep, and of course innovation results from many causes. But economic theory, anyway, is saying that my view on the cost and supply of domestic workers is becoming outdated. Common sense also suggests that if something like Rosey is just about here, then domestic workers aren’t as cheap and/or as abundant as I believed. So their wages may well have been rising strongly enough lately to create demand for an automated counterpart.

At the same time, the advent of “Rosey” (and how many other devices like “her” just over the horizon?) amounts to a frantically waving red flag about the wisdom of any immigration policy moves likely to increase the supply of poorly-skilled workers in the American economy – which is to say, any proposals supported by the national Democratic Party and the rest of the country’s Open Borders enthusiasts. Just what kind of work can they be expected to find? Indeed, the automation progress represented by “Rosey” signals that much of the existing workforce in the nation is going to be increasingly hard-pressed to secure or hang onto decent-paying jobs.

Similarly, although I believe there’s still a strong economic (and moral) case for a national minimum wage that tracks inflation, the seemingly impending dawn of the Age of Rosey raises big questions about the wisdom of the kinds of minimum wage jumps sought by the “Fight for 15” campaign and other activists.

“Rosey’s” appearance at the Consumer Electronics Show doesn’t mean that I’ve come down one way or the other in the vital debate taking place today over whether all this recent technological progress ultimately will be a net job killer or creator. But it seems clear as a bell that this tech wave is being completely ignored by the Open Borders and the Fight for 15 backers, and that Americans closest to the low end of the wage and income scale are likely to be among the biggest victims.

(What’s Left of) Our Economy: A Stunning Downgrade for U.S. Manufacturing Labor Productivity Growth

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BLS, bubbles, Bureau of Labor Statistics, David P. Goldman, Financial Crisis, Great Recession, labor productivity, manufacturing, multi-factor productivity, non-farm business, offshoring, productivity, recovery, total factor productivity, unit labor costs, {What's Left of) Our Economy

Wow! There were so many important results flowing from last week’s final (for now) government data on third quarter U.S. labor productivity, I hardly know where to begin. (I’m also feeling a little sheepish about waiting so long to report on these data, but it’s just another sign that we’re living in a target-rich commentary environment, as RealityChek‘s motto suggests.) But after finishing this post, I feel confident you’ll agree that the big downward historical revisions to manufacturing labor productivity growth deserve the most attention.

Not that the new figures on overall labor productivity (for the so-called non-farm business sector) were anything to sneeze at. These new numbers cover the narrowest measure of productivity (gauging only output per hour worked by an individual American employee) but as known by RealityChek regulars, they’re issued on a much more timely basis than the multi-factor or total factor data – which measure the output generated by a wide range of inputs.

And this update on third quarter labor productivity confirmed that it grew at its highest sequential annualized rate (2.95 percent) since the third quarter of 2014 (4.34 percent). The revised labor productivity gain was actually a touch smaller than the originally reported 2.97 percent rise, but not nearly enough to change the overall story. If this rate of improvement continues, that would be excellent news, since strong productivity growth is an economy’s best bet for a sustainable increase in economic growth and living standards.

At the same time, analyst David P. Goldman has noted that the new data add to compelling evidence that recent years have seen a reversal in the relationship most economists have long assumed (and that was borne out by by these same statistics) between unit labor costs (a main labor component of the productivity statistics) and the broadest measures of unemployment. As Goldman just observed, normally, they move in opposite directions – i.e., when joblessness is rising, the price of labor generally (and logically) falls, and vice versa. But since 2014, unemployment has kept tumbling, but labor costs have fallen as well. If this trend continues, that would be much worse news, since it would undermine the portrayal of productivity growth as a boon to the nation’s workers. (And a richly deserved hat-tip to a Twitter follower of mine, who goes by “Field Roamer” for calling my attention to this post.)

It’s been clear throughout this current U.S. economic recovery that wage growth has been unusually weak, but Goldman’s post paints the paycheck picture in a much grimmer light, and that’s definitely worth exploring further.

But to me, the manufacturing revisions deserve center stage, both because of their magnitude and the long time frame they cover – all the way back to 1987, when manufacturing labor productivity began to be tracked. I’ll let the Bureau of Labor Statistics (BLS), which calculates productivity for the U.S. government, summarize its dreary conclusions:

“A large upward revision to the change in the annual manufacturing productivity index from 2008 to 2009 was more than offset by downward revisions in adjacent years, and the average annual rate of growth from 2007 to 2012 was revised down from 2.9 percent to 1.2 percent. The average annual rate of manufacturing productivity growth during the current business cycle from 2007 to 2016 was revised down from 1.6 percent to 0.9 percent, and the long-term rate for the entire series from 1987 to 2016 is now 2.8 percent, compared to the previous estimate of 3.2 percent.”

In other words, over roughly the last thirty years, labor productivity in industry has risen 12.50 percent more slowly than previously reported. And manufacturing’s performance on this crucial front wasn’t great to start with.

Another way to look at the new numbers is to see how they affect what we know of America’s manufacturing labor productivity performance during the most recent economic expansions – a method that gives us the best apples-to-apples data. If your jaw doesn’t drop, it should.

The 1990s expansion still comes across as a period of robust manufacturing labor productivity growth. The cumulative increase was downgraded only from 46.81 percent to 45.94 percent.

But check out the new results for the previous decade’s recovery. Viewed through the lens of the old productivity data, its performance was excellent, and surprisingly so. After all, this expansion was fueled by the inflation of the credit and housing bubbles whose bursting led to the global financial crisis and the Great Recession. Yet the BLS had been saying that its cumulative productivity gain was 41.23 percent – just about as good as the 1990s advance factoring in this recovery’s shorter duration.

The new numbers – only 30.08 percent manufacturing labor productivity growth – are much more consistent with the idea that the previous economic recovery was marked largely by phony, unsustainable growth.

And as for the present recovery? The old data already made clear what a productivity disaster it’s been. Though it’s lasted nearly as long as the 1990s expansion, the previous BLS data pegged its total manufacturing labor productivity growth at only 20.93 percent – just about half the rate generated during the 2000s expansion.

The new rate? Only 9.41 percent, meaning its been cut nearly in half. Moreover, according to the new figures, the current recovery’s manufacturing labor productivity growth rate represents a much greater deterioration from the performance of the bubble recovery than had been reported. At least by this measure, American economic growth was already appearing even less healthy these days than it was leading up to the last meltdown produced by fake prosperity. Now this problem looks much worse. 

In addition, don’t forget:  Even these dreadful numbers probably overstate manufacturing labor productivity’s advances. Why? Because as the BLS acknowledges, its methodology for calculating this indicator include the effects of offshoring: simply substituting foreign workers for American workers. Since the total number of workers doesn’t change, the productivity figures for U.S. factories and related facilities are artificially inflated – and for reasons having nothing to do with greater efficiency. 

And these results raise all sorts of perplexing questions. For example, I’ve been arguing for quite some time that the overall slowdown in American labor productivity growth must surely stem from the trade- and offshoring-related losses of so much domestic industry – which has generally been the economy’s productivity growth leader. But the new BLS statistics indicates that there could be a bigger labor productivity growth problem within manufacturing itself. Alternatively, these losses could have been concentrated in especially high-productivity sectors of manufacturing – or trade and offshoring have had little or nothing to do with the problem to begin with.

More light could be shed on these questions by comparing America’s manufacturing labor productivity performance with that of other countries. Has it been better? Worse? Some short-range data I’ve seen indicate that the slowdown has been widespread across the globe, at least between 2015 and 2016. But I need to dive much deeper into these statistics to draw firmer conclusions.

Further, how significantly will these new labor productivity results affect the broader multi-factor productivity results? BLS hasn’t scheduled its next report on this indicator, so my oft-used advice to “stay tuned” applies to me, too, in this case.

(What’s Left of) Our Economy: More Offshoring Lobby Snake-Oil on NAFTA

Tags

China, Cummins Inc., free trade agreements, manufacturing, Morning Trade, NAFTA, North American Free Frade Agreement, offshoring, offshoring lobby, Politico, steel, tariffs, Tom Linebarger, Trade, Trump, Vietnam, {What's Left of) Our Economy

If Tom Linebarger conducts business the way he talks about trade policy, I’d watch out for my wallet if I dealt with his company. Because recent remarks made by the Cummins Inc. Chairman and CEO about President Trump’s efforts to rewrite the North American Free Trade Agreement (NAFTA) represent an unusually brazen example of snake-oil peddling.

In an interview with Politico‘s “Morning Trade,” Linebarger, whose firm is a leading manufacturer of diesel and natural gas engines and engine components, contended (in the reporter’s words) that “Although Trump believes differently, the United States is a much less attractive place for companies to invest if NAFTA no longer exists.”

In Linebarger’s view (and his own words), even if they’re only bargaining tactics, Mr. Trump’s threats to terminate the deal are “a terrible idea” because “Investors make decisions based on what they project is going to happen and one of the challenges in posturing with something of this nature is that people will begin to change their plans.”

Continued Linebarger:

“Not only would terminating NAFTA worsen the position of the U.S., but it causes multinational companies like mine to figure what’s the best way to position yourself for a world without NAFTA, which might mean changing manufacturing locations. Mexico has 44 free trade agreements. The U.S. has free trade agreements with 20 countries. So the very best way to sell to everybody else is to be in Mexico.”

But here’s what Linebarger didn’t tell Politico. First of all, according to Cummins’ latest annual report, more than half (54 percent) of all of the company’s net sales last year went to customers in the United States. The year before, it was 56 percent. Second, one of Cummins’ senior executives for Latin America stated publicly last month that all of Cummins’ Mexico engine production is exported, and that 80 percent goes to the United States. (The rest goes to the United Kingdom.)

So if Trump terminated NAFTA, and (as he has pledged) raised tariffs on Mexico-produced goods and services high enough to make the country unprofitable as an export platform, Cummins could lose nearly all of the customers for its four Mexico factories if it failed to return that production to the United States. It would also lose a big chunk of its total worldwide customers. 

Of course, Linebarger, Cummins, and other footloose multinationals could always try to skirt those tariffs by producing for the American market in other countries.  But that strategy could only succeed if the Trump administration simply sat back and did nothing about U.S. trade with any of these countries.  And just this week, Washington served notice that it would respond to such production-shifting ploys by announcing stiff new tariffs on Chinese-made steel entering the American market from Vietnam.        

In addition, the Latin America executive made clear that, despite Linebarger’s touting of Mexico’s non-U.S. trade deals, the company has made scarcely any use of them. And continuing U.S. domination of Cummins’ Mexico exports is all the more striking given that Mexico has been able to benefit from a free trade deal with the European Union (which the United Kingdom of course will be leaving) since late 2000, and from such an agreement with Japan since mid-2005. (Incidentally, counting all the EU countries separately is the only way the number of Mexico’s free trade agreements gets anywhere close to Linebarger’s 44.)

The only conclusions that can be drawn from the numbers: Either Linebarger is a complete incompetent and has failed to use Mexico as a supply base for dozens of promising non-U.S. markets, or he recognizes that Europe, Japan, and much of the rest of the world have little interest in importing advanced manufactured goods like those made by Cummins — or at least little interest in importing them from Mexico.

But let’s not ignore an equally important conclusion made clear by this piece: If journalists don’t stop simply taking at face value the claims of Offshoring Lobby mainstays like Linebarger, Americans will never have the kind of informed debate they need on trade and their place in the global economy.

(What’s Left of) Our Economy: More Establishment Happy Talk About De-Industrialization

Tags

Anne-Marie Slaughter, blue collar, Bureau of Labor Statistics, design, engineering, Madeleine Albright, manufacturing, New America, offshoring, research and development, STEM, Trade, white collar, {What's Left of) Our Economy

I’m all for looking on the sunny side of life. Making up the sunny side of life? Not so much. That’s why I find Anne-Marie Slaughter’s recent Financial Times column so disturbing. For the author – a contributing editor of the FT, the president of New America (a tech and offshoring industry-funded think tank in Washington, D.C.), and a former leading foreign policy adviser to President Obama) has just served up an exercise in economic hopium that is almost entirely fact-free, and that repeats a canard that was hopelessly out of date twenty years ago.

Slaughter’s fanciful claim? That the spread of the internet of things throughout American manufacturing is going to spur a revival of America’s hard-hit, industry-heavy midwestern Rust Belt. One main reason, according to the author:

“[T]he next phase of the digital revolution is the internet of things. The Midwest is the traditional home of makers — of cars, tractors, machines and household appliances. Companies such as Deere & Co, Carrier or Ford may have shifted manufacturing abroad, but the design, engineering and innovation is still concentrated back home. Those jobs may be less sexy than billion-dollar start-ups, but they will be stable and well paid. On Thanksgivings to come, Midwest cities seeking to grow their tech sectors should have more and more to be thankful for.”

Although the headline (which Slaughter probably isn’t responsible for) – “The internet of things helps spark a rust belt revival” – signals that the Midwestern renaissance is already well underway, the author herself is honest enough to specify in the text that the only metrics she presents show progress on this score limited to “a fraction of a percentage point.” But it would have been more honest to at least hint at all the data suggesting how pie-in-the-sky her prediction is over any foreseeable time frame.

For example, although there’s no authoritative source of information showing how many employees of manufacturing companies based in the United States (either U.S.- or foreign-owned) work in science and technology positions, numbers are available for the share of American manufacturing workers occupying both blue-collar and white-collar jobs. These aren’t definitive, because many of the white-collar jobs are administrative and management jobs having little or nothing to do with innovation, and because manufacturing companies have tried to eliminate as many as possible to maximize cost savings.

But it’s still surely revealing that, since the offshoring phase of U.S. trade policy officially began when the North American Free Trade Agreement (NAFTA) went into effect at the beginning of 1994, American manufacturing employment falling outside the “nonsupervisory and production” category is down by 956,000 – or 20.45 percent. That’s a smaller hit than taken by industry’s blue-collar workforce – which is down by 39 percent, or 3.418 million. But over the last two-plus decades, the blue-collar/white-collar job split in manufacturing has barely budged, with the former’s share down from only 72.27 percent to 70.21 percent. Does that tell you a dramatic U-Turn is anywhere on the horizon?

Moreover, the U.S. Bureau of Labor Statistics (the source of the above figures) did take a cursory look at the employment of some types of engineers in various sectors within domestic manufacturing. It found that, in May, 2015, between about 38 percent and about 55 percent of the workforces in American information technology hardware production belonged in science and technology categories. But little of this type of manufacturing is located in the rust belt.

The only data set this same study contained that looked relevant to the midwest covered the increase in the number of mechanical engineers employed in the motor vehicle parts and various industrial machinery sectors. Only in motor vehicle parts did the workforces (modestly) exceed 10,000 – and this in an industry whose payrolls approached 564,000 that month, and whose total white-collar workforce came to just over 128,000.

Although it’s true that the statistics could be missing the kind of shift Slaughter expects (and her headline writer regards as already underway), anyone familiar with the way manufacturing typically works would understand why extreme skepticism is in order. In real-life manufacturing companies, and especially factories (as opposed to those imagined by so many think tankers and academics), production on the one hand and research and development etc on the other are rarely activities that are so sharply distinctive that one can readily take place around the world from another. In fact, they are so closely related that knowledge tends to flow back and forth between production line and lab in a continuous, interactive feedback loop. And it’s not remotely good enough to exchange this information electronically. That’s why, in sector after sector of manufacturing, when the production leaves the country, the research and development and design and engineering tend to follow.

And that’s why the only useful purpose served by Slaughter’s article – and the FT‘s decision to publish it – is reminding readers that, as long as American trade and other globalization policies keep needlessly fostering the export of manufacturing, offshoring interests, their hired guns in the think tank world, and their unwitting dupes in the press will strive to portray these losses as all for the best.

As my book, The Race to the Bottom made clear, it was a phony excuse for de-industrialization back in 1997, when former Clinton Secretary of State Madeleine Albright touted the advent of high tech products “designed and begun in the United States and…manufactured in Asian countries,” and it’s no less dangerously off-base today.

(What’s Left of) Our Economy: Even a U.S. Growth Pickup Keeps Leaving Wages Behind

Tags

benefits, Employment Cost Index, Immigration, inflation-adjusted wages, Labor Department, manufacturing, offshoring, recovery, salaries, Trade, wages, {What's Left of) Our Economy

Government data released yesterday morning make clear that the supposed biggest mystery surrounding the American economy remains as big as ever – and may have become even bigger. I’m talking about the Labor Department’s quarterly report on employment costs – the broadest official measure of compensation available. It continues a wave of statistics demonstrating that although the nation’s economic growth rate is quickening some, virtually none of this progress is showing up in American workers’ combined paychecks or benefits levels.

The figures are contained in Labor’s third quarter Employment Cost Index, and although the pre-inflation numbers usually attract the most attention, the most important news was in the price-adjusted data. They showed the third quarter-to-quarter drop in this combination of private sector wages, salaries, and benefits since the middle of last year. (I focus on the private sector, because in the public sector, compensation largely stems from politicians’ choices, not from the fundamentals of the economy.)

The drop wasn’t big – 0.1 percent. But it was enough to drag down the year-on-year change to 0.29 percent.

These inflation-adjusted employment cost numbers don’t go back past 2001. But they still allow comparison between the current economic recovery and its predecessor. During the expansion that lasted between the end of 2001 and the end of 2007 (not widely considered a golden age for U.S. workers), private sector employment costs rose a total of 2.36 percent. During the current, ongoing expansion, which began in mid-2009, it’s up 3.70 percent.

But don’t assume that we’re seeing progress. After all, that previous expansion lasted 24 quarters. Today’s is 33 quarters old.

Manufacturing workers have fared somewhat better, especially over the longer term. The quarter-to-quarter and year-on-year change in their inflation-adjusted employment costs was the same as for the private sector overall.

Their employment costs increased only 1.99 percent in real terms during the last recovery – a slower pace than for private sector workers in general. During this recovery, it’s been considerably faster: 5.03 percent. At the same time, last year’s numbers do indicate a slowdown.

All told, since the last decade’s recovery began, overall compensation for manufacturing workers has grown by 7.34 percent in constant dollars, versus only 6.58 percent for the private sector in toto.

Keep in mind, moreover, that these figures span a period of sixteen years.

Keep in mind also that a crucial reason for this pay stagnation looks to be staring supposedly mystified policymakers right in the face – the two-way globalization whammy that’s hit the American workforce over the last two and a half decades. Thanks to offshoring focused trade deals and mass immigration, businesses operating in the United States have been able to access massive, very low wage foreign workers either by sending production overseas, or by pushing policymakers to help bring them to America.

Further, as is even more often overlooked, the job doesn’t need to go overseas, or be replaced by an immigrant, for these policies to impact U.S. labor markets. The very possibility has surely scared American workers enough to keep wage demands subdued – at best.

Interestingly, of course, these developments haven’t escaped the notice of many of the American workers who vote. That’s no doubt a major reason why Donald Trump is president. But it also signals that unless he’s more effective on the trade and immigration fronts, he could be replaced on his job as well.

Im-Politic: Mainstream Media Again Foster NAFTA Myths and Think Tank Corruption

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Canada, donors, Google, Im-Politic, Japan, Korea, Mainstream Media, media, Mexico, NAFTA, Navistar, New America, North American Free Trade Agreement, offshoring, Peterson Institute for International Economics, Reuters, tariffs, think tanks, Trade, trucks, Trump, Washington Post, Woodrow Wilson Center

Although Donald Trump’s presidency might still turn out to be a watershed for U.S. trade policy, it already seems clear that trade policy coverage from the Mainstream Media will remain uniformly terrible, and unmistakably slanted toward the conventional approach that candidate Trump promised to disrupt. As recent articles from Reuters and the Washington Post remind, the bias takes both subtle and non-subtle forms.

Both pieces deal with the talks to renegotiate the North American Free Trade Agreement (NAFTA), which have resumed in Washington, D.C. this week. Despite its failings, Reuters correspondent Sharay Angulo’s article on the talks’ possible impact on multinational truck manufacturers contained some important information. For instance, she reported that 98 percent of the trucks exported from Mexico are sent to the United States and Canada – which oddly precedes a claim that most of these truck companies “have a similar strategy of building in Mexico to export to countries other than the United States.”

We also learn from her that more than half the “original parts” of U.S. firm Navistar’s Mexico-made trucks come from the United States and Canada (although this information comes from Navistar itself, and like other company-specific information re NAFTA, offshoring, and trade in general, so far can’t be independently verified). In addition, the article (again citing Navistar statistics) states that the firm exports fewer than half its Mexico-made vehicles to the United States – which seems to differentiate it sharply from its competitors.

Where the report veers sharply from the rational is in its unquestioning acceptance of the claim that “Higher tariffs on imports or reduced trade flows would raise the cost of production and of exporting to the United States. That would make trucks more expensive for all Navistar’s customers….”

What’s somehow missed by the author (and all the “experts” consulted by Reuters who allegedly agreed with this contention) is that this result would unfold only if Mexico retaliated against any Trump administration tariffs on its exports to the United States with new levies of its own that would hit manufacturers like Navistar. Given Mexico’s heavy dependence on parts imports to support its export-oriented truck and other industrial production, why on earth would its government take this step? Such retaliation would “raise [its] costs of production and of exporting to the United States” yet higher. Talk about cutting off one’s nose to spite one’s face.

Also missed by Angulo – how higher Mexico production costs could well achieve Mr. Trump’s revamp objectives by shifting truck manufacturing back to the United States. She’s correct in suggesting that low tariffs on Mexico exports to the United States may not suffice. But a logical (and seemingly obvious) implication is simply that higher tariffs will be needed.

The less subtle form of bias came in an October 6 Washington Post article previewing the latest NAFTA talks, and although it’s a more common variety, it was especially flagrant. One big problem is the authors’ (and their editors’) decision, with a single exception, to quote only critics of the Trump administration’s efforts.

Thus, readers are presented with the perspective of a Canadian trade lawyer, a former Mexican trade negotiator who now works for a D.C.-based consulting firm with many offshoring companies as clients, a Mexican business lobbyist who officially advises his country’s NAFTA negotiators, a former Canadian official, a former Obama administration economic aide, and four specialists from two Washington, D.C.-based think tanks.

A second big, and related problem – at a time when the intellectual integrity of such think tanks has come under a positively stygian cloud due to the uproar over New America’s firing of several researchers who ran afoul of big donor Google, the Post piece makes absolutely no mention that both of these organizations depend heavily on contributions from both companies and foreign government organizations with vital stakes in maintaining the NAFTA status quo.

For example, the latest info from the Mexico Institute of the Woodrow Wilson Center (itself a recipient of U.S. taxpayer funding), base for one of the specialists showcased in the piece, reveal that the organization receives contributions from no less than six big Mexican companies, plus Wal-Mart (a big importing business) and the main trade association of the American pharmaceutical industry – which manufactures in Mexico for export to the United States.

The Canada Institute, where the other quoted Wilson Center specialist is based, lists the Canadian government as a donor.

As for the other think tank relied on by the Post for (supposedly objective) expertise, the Peterson Institute for International Economics (PIIE), among its U.S. and foreign multinational funders that produce in Mexico for export to the United States are Toyota, GE, Caterpillar, IBM, Ford, GM, Samsung, John Deere, Procter & Gamble, and Mitsubishi.

PIIE also takes contributions from three foreign government entities that help their countries’ companies engage in export-oriented operations in Mexico: the Korea Institute for International Economic Policy, the Korea Development Institute, and the Japan Bank for International Cooperation.

In addition, in recent years, the Peterson Institute has also cashed big checks from Mexican building materials giant Cemex, and from the U.S. Chamber of Commerce – the organizational spearhead of America’s corporate offshoring lobby.

As I’ve repeatedly emphasized, the point here is neither that these think tanks’ findings and opinions lack merit, or they or their donors have no right to weigh in on important trade and other policy debates. It’s that these ostensible research groups should make clear who’s paying their rent – and that if they continue with what I’ve called deceitful idea laundering on behalf of their sponsors, the press should call them out.

The Mainstream Media, however, keeps failing to fulfill this responsibility – which can only deepen already profound suspicions that it’s abandoning its watchdog role and turning into an establishment lapdog instead.

Following Up: Time for a “Truth in Testimony Act” for Think Tanks

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business, civil society groups, Congress, corporations, data, exports, Following Up, globalization, idea laundering, imports, Jobs, labor unions, offshoring, statistics, think tanks, Trade, trade balances, transparency

So far, my work on the problems for our democracy caused by corporate- or other special interest-funded think tanks has emphasized that the media has a special responsibility – and ability — to help solve them. How? By making sure that whenever they quote staffers from these organizations as experts on this or that issue, they reveal who’s signing the tankers’ paychecks.

But another major segment of society also needs to play a role in preventing what I call think tank idea-laundering – posing as objective, academicky-type organizations in order to portray their staffs’ findings as the products of disinterested scholarly research rather than exercises in agenda-pushing. That segment is government.

Legislatures at the local, state, and federal levels should pass what might be called “Truth in Testifying Acts.” That is, whenever they invite input from think tanks in hearings they hold, or in public comment exercises they conduct, the law-making bodies should require these organizations to disclose all their funders with a financial stake in the subject being examined, or the decision that’s pending. As a result, the public or any other consumers of these analyses would have the information they need to judge how much credibility they feel the information deserves, and what kind of material has been deliberately exaggerated or spotlighted or downplayed or ignored altogether.

In fact, these requirements should be imposed on so-called civil society groups, foundations, labor unions, academic institutions, and business organizations, too. Sometimes their biases are obvious from their names, but only sometimes. Best to err therefore on the side of caution – and more disclosure.

Further, while we’re on the subject, I’d like to see something else added to these Truth in Testimony Acts, or follow-on legislation, which is especially relevant to the trade issues I follow so closely: requirements that business groups and their think tank fronts lay out comprehensively their own domestic and international operations and structures, and those of their major funders. They’re needed because representatives of these organizations have long gotten away with literal intellectual murder by presenting legislators with shamelessly cherry-picked data.

For example, when trade agreements and other trade policy decisions are being examined, it’s become standard operating procedure for witnesses in favor of greater liberalization to present figures on exports from the country as a whole, from individual states or Congressional districts (always of major concern to Senators and House members), or from whatever company or industry they represent. And typically, they’re allowed to ignore the import and trade balance sides of the equation. Talk about a total crock.

Similarly, these individuals and organizations are happy to report on how many workers they employ nationally, and in various states and localities, and how many of these jobs depend on exports at a given moment. But they have no interest in discussing how these trends have changed over time, or how many jobs and how much production they’ve sent overseas or have lost to imports, or how these situations have evolved, say, over the life of a certain trade deal.

The companies and industries justify this selectivity by contending that information on imports and offshoring is proprietary, and that keeping it confidential is crucial to their commercial success. That’s often true. But the Truth in Testimony Act should specify that if witnesses wish to keep close to their vest information on one side of the trade ledger (e.g., their firm’s imports), then they can’t brag about their performance on the other side (e.g., their firm’s exports). There’s simply no reason to allow these businesses to play, “Heads, We Win; Tails, You Lose.”

Nor need there be anything the slightest bit coercive about such requirements. If businesses and industries and their various representatives feel so strongly about the secrets to their success, they should be free to decline invites to appear before lawmakers.

Actually, I’d like to extend these requirements to the financial statements public companies need to file with the feds. As with their testimony, such businesses often include flattering trade-related information in quarterly and annual financial statements. If they’re not willing to give investors the full picture, they should need to drop the whole subject.

And why restrict such disclosures to public businesses? Companies of all kinds are required to report all sorts of information to Washington. Their submissions form the basis of much of the economic data that is made publicly available by the federal government. The shield of anonymity provided by the Census Bureau and other statistical agencies to prevent rivals from using the data to gain advantage is entirely reasonable from the standpoint of these businesses. But from a national standpoint, it makes no sense at all. Indeed, it puts policymakers and the public in the position of flying largely blind when it comes to evaluating the impact of trade policy decisions.

The same kind of problem is created by the narrow range of trade-related info that businesses are legally obligated to share. Why not force them to specify their job and production offshoring, the wages of their U.S. and overseas workers, their foreign and domestic procurement, the foreign and domestic content of their products, and similar statistics? And why not demand time series, so that long-term patterns can be identified?  BTW — content information has been required of auto-makers selling in the United States since the 1990s, so major precedent exists. 

The business secrets problem is easily solved: If all firms wishing the privilege of operating in the United States need to share the same information, no one company is put behind the eight-ball. And again, no coercion is involved. Companies would be perfectly free not to comply – and exit the world’s most lucrative market by far in the process. And what about the regulatory burden that would be placed on smaller firms? There’s a strong argument for exempting them, as larger firms dominate U.S. trade flows anyway.

Such a sweeping “Truth in Globalization Act” would probably be a heavier legislative lift than the “Truth in Testimony Act,” so I’d focus first on the former. But both are urgently needed to ensure the soundest possible U.S. policymaking process.  And how could anyone genuinely devoted to the national interest object?  

(What’s Left of) Our Economy: Another U.S. Trade Deal that Puts America Last

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apparel, CAFTA, Central America, Central Anerica Free Trade Agreement, dispute resolution, Dominican Republic, DR-CAFTA, free trade agreements, Guatemala, labor rights, legalism, offshoring, Trade, trade law, {What's Left of) Our Economy

To get a good idea of one of the biggest, and most neglected, failings of U.S. trade policy, look no farther than America’s near-neighbors in Central America. For earlier this month, a development on the labor rights front made clear the America Last approach Washington has taken toward the ways that disputes are handled under various trade agreements the United States has signed – in this case, the deal with six Central American countries plus the Dominican Republic (DR-CAFTA).

On June 14, an arbitration panel established by the dispute resolution chapter of the DR-CAFTA treaty ruled against the United States and for Guatemala in a long-running quarrel between the two signatories over labor rights practices in the latter. On the face of it, it’s hard to take seriously the arbiters’ conclusion that Guatemala indeed is not enforcing its own labor laws ostensibly aimed at safeguarding workers’ rights, but that this failure hasn’t affected bilateral trade flows. After all, in a world where its major industrial export industry – apparel – has to compete on price with super-low wage garment giants like China, Vietnam, and Bangladesh, keeping wages down is essential to the Guatemalan apparel sector’s very survival.

But the fundamental problem with this situation has nothing to do with the merits of the case. It has to do with the structure of the dispute-resolution process set up by the DR-CAFTA treaty, which is basically the same as that set up by all U.S. bilateral and regional free trade deals. Simply put, it bears absolutely no resemblance to economic or policy realities.

Two especially important and related points to keep in mind: First, when the DR-CAFTA deal was ratified by Congress, in 2005, the combined economies of all six Central American countries proper only equaled the output of New Haven, Connecticut. Adding the Dominican Republican barely moved this needle. Because of this gargantuan size disparity, access to the American economy was clearly the paramount prize in this arrangement, and the non-U.S. signatories needed the deal much more than did the United States.

Second, largely as a result, the DR-CAFTA deal was less an example of trade policy than of economic development policy. Yes, cheerleaders for the agreement talked of opening exciting new markets for American domestic producers – talk belied by the micro nature of Central American and Dominican markets). And yes, they spoke of enhancing the competitiveness of the American textile industry – claims belied by the impossibility that the pact could overcome the advantages of the Asian apparel giants). But at bottom, the deal was a foreign aid program for the region.

Leave aside its clear failure to achieve meaningful “democracy, economic reform, and regional integration” – at least if you believe even a fraction of countless news reports of out-of-control lawlessness and violence in Central America. Given the non-U.S. signatories’ desperate need for any American help they could get, why on earth would Washington permit the treaty to create a system for choosing arbitration panels – which have the last say in determining a dispute’s winner and loser – that treats the United States and the other DR-CAFTA countries as legal equals?

One answer is that the agreement – like many other U.S. trade deals – was actually intended to foster offshoring, not open foreign markets. So the multinational companies that have dominated the American trade policymaking process for so long made sure that dispute resolution aimed first and foremost to prevent the United States from limiting its imports from their Central American and Dominican factories for any reason. And given the absence of significant consumption markets in the region, that observation seems compelling.

But the so-far-standard U.S. approach to dispute-resolution in trade also typifies a legalistic worldview that contrasts sharply with global realities even in an economic sphere where, for numerous reasons, it’s still completely inappropriate. In fact, this legalism is likelier to undermine American interests than serve them.

Principally, the prevalence tariff and non-tariff barriers to both trade and investment, along with various other predatory practices, shows that the consensus on acceptable economic behavior needed for a genuine legal system to function adequately simply does not exist in fact. Ditto for the great majority of economies that rely heavily on amassing net exports to generate growth. As a result, international commerce is anything but the positive-sum arena portrayed by politicians and academics. So any arrangements meant to negate national power are bound to handcuff the United States. Worse, they handcuff America needlessly.

Perhaps one day, the worldwide consensus needed for a genuine, legitimate system of trade law will emerge. Until it does, however, the United States should capitalize on the leverage it enjoys as the world’s most open major trading power and market of last resort, and sign trade agreements that establish it as judge, jury, and court of appeals for whatever disputes arise. There’s no better place to start than scrapping the artificial – and indeed forced – egalitarianism of the DR-CAFTA trade agreement.