I have done an awful lot of thinking and research on the effects of increased trade and the "race to the bottom" - meaning that developed countries are forced to lower their standard of living to effectively compete with less developed countries. The end result of all this at this point is this: there is no way to stop it from happening. In other words, we are entering a period of decreased living standards that could last 50-100 years during which the developed world's standard of living decreases while the developing world's standard of living increases. Until we reach a point of near parity there is little we can do on the policy front to prevent it from happening.
This is not the type of conclusion anyone wants to read. But let me explain why I think this is the case going forward.
While we can rail about the effects of free trade all of us benefit from free trade. Here's my latest example. A long time ago in a galaxy far, far away (actually a city named Austin, Texas) I was a professional guitarist (What else are you supposed to do with a political science/economics/music major?). Anyway, I still keep my hand in the game and read Guitar Player Magaine every month. This month they review budget guitars -- guitars under $500 or so. Here's the point of all this: all of the guitars are made in Asia, particularly China. I've played a few of these items and can tell you there are some really fine inexpensive guitars in the lot (particularly the Hamer XT series). It's a damn fine guitar for the money. In fact it's a damn fine guitar compared to some guitars under $1000.
This isn't an isolated instance. Literally every inexpensive product we buy in the US is now made overseas. Home electronics, kitchen implements, furniture, tools, hell you name it and it stands a good chance of being made in another country. And the fact that these goods are inexpensive benefits the US by giving us more choices. In addition -- and be honest -- how many people like getting something for less money? If you said no, chances are you're saying no simply to disagree with the point. And that's a central point: People like getting inexpensive stuff. That's a central reason why Wal-Mart is now the largest US retailer by a mile.
So long as foreign made goods are cheaper and better, we're going to import them. There's no way to stop that from happening. Any measures we take to stop it will prove temporary and fleeting.
In addition to the inherent benefits, implementing the types of proposals most Democrats argue for in free trade deals runs into large problems.
First, let me paint a picture with a hypothetical country. Country X is a third world country. Unemployment is high. The average daily salary is 10 cents in US dollars. There is a hodge-podge of infrastructure - roads, water and sewer lines etc.... Like most countries in country X's position, indigenous natural resources are their primary export. Typically, this is some type of mineral extraction or agriculture.
Let me use wages as an example. Hypothetically, suppose we argue for a wage of 15 cents a day. This sounds reasonable from a US perspective. However, from X's perspective, it is entirely unreasonable. First, high-unemployment indicates that 10 cents/day may be too high to begin with. Secondly, with an unemployment rate that high there is no practical reason for an employer to offer higher wages. He can simply find another prospective employee willing to work for 10 cents a day and with high unemployment the chances are high he will succeed. Third, an increase of 5 cents a day would increase wages 50%, increasing the possibility of increasing inflation which no country wants in excess.
As Democrats, we would want country X to have labor laws akin to US labor laws - laws that involve child labor standards, minimum wages, safe working condition regulations and maternity leave just to name a few. Out motives are on solid moral ground. Laws of this type are for the worker's protection. Companies have rarely demonstrated a long-streak of compassion when it comes to their workforce.
Here's the reality. None of this is going to happen. The government does not have the governmental infrastructure or resources to monitor or prosecute a company's behavior. More importantly, the government has other priorities like building the country's physical infrastructure and maintaining political stability. Issues of wage parity and working conditions are simply a low priority in this type of political environment. While it may have something to do with the persons in political power in X, it is also a function of where they are in terms of economic development.
We may argue for a third-party to monitor the countries labor resources - something like the US or another multi-lateral organization. This runs into problems dealing with the country's sovereignty, making it difficult to achieve.
The point here is that we are arguing about developed world problems and solutions when the other countries have developing world problems and solutions. The two sets of problems don't look anything alike and from the other country's perspective their problems (high unemployment, poor infrastructure, massive poverty etc...) are more important than ours.
SO -- what can we do?
Here are some basic ideas.
1.) We need to become more competitive in the "jobs of tomorrow" -- economic areas that will provide goods and services the world wants tomorrow. Three of my favorites are stem cell research, alternate energy and nano-technology. There are also many other industry sectors that qualify; these are just my pet favorites. The US must develop policies that promote these industries.
2.) The US workforce needs massive retraining/education. According to this paper from the New York Federal Reserve:
While the U.S. manufacturing sector has contracted sharply since the early 1980s, employment in high-skill manufacturing occupations has risen by an impressive 37 percent. An investigation of the growth in high-skill manufacturing jobs reveals that virtually all of the nation’s industries have shared in this trend. Moreover, skill upgrading has occurred in all parts of the country, even those experiencing severe employment losses.
But manufacturers, regardless of size, specialty or location, across the USA are reporting a dire shortage of skilled workers: people such as welders, electricians or machinists with a craft that goes beyond pushing buttons or stacking boxes but does not require a degree.
In a survey of 800 manufacturers conducted by the National Association of Manufacturers (NAM) last year, more than 80% said they were experiencing a shortage of skilled workers. In October, manufacturers surveyed by the Federal Reserve Bank of Philadelphia said "finding qualified workers" was their biggest business problem.
The point is the change to a more technologically advanced workplace has already started, and we're not keeping up with demand.
Trade deals must be bilateral
When we make deals with other countries, we must insure there are policies in place that benefit US exports. Just as example, China has fallen behind on implementing parts of its WTO agreements:
At the same time, today’s report to Congress highlights a number of areas of concern about the level of China’s implementation of its WTO commitments in areas such as intellectual property rights, industrial policies, trading rights, services, transparency, and agriculture.
As an additional example, this report from the US Trade Representative highlights high barriers in China's regulatory structure that hamper medical devices, technology, transportation companies, food companies and financial services from competing with local companies. These are all areas where the US excels.
It's also important that we don't back away form a trade fight. If a country we deal with makes it incredibly hard for US companies to enter, slap a tariff on their imports until they capitulate -- or take similar measures to force the other country's hand. There are a lot of examples where US goods have a difficult time gaining access to other countries where they shouldn't. There are plenty of economic areas where the US excels -- technology and finance being prime examples -- where out companies have a hard time gaining entry. If we're serious about lowering the trade deficit, it's time to play some offense.
For more information on various countries' policies, go to this page, which provides a report on many country's trade barriers to US goods and services.
In short, the domestic policy alternatives deal with moving the economy forward into new areas that create higher paying jobs. The foreign policy alternatives deal with leveling the playing field in foreign jurisdictions.
However, the above mentioned suggestions won't prevent the pain. In short, we are moving into a fast-pace period of world development where the underlying economic fundamentals are going to change rapidly and often. People will have to develop a whole host of skills to deal with this situation. Multiple careers will become common place and switching jobs/industries the norm.
There will be a fair amount of pain along the way for all involved -- but especially the US because it is our living standard that will be hit the hardest.
Update [2007-4-23 15:14:35 by bonddad]:: I wanted to thank everyone for all their comments. This has been a very good discussion on this very important issue.
Additionally, I stand by by analysis, not to be difficult, but because after all I have read and analyzed on this topic I think it's the correct conclusion (very passionate debate to the contrary notwithstanding). As I said at the beginning, I didn't come to this conclusion to be popular but because that is where the facts are heading.
The central point is this: So long as the US likes cheap "stuff" globalization will continue. In addition, other countries have clearly benefited from these policies. China is a classic example, but there are numerous others. The Asian economies have done very well for themselves because of US consumption. So long as we consume at current levels, expect this trend to continue. If you want to stop globalization, then you need to figure out how to get the US consumer to stop buying.