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January 05, 2004

Comments

Scott

"The US tends to import labour-intensive products, such as textiles and shoes, and export skill-intensive products, such as aircraft and industrial chemicals"

Kim Du Toit suggested the opposite may be happening now or in the near future with the outsourcing to India -- I don't know (and am not qualified to comment) on how much truth there is to this, but I'd be interested to hear your take on his article if you haven't seen it already:

http://www.kimdutoit.com/dr/weblog.php?id=P2476


Simon

Quite agree regarding Gephardt. he has also dragged other Democrats down with him. Dean was historically pro-NAFTA and pro free trade in general, but in order to win the nomination (as in so many other policy areas) he has played left by denying this altogether!! Still, let's hope that Dean knowcks out Gephardt in Iowa and someone sane like General Clark defeats them all when it swings South. That being said, I am no Bush fan!

Jerry

Another excellent commentary by Oliver Kamm. It comes at precisely the right moment because the Democratic party is in the process of moving into the camp of protectionism. Gephardt has long been the most outspoken protectionist among leading Democrats but many others are tending in that direction.

For example, Sen. Charles Schumer of New York has an op-ed in today's N.Y. Times (http://www.nytimes.com/2004/01/06/opinion/06SCHU.html) entitled "Second Thoughts on Free Trade," which he coauthored with -- hear this -- Paul Craig Roberts, an economist long associated with the far right of the Republican party. On the same page is an op-ed by Joseph Stiglitz, winner of the Nobel Prize, and former member of the Clinton economic team as well as chief economist of the World Bank, seriously questioning the benefits of Nafta.

Clearly, any Democratic nominee will have to trim his sails on free trade. And since organized labor is a powerful force in the Democratic party, look for a lot of demagoguery on the issue of "protecting American jobs." It will be a tough one for Bush to counter, especially if the jobless rate doesn't decline significantly between now and next November.

It could be we're entering a period much like late 19th century America, where both the Democratic and Republican parties were defined largely by their stance on free trade and protectionism, with the Democrats this time the advocates of protection and the GOP the voice of free trade.

Jeremy

Bear in mind, Gephardt comes from St. Louis, which is a big union town. So he has to take the union stance, otherwise he could never be elected as a representative from there. (And he genuinely believes what he is saying).

Secondly, while I'm for free trade, the US is getting the short end of the stick of it, job wise. Maybe not quantity, but quality.

It used to be the US lost manufacturing jobs overseas. Now it's losing technical jobs, things like software production, technical support, etc.

What's left? We cannot be a nation of fast food workers and lawyers.

The basis of free trade (as I understand it) is basically that if you specialize in one area of manufacture or production, you'll be able to do it more efficiently than others, and thus be able to trade your excess for goods and services. And so can other people who specialize in things. So everyone wins, because things are made more efficient.

But instead of increased efficiency, other countries have production advantages because of lack of similar labor and enviromental laws, as well as lower costs of living. Things the US will never be able to compete with. So while we do get cheaper goods in return, we also end up losing good jobs. And that is looking less and less appealing. At least to a lot of people (those who have lost a job).

Nick

An excellent and badly needed piece, congratulations.


Jeremy clearly doesn't understand the conceptual basis of trade theory (comparative advantage) -- the notion that a country can 'compete' on the basis of low wages, low environmental standards etc. is a mercantilist myth, suggesting that the aim of trade is to endlessly accrue tokens of value (gold, foreign currency, whatever). On the contrary, trade is an opportunity for reciprocal specialization (hence improved efficiency in all cases).

Much of this nonsense comes out of a semi-deliberate attempt to avoid public honesty about the US trade deficit. Far from resulting from unfair overseas competition, it results from incontinent government finances in the US, which require large-scale capital inflows, which necessitate a trade deficit. If the US decides not to balance its budget, seeking instead to import foreign capital, then naturally the foreign holders of that capital are compelled to refrain from spending it on US goods. It's straightforward arithmetic, no mumbo-jumbo about 'race to the bottom' or 'unfair wage competition' needed.

Obviously I also agree that Gephardt is a disgrace. It disturbs me that his brand of ignorant populism even counts as a serious political position.

Scott

Whether Jeremy does or does not understand the conceptual basis of trade theory, I think his main point was this:

It was easy to look the other way when it was just textile jobs that were going overseas (easy that is if you worked in a more specialized field).

But now we're losing higher level/specialist jobs ie programmers and so forth, and the trend seems to be working its way upward. Plenty of developing countries provide sufficient education to offer a workforce with job skills that can compete with what is available locally, for substantially less salary.

I don't know how much impact this has in Europe but in the US it's huge; in the link above it mentions 4,500 more programming jobs were moved overseas to India.

I see no reason why this would not go the same way as with textiles production and etc, and I think it's fair to say that would be a disaster for the US.

I don't really know how this would be avoided but so far I have not seen any globilization advocates address this issue -- if anyone has a link to such please let me know as I would like to find out if there is a silver lining of some kind to this or if it is basically just a really bad thing for America...

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