Free Trade and the Midwest
This New York Times article is as good a jumping off point as any for the woes we have in the Great Lakes Region. It is kind of interesting noting where in the country folks who leave comments lauding the joys of free trade are. In the case of this blog, most of the pro-free trade arguments come from Washington, DC. Given the choice between goods from Chicago and goods from China, what difference does it really make. Growing up on the virtues of free trade I was very surprised when my father’s boss, a long time Republican and used car dealership owner, was quite adamant that NAFTA would harm our part of Southwest Wisconsin. Being young at the time, I don’t remember the exact order but a long time employer Advance Transformer, part of the Phillips company, was moving its plant to Mexico. That was over twenty years ago, and the plant remains empty today. This was the plant that employed an uncle and my step-mother.
I know live in northeastern Wisconsin. We live in a home in a quite neighborhood, at least during the winter. During the summer my wife walks the block or so down to the beach on Lake Michigan. It is a beach that draws people from over 40 miles away. We live in a neighborhood constructed a century ago. Our own house like many of the homes hasn’t really seen much in modernization since the 70s. We fell in love with it when we looked inside. Over nine foot ceilings on the main floor and exquisite custom moldings. And yet nearly every house in neighborhood, except for a few of the river front and lake front properties purchased by people from Chicago, could not be traded for a buildable lot in Port Washington, a middle class suburb north of Milwaukee that is of all things home to Screech from Saved By The Bell.
Most of the companies you probably don’t know. Paragon was one of the largest companies to leave the area. Mirro a couple years ago ceased all operations in the area. They had about 3 plants and employed thousands. They are the makers of pots and pans. One of its old plants recently changed hands for $100, its size, a full city block. Fisher Hamilton still maintains operations here, but they are under 400 employees at this point. While foreclosure is a word that is just entering the common lexicon of most folks in the country, it’s nothing unusual here. When I look at the public notices of sheriff’s auctions don’t at the community building, there’s always 5 or 7 places. When we looked at buying our home, half the places were owned by banks or by HUD. Admittedly, we weren’t looking at the nicer and more expensive $175,000 homes. Yes, that’s right. The upper end of housing starts right around there.
Oh but free trade hasn’t been all bad. And no, it really hasn’t. Manitowoc Company has 2 years of orders on file for cranes, which historically is pretty unbelievable. Burger Boat has put a number of hundred foot plus yachts in the water. One Russian gentleman in fact has ordered two of the same yacht, one to sit in the Gulf of Mexico and the other to sit on the Black Sea. There are other companies in the area that sell across the country and throughout the world as well. I must say though I always find it funny that free trade gets the credit for these jobs but never takes the blame for the jobs lost. It’s not as if we lacked companies that exported products through out the nation and world before ‘free trade’. There is also not so insignificant fact that State has financial assistance to keep companies afloat or to get them started in this area. Burger Boat would probably not be building yachts if it wasn’t for State assistance that helped them transform. The State has also given money to try to get tourists into the area.
Today, the area is different. The largest employer in the county is one of the hospitals and its network of clinics. Three other health service providers are in the top 22. Wal-Mart makes the top 22. Two more are utilities, one of which is the nuclear power plant. Another 5 spots are taking up by various forms of government including schools. Government is a good job if you can get it around here. The openings fill rather quickly. Unfortunately all of us can’t work for the government. Of course Madison and every other capital in the Midwest will tell you it is their ingenuity that has created jobs. I’m afraid that isn’t the case. The biotech firms in Madison are for the most part small shops. The big source of growth in Madison and the other state capitals have been government jobs.
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For what it’s worth, I live in Indiana and I favor free trade.
“I must say though I always find it funny that free trade gets the credit for these jobs but never takes the blame for the jobs lost.”
Nonsense! We readily acknowledge that creative destruction requires both creation and destruction. We are aware of the costs but we are also aware of the greater cost of protectionism.
I also live in Indiana, and favor free trade.
But a question for you – since it seems like we have companies moving manufacturing to places even without NAFTA-like agreements, why does your discussion invoke a company moving its resources as a side / negative effect of free trade? Do you argue that free trade philosophy makes it easier for companies to do this? Or that free trade agreements only make it more likely that companies will move to certain places, not that companies will or will not move…?
Free trade lowers the opportunity cost of doing business elsewhere, wherever elsewhere happens to be. During the 80s our industry competed world wide even with tariffs on our exports, because our products were that much superior. This wasn’t going to persist forever, and it wasn’t exactly a secret. Production has vastly improved in the East. Today with a significant part of the opportunity cost removed, we aren’t being inudated with better products, we are being inudated with lower quality goods. When Wal-Mart solicited independent academic papers on the effects of Wal-Mart one of the themes that emerged was that a significant number of Wal-Mart goods do not last as long as goods from traditional mall retailers like JC Penny. Marginal improvements aren’t being made in technology. We are arbitraging wages. A big part of the reason for that is that junk has a very low opportunity cost in a free trade environment.
Free trader reporting in from Texas…
If the 80s are indeed seen as the last golden age for American manufacting, it seems a bit ironic in some ways, since it was growing up in the 80s (in California at the time) that I watched the switch, from a time when “Made in America” meant quality and no one wanted “Jap crap” to the point where buying American seemed like the sure way to get an overprice, inferior product, while Japanese and European brand names guaranteed quality.
I’m really not sure to what extent free trade is the sole culprite for what you’re citing, though. It seems like with improved (and vastly cheaper) global travel and communication, something like the global marketplace would have formed even if the existing tarrifs had remained in place. To thwart it, we would have had to massively increas tarrifs. A lot of what we were benefiting from was a combination of the high cost of moving things from one place to another, and the fact that a lot of the world simply wasn’t capable of producing viable product at all.
I do agree with you, though, that one of the things we’ve seen is that with incredibly cheap transportation and cheap foreign labor, some manufacturers/vendors are simply flooding the market with what is a believe technically referred to as “cheap crap”. I’m reminded of the plastic toy golf sets that my mother-in-law picked up for our kids at (you guessed it) Wal-Mart. “Only four dollars a piece!” she told us. And it showed. Within two days I had bits of broken, fading toy all over my back yard. (Which I couldn’t throw away till she finished her visit.) Might as well have just set the four dollars on fire and saved the plastic and shipping from China.
I think most people are catching on by now that just because something is cheap does not necessarily mean that it’s worthy buying. Quality counts.
However, at the same time, there are some undeniably benefits to free trade. Obviously the people in China who make what to us are tiny wages, yet represent a significant improvement for many of them.
Some Americans will find themselves more able to buy things because of the cheap products coming in from abroad, though these will be some of the same ones suffering from fewer opportunities for unskilled labor.
And Americans in other industries will actually benefit, as other parts of the world work up towards an economic level to buy more products still made in America. Hollywood now gets much more money from foreign distribution, and technology and software companies can now sell products into India and China that there simply wasn’t a market for before.
Good post, Darwin. I’d add that the money saved by Americans through buying cheaper goods can be spent on other things, which likewise will benefit American industries and spur further growth.
What savings? There should be zero actual savings from trade. Trade is supposed to increase efficiency, and it does when engaged in by first world countries. All of this is just a variation of the broken window fallacy.
It’s the opposite of the broken window fallacy, actually.
Free trader from central Illinois here.
No it isn’t. The broken window fallacy alleges that since economic activity occurs it must be net positive economically. In other words, if we just broke all the windows we would be rich because the window fixers would by bread from the grocer who would by bread for the baker, yadda, yadda.
The belief that we are creating wealth with 3rd world trade is similar. If we buy the same goods few fewer dollars, then we can buy more goods and are therefore wealthy. Of course the dollar is just a medium of exchange. The problem is that China and other 3rd world nations do not buy goods from us, at least not in significant quanities. What they do buy is capital. One cannot exchange capital for goods indefinately, because eventually there will be no capital to offer. Hence the parallel to the broken window fallacy.
Yes, 3 of the free traders are lawyers, a government protected industry. I get the point.
What do you mean no savings?
If I can buy a shirt made in Indonesia for $20 instead of one made by people in the US for $50, I do indeed have $30 more left. Now, either a buy more shirts (price lasticity) than I would have before, or else I have more money which I either save, donate or spend.
Now, I take it your question is: Isn’t my savings of $30 offset by the American ex-shirtmaker who is no longer making $20/hr at the clothing plant?
If we assume that it’s not possible for that shirtmaker to adopt another trade which pays him an equal or greater amount than that would be the case. (Ideally, a higher productivity trade.) I’m not sure one does well to assume that people’s careers are immutable, though.
And this free trader works in an industry which is increasing its sales to China by 3x a year…
In accounting it’s called debits equaling credits.
I’m not sure one does well to assume that people’s careers are immutable, though.
One thing that free trade definitely accomplishes is increased instability and family fragmentation. I suppose there is some spin under which increased instability and family fragmentation is also an unmitigated good.
M.Z.,
I happen to favor legal reforms which, if enacted, would probably put me out of a job. But that’s a different topic.
Government protected industry? Considering there are 70,000 plus attorneys practicing in the Land of Lincoln today, I’d say the government is doing a fairly poor job of protecting my economic livelihood, that is if I thought that one of the roles of government is to give me an iron rice bowl.
Okay, so if it’s the case that 3rd world countries will never become reasonable markets for American made goods or services, I guess I can see the argument we should refuse to buy from them on self interested grounds. I’m just not sure I buy the premise on that one.
Zippy,
Instability and family fragmentation how? Buying Indonesian shirts makes me want to divorce my wife? Having a manufacturing job instead of working a rice field makes a Chinese man want to divorce his wife?
What I meant about careers not being immutable is not that it’s better is you think you may be laid off at any time, but that people can and do switch jobs. I’ve switched jobs four times and industries twice in the last ten years. But that’s actually been good for my family, not destructive.
Yes, 3 of the free traders are lawyers, a government protected industry. I get the point.
M.Z., your arguments would be much stronger if you avoided ad hominem attacks, and the rest of us would appreciate it more as a contribution to the general idea of civility. I have avoided saying things like “You are only against it because your family was injured by it” and other materialist-driven drivel that negates the free will of the individual and reduces him / her to an animal driven entirely by circumstances.
Your arguments then become somewhat ridiculous when applied to the legal profession. “You like free trade only because you are not affected by its negatives”, but then, because we are government-protected, “You dislike free-trade because you are not affected by its positives.”
As it stands, we are a quasi-regulated industry. Mostly, the legal profession regulates itself in terms of entry to / exit from the bar. In addition, law is self-regulating by its very nature in terms of free-trade – who would hire overseas lawyers to handle local business transactions? Or, who would hire a firm from China to represent him in a criminal affair?
Many (most?) of us lawyers stand or fall with certain companies – if the largest companies my firm represents went overseas, then my job would fall with them. If I worked for a company and it went overseas, I could not follow it, because it would then be subject to foreign laws.
I’m not sure what Zippy means when he says that free trade causes increased instability and family fragmentation, but I wonder whether he thinks this is true only of trade between countries and if so why he thinks this. If free trade between the U.S. and China causes instability, would not the same be true of trade between Texas and Michigan, or Houston and El Paso? Depending on what he means by the terms, I would think that the instability and fragmentation caused by trade within countries could even be worse than between countries, as people are more likely to pick up and move from Texas to Michigan than they are from Texas to Taiwan. But since I don’t know exactly what he means, it’s hard to say.
“The problem is that China and other 3rd world nations do not buy goods from us, at least not in significant quanities.”
$55 billion from China and growing isn’t significant? But that’s besides the point. We’d benefit from free trade even if China bought none of our goods.
The broken window fallacy was invented by free-trader Frederic Bastiat to illustrate the lunacy of protectionism! Protect an industry (window makers) by artificially creating demand (breaking windows).
‘Instability and family fragmentation how? Buying Indonesian shirts makes me want to divorce my wife? Having a manufacturing job instead of working a rice field makes a Chinese man want to divorce his wife?’
No, but a plant closing means that the kids, nephews, and nieces had better move somewhere else if they want to find work. I suppose that’s great for one sector of the economy: nursing homes.
Considering that my initial argument was that it is cheap rhettoric when your ox isn’t getting gored, bringing up the fact that three men who claim standing to say that free trade is good based on their geography are not in fact having their oxen gored is relevant. In fact, the only profession that enjoys more protection than lawyers from foreign competition are doctors, and that is even arguable. If any other argument had been offered by you three, I would have addressed it.
$55 billion from China and growing isn’t significant? But that’s besides the point. We’d benefit from free trade even if China bought none of our goods.
For Jan 07 to Nov 07 we exported $58B in goods to China. We imported $296B worth of goods. $58B is not significant.
I was a free trader long before I contemplated going into law.
Funny you mention the broken windows fallacy because Bastiat was partly for shaping my views on trade.
And those views like Ricardo and everyone else are based upon exchange of goods and not the exchange of capital and goods. Keynes was also pro trade generally but recognized the lack of added value when capital was transferred for labor arbitrage. I like Bastiat railroad example between France and Spain; however we are not in the early 19th century.
One of the things I think deserves bearing in mind is that it is generally not as simply as “things are made in China and sold to Americans in return for money which goes to China and stays there.”
For instance, at my company American engineers would design an MP3 player of LCD TV, which is then made in China, shipped to the US, and marketed and sold to Americans to people all over the world, including in Europe and Asia.
Now, it’s true that this means there are not US factory workers making those products. The factory jobs are in Asia, but all of the high paid design, sales and marketing jobs are in the US — along with a lot of Asians with college degrees spending their 5-10 years in the US learning how to run those parts of a business. The revenue from the sales is claimed by the US company, which results in profits for the shareholders of that company, most of whom are Americans who have large mutual funds in their 401ks.
So it’s not like US citizens are being cut out of the equation, and using the foreign labor allows us to sell an MP3 player for $100, which lots of people in the US can afford, instead of 3-5x that price if we used all US plants to assemble the player itself, and all the components going into it.
What this means, of course, is that the jobs in the US associated with the product are all education professionals rather than factory workers. I suppose I’d always seen that as okay, given that my grandfather who spent a number of years working in factories, and my mother who worked on assembly lines during her summers in high school and college, both used to tell me constantly: Never work in a factory. Go to school. Get degrees. Find out how to get a better job. Never, ever spend your whole day doing the same motion, over and over in a noisy factory.
I understand that in the Great Lakes region, people apparently took different lessons from factory work. Probably those factories paid better than the ones in east Los Angeles, and obviously given the pension plans they were handing out, some of the companies imagined that the demand for Made In America products would never slacken, no matter what the price or quality.
It certainly sounds like the resulting situation isn’t any fun, to put it mildly. But though I am not as much of an economist as MZ (and thus some of these references send me scurrying for the Wikipedia) I assume there must be a way things things right themselves. After all: we’re clearly not still awash in unemployed agricultural workers put out of work by the tractor and the mechanical reaper. And we’re not still awash in unemployed craftsman from the industrial revolution.
Those innovations were both decried in their times, and I regret them in a sense. I’m that kind of conservative. But somehow or other we muddled through.
Darwin:
Instability and family fragmentation how? Buying Indonesian shirts makes me want to divorce my wife?
It wasn’t my intention to personalize it to you, though a certain amount of prayer that economic disruptions in your own life will not destroy your family, and some humility in the face of that real possibility, is certainly warranted. You are rather young at this point, and there are tests in this life which you should fervently pray not to be subjected to, though you might learn something from them.
Are you suggesting that marriages and extended families don’t break up over money, geographic displacement, the disruption of needing to ‘reinvent’ onesself in the tabula rasa liberal mold of creative destruction every few years, etc? Because they do. Whether your personal life is immune to these things is, as MZ pointed out, quite beside the point. Indeed it seems to represent a kind of reverse Kantianism: “this isn’t a problem for me, so it isn’t a problem for anyone”. It isn’t an ad hominem for him to point out the fallacy in that.
Blackadder: A certain amount of prudent local protectionism is also warranted, it seems to me. In fact when it comes down to it “free trade” is an abstraction which nobody believes in without restriction. At the end of the day it isn’t a question of if there will be restrictive rules governing trade, because there will always be restrictive rules governing trade, but rather what should be the guiding principles in making those rules. “Maximixing material prosperity, full stop” is something ‘free traders’ claim to believe, but nobody really believes that.
Considering that my initial argument was that it is cheap rhettoric when your ox isn’t getting gored, bringing up the fact that three men who claim standing to say that free trade is good based on their geography are not in fact having their oxen gored is relevant. In fact, the only profession that enjoys more protection than lawyers from foreign competition are doctors, and that is even arguable. If any other argument had been offered by you three, I would have addressed it.
It is only relevant in legal settings, not in accusing without further information. When you made the statement, you knew nothing about the state of our “oxen” – whether gored or otherwise.
Free trade could NOT affect law, protected or otherwise – which is an argument of mine, which I made, and you did not address.
Zippy,
Having to change jobs can put stress on a marriage. Sickness can put stress on a marriage. Having children can put stress on a marriage. Disability can put stress on a marriage. Age can put stress on a marriage.
Given that changing jobs is more optional than most of these, I agree to an extent that it should not be undertaken without a good reason. (In my own case, I do so every so often out of the need to support my family.) But while that seems to suggest caution, a whole host of economic changes over the last 10,000 since agriculture developed have all served to churn society. And while all of these caused disruption, and each was regrettable in its way, I think in general most of them we would rather not roll back.
However, I think I’ve learned by now that no one in the Catholic blogsphere has much of a chance of talking Zippy down when he gets on one of his “I have more experience than you, I’ve started numerous businesses, I’m a self-made multi-millionaire, etc., etc.” kicks. So maybe I better just bow out.
Having to change jobs…
I tried googling some stats but couldn’t find them except for Canada oddly enough. The percentage of people with a reduced income one year after a layoff is fairly high. Those with incomes below half their previous incomes is pretty high. I remember a recent layoff in the Appleton, WI, area where a call center hiring for $8/hr was being recommended for factory workers who had been making $18-22/hr. I’m quite confident that some of those factory workers did end up going there. I doubt this will convince you of anything, but it isn’t like we’re putting on a magic show in the Great Lakes.
Having to change jobs can put stress on a marriage.
When a 50 year old journeyman technician is tossed out on the street it isn’t a matter of “having to change jobs”. You may well get the opportunity to experience the difference firsthand at some point.
And yes, other things in the world cause and have caused instability and family destruction. I think of this as the “earthquake defense”: since earthquakes kill N people every year, and the thing I advocate doesn’t do that, the thing I advocate is justified.
… when he gets on one of his “I have more experience than you, I’ve started numerous business …
You personalized the discussion, chump. You wanna talk about you, we can talk about you. You don’t wanna talk about you, don’t make the discussion about you.