Free Trade and Jobs

I am heading to Wisconsin tomorrow for a series of events on the topic of "Free Trade and Jobs," organized by the Institute of World Affairs at the University of Wisconsin-Milwaukee. I will be doing a radio interview Tuesday morning with WUWM, speaking at a Rotary Club luncheon, meeting with the editorial board of the Milwaukee Journal Sentinel, and then speaking in the evening at the Fireside Forum on Foreign Policy.  The timing is excellent, following President Obama's recent visit to the resurgent Master Lock plant in Milwaukee, and the key Republican primary vote tomorrow in neighboring Michigan, another state that is highly dependent on manufacturing and heavily exposed to international trade competition.

The Journal Sentinel printed on Sunday an op-ed piece I wrote setting up the event, which is reprinted below. It is also available on the newspaper's website here:

International trade is not very popular in the United States. Slight majorities nationally opposed the recent congressional ratification of free trade agreements with South Korea, Colombia and Panama. In Wisconsin, an Institute of World Affairs poll found that 51% thought free trade had hurt the U.S. economy, with only 34% saying it had helped.

In the report of the Council on Foreign Relations new Independent Task Force on U.S. Trade and Investment Policy, we argue that the debate over trade is not going to be won or lost in the abstract. The bipartisan group, which included former members of Congress and the administration, senior business and union leaders, called for a trade policy "that brings to more Americans more of the benefits of global engagement."

The skepticism over trade is not terribly surprising. The past decade has been a hard one on many U.S. workers, and it has coincided with a rapid expansion of global trade, especially China's entry into the World Trade Organization. While we all benefit from the cheaper television sets and higher-quality imported electronics that come from an integrated global economy, they are no substitute for a steady job and a reasonable paycheck.

Trade has done too little to provide those; since 1990, according to the work of Nobel Prize-winning economist Michael Spence, there has been virtually no job growth in the tradable sectors of the U.S. economy, such as manufacturing, agriculture and many business services. Over the past decade, real incomes have grown only for the most highly educated, such as lawyers, doctors, MBAs and PhDs, while everyone else has lost ground.

For an economy like Wisconsin's, which is heavily dependent on exports of industrial and electrical machinery, medical instruments and agricultural products among many others, succeeding in trade matters immensely. Unlike most of the country, Wisconsin actually runs a small trade surplus.

The recent uptick in manufacturing employment in the state is an encouraging sign, one celebrated by President Barack Obama in his recent visit to the Master Lock plant in Milwaukee. But it needs to be kept in perspective. While Master Lock has added workers, its 412 employees in the city are just one-third the number employed in 1997, when the company announced it would begin importing locks from China and two years before opening a factory in Mexico.

In the report, we argue that the U.S. needs a clearer strategy for succeeding in the global market. Our key recommendations:

* A trade negotiating agenda that opens markets for the most competitive U.S. goods and services, and in the biggest and fastest growing emerging markets such as India, Brazil and China.

* A "National Investment Initiative" - the counterpart to Obama's National Export Initiative - which would encourage the location of high-wage, high productivity jobs in the U.S. Wisconsin has been a significant beneficiary of expanding foreign direct investment from Canada, Germany, Spain, Australia and elsewhere.

* A robust trade enforcement effort, with a more active government role in identifying and acting on trade-distorting practices by U.S. competitors. The president's recent creation of an administration-wide Trade Enforcement Unit is an encouraging sign.

* A comprehensive worker adjustment and retraining policy to provide a stronger safety net and return individuals to the workforce as quickly as possible.

Such proposals are controversial on both sides. Many Democrats remain skeptical that freer trade can be made to work for a greater number of Americans; many Republicans are suspicious of the more active government role that will be required for the U.S. to compete in a world where other governments are not afraid to take the side of their companies and their workforce.

But there is little choice. There is no stop button on the global economy. The living standards of current and future generations will depend on the U.S. becoming a far more successful trading nation.