Trade Helps Explain Texas-Sized Job Growth
As its governor, Rick Perry, weighs a run for the White House, Texas has drawn attention for its healthy job growth. Since the recession ended in June 2009, Texas has accounted for half of the net new jobs added to the U.S. economy, according to the lead story in this morning’s USA Today. That’s quite a record for one lone state.
We’ll leave it to others for now to argue over how much credit Gov. Perry can claim. Some credit surely goes to high oil prices, fueling job growth in a sector important to the Texas economy. Another reason for its relatively strong job growth is a friendly business climate, including no state income tax and relatively light regulations. And for those who scapegoat trade for the nation’s persistently high unemployment rate, consider that Texas is the nation’s number one trading state. As the USA Today story notes:
Overseas shipments by Texas’ strong computer, electronics, petrochemical and other industries rose 21% last year, compared with 15% for the nation, according to the Dallas Federal Reserve Bank. The state also benefits from its proximity to Latin American countries that are big importers of U.S. goods … The surge creates jobs for Texas manufacturers and ports.
As I can attest from recent speaking engagements in San Antonio and Laredo, Texans have embraced their state’s position as the nation’s leading gateway for trade with NAFTA-partner Mexico and the rest of Latin America.
While politicians and union bosses from other states grumble about allegedly unfair trade, the latest trade and job numbers show that the people of Texas are making the most of the opportunities created by our more open economy.
More Trade, More Jobs
Our friends at the Economic Policy Institute are at it again, issuing another study this week that shows some particular trade agreement has cost X thousands of jobs over a certain number of years.
The latest target of EPI’s flawed model is the North American Free Trade Agreement. Enacted in 1994, NAFTA has created a free trade zone comprising the United States, Canada, and Mexico. According to the EPI report,
U.S. trade deficits with Mexico as of 2010 displaced production that could have supported 682,900 U.S. jobs; given the pre-NAFTA trade surplus, all of those jobs have been lost or displaced since NAFTA. This estimate of 682,900 net jobs displaced takes into account the additional jobs created by exports to Mexico.
The report’s author, Robert Scott, claims it foreshadows job losses if Congress passes pending trade agreements with South Korea, Colombia, and Panama.
The EPI model has little relevance to the real American job market. As I’ve pointed out before (here and here), its model is based on an overly narrow view of trade’s impact on the job market. Yes, some people do lose their jobs because of import competition, no news there, but trade also creates jobs through increased exports. And even if we run a trade deficit with a country such as China or Mexico, jobs are also being created by the net inflow of foreign capital, which spurs domestic job creation through lower interest rates and direct investment. The money we save from lower-priced imports also liberates consumer dollars to fuel growth elsewhere in our economy, and cuts costs for import-consuming businesses, boosting their sales and employment.
Next, consider the EPI numbers on their face. Those alleged 682,900 net jobs lost came over a 16-year period. That’s a bit more than 40,000 jobs lost per year. That is a drop in the bucket in a dynamic economy like ours that creates and eliminates about 15 million jobs each year. Even when unemployment is low, 300,000 or more Americans file for unemployment insurance in a typical week. So even if true, the EPI job loss numbers amount to less than one day’s worth of job displacement for the whole year.
When we look at the actual job market performance since NAFTA was enacted, the irrelevance of the EPI model becomes plain. In the first five years after NAFTA’s passage, 1994-98, when we could have expected it to have the most impact, the U.S. economy ADDED a net 15 million new jobs, including 700,000 manufacturing jobs. In the 16 years since its passage, despite two recessions, our economy still employs 20 million more workers than it did the year before NAFTA passed. (Check out the employment tables in the latest Economic Report of the President.)
In my own April 2011 study of trade and the economy, “The Trade-Balance Creed,” I found that civilian employment in the past 30 years has actually grown quite a bit faster during periods of rising trade deficits compared to periods of declining deficits, just the opposite of what EPI’s distorted model would predict.
Mexican Retaliation for U.S. Truck Ban is Proper
The Mexican government announced yesterday that it will expand the list of U.S. products subject to punitive import duties in retaliation for a brazen, 15-year-long refusal of the United States to honor its NAFTA commitment to allow Mexican long-haul trucks to compete in the U.S. market. Given continued U.S. intransigence on the issue, Mexico’s decision is understandable, if not laudable.
The dispute is not very complicated. Under the terms of the deal, Mexican trucks were to have been able to compete in U.S. border states by 1995, and throughout the United States by 2000. But President Clinton, at the behest of the Teamsters union, suspended implementation of the trucking provision on the grounds that Mexican trucks weren’t safe enough for U.S. highways.
By 1998, the Mexicans had had enough, and brought a formal complaint under the NAFTA dispute settlement system, and in 2001, prevailed with a unanimous panel decision that found the United States in violation of the agreement, and ruled that Mexican trucks meeting U.S. safety standards had to be given access to the U.S. market.
In response to the NAFTA decision, Congress stipulated 22 safety requirements that Mexican trucks had to satisfy in order to gain access to the U.S. market. But before the U.S. Department of Transportation could grant any permits to Mexican truckers, in 2002, environmental and labor groups filed a lawsuit to block implementation on the grounds that the regulations violated U.S. environmental law.
In 2004, the U.S. Supreme Court unanimously struck down the truck ban, and soon after a government pilot program was developed to allow a limited number of Mexican trucks to serve the U.S. market. But funding for the pilot program was cut off by a Teamsters-friendly Congress in 2008, which effectively put the U.S. market off limits to Mexican trucks once again—and the United States squarely in violation of its NAFTA obligations, again.
In August 2009, after it became apparent that the administration and Congress preferred the economic cost of the trucking ban to the political cost of crossing the Teamsters, the Mexican government tried to change the equation by imposing $2.4 billion in retaliatory duties on about 90 U.S. products. A Mexican trucking association also filed a $6-billion lawsuit against the U.S. government.
But with no discernible progress toward resolution over the past year, the Mexican government announced yesterday that it will expand the list of U.S. products subject to punitive, retaliatory duties in an effort to convince Congress and the administration to finally live up to America’s word.
The Mexican government is right to retaliate—and to expand the list of products subject to punitive duties. Of course, retaliation hurts innocents, like U.S. businesses and workers, and Mexican businesses and consumers, who have nothing to do with the central dispute. And it increases the amount of red tape and the role of governments in international trade. But retaliation—when authorized by agreement and properly targeted—can also be an effective tool in promoting trade liberalization, reducing red tape, and diminishing the impositions of government.
It is by changing the political calculus that retaliation can be effective. Thus far, U.S. politicians have found the economic costs of the Mexican trucking ban and the retaliation to be tolerable (for themselves)—at least relative to the expected political costs from doing the right thing by ending the ban. By expanding the list to include other products, like oranges, the Mexicans hope to impress upon other U.S. interests, like the citrus industry in a very important swing state, that they have dogs in this fight as well.
Between the rising costs on the economic side of the equation and the diminishing political benefits on the other, support among politicians for the truck ban should dissipate.
The Obama administration’s failure to connect the dots is surprising. Its fealty to the Teamsters directly undermines the lofty goals of its National Export Initiative—which seeks to double U.S. exports in five years. On trade policy, the administration appears yet to fully grasp that the hip bone’s connected to the thigh bone, the thigh bone’s connected to the knee bone, the knee bone’s connected to the ankle bone, etc. When you restrict imports (in the immediate case, imports of Mexican trucking services), you restrict exports.
The rising economic and political costs of the truck ban suggest that something’s going to have to give soon. By amplifying the stakes, the Mexicans are right to hasten that day.
Democrats Ignore 80% of Workers in Service Sector
In a bid to revive their sagging election prospects, congressional Democrats have hit on the theme of promoting domestic U.S. manufacturing. As a front-page story in the Washington Post reports today, the party has adopted the bumper-sticker slogan, “Make It in America.”
I’m all for making things in America, when it makes economic sense to do so. But the Democratic plan opens a window for all sorts of government intervention, including trade barriers, higher taxes on U.S.-owned affiliates abroad, and subsidies for “clean energy” and make-work infrastructure projects.
The campaign relies on two major but faulty assumptions: That U.S. manufacturing is in deep trouble, and that creating more manufacturing jobs is the key to prosperity. Neither assumption is true.
As I explained in a Washington Times column yesterday:
Despite worries about “de-industrialization,” America remains a global manufacturing power. Our nation leads the world in manufacturing “value-added,” the value of what we produce domestically after subtracting imported components. The volume of domestic manufacturing output, according to the Federal Reserve Board, has rebounded by 8 percent from the recession lows of a year ago. Even after the Great Recession, U.S. manufacturing output remains 50 percent higher than what it was two decades ago in the era before NAFTA and the WTO.
Manufacturing jobs have been in decline for 30 years, not because of declining production, but because remaining workers are so much more productive.
Again, I’m all for manufacturing jobs supported by a free market, but members of Congress need to wake up to the reality that America today is a middle-class service economy. As I wrote in the column yesterday:
More than 80 percent of Americans earn their living in the service sector, including a broad swath of the middle class gainfully employed in education, health care, finance, and business and professional occupations.
It is one of the big lies of the trade debate that manufacturing jobs are being replaced by low-paying service jobs. Since the early 1990s, two-thirds of the net new jobs created have been in service sectors where the average pay is higher than in manufacturing. Members of Congress who belittle the service sector are ignoring the interests of a large majority of their constituents.
Congress and the president should focus on economic policies that promote overall economic growth, not policies that favor one sector of the economy over all the others.
U.S. Antidumping Regime Restrains U.S. Export Growth
In honor of World Trade Week—and for its decreed purpose of educating Americans about trade—this post is about U.S. trade policy working at cross-purposes with other policies or goals of the administration. So numerous are these examples of trade policy dissonance, that a committed wonk could devote an entire website to the task of documenting them.
If the administration were serious about making trade policy work—rather than just paying it lip service—it would compile its own exhaustive list of laws, regulations, policies, and practices that actually undermine its stated objectives of facilitating economic growth, investment, and job creation through expanded trade opportunities. Then, it would make the changes necessary to ensure that our policies are paddling in the same direction. But that is not happening—at least as far as I can see.
Should the U.S. Withdraw from NAFTA?
Rep. Gene Taylor, D-MS, thinks so. According to CongressDaily, Taylor is about to introduce a two-page bill that would withdraw the United States from the North American Free Trade Agreement.
Taylor blames the agreement with Canada and Mexico for the loss of 5 million manufacturing jobs since it was enacted in 1994. This is a popular but false charge. Manufacturing jobs have declined in the past 15 years for one big reason: soaring productivity.
Overall output at U.S. factories was actually 37 percent higher in 2009 compared to 1993, the year before NAFTA took effect, according to Table B-51 in the latest Economic Report of the President. We are producing a higher volume of stuff with fewer workers because individual workers are so much more productive than they were in the early 1990s.
As I’ve argued before, NAFTA has spurred more trade and deeper integration among the three partner countries. It has created new opportunities for American companies and their workers to raise their competitiveness in global markets. It has strengthened ties to our two closest neighbors.
The U.S. government would be foolish to withdraw from an agreement that continues to pay huge dividends.
The Odd Couple
Well, here’s an interesting pair. Today’s Washington Post contains an op-ed on climate change and trade, written jointly by Fred Bergsten, director of the Peterson Institute of International Economics, and Lori Wallach, director of Global Trade Watch at Public Citizen.
The authors readily admit, quite early in the piece, that they are usually on opposing sides of the trade debate. The Peterson Institute scholars are well-known and well-respected advocates of freer international trade. Global Trade Watch, and Wallach in particular? Not so much. She has called NAFTA a “disastrous experiment” and has a special section on her website calling on people to Take Action! on trade (example: by hosting a house party to celebrate the tenth anniversary of ” the historic 1999 Seattle protest victory of people power over corporate rule.”)
Yet here they are, claiming to agree on “a suprising number of aspects of the climate change debate and on the related need to overhaul global trade negotiations.” I am still trying to make sense of the op-ed, because it lurches around a bit, and to work out exactly how deep the agreement of these strange bedfellows really is. But for now, let me comment briefly on what I think is the main thrust of their op-ed: a proposal for launching a new round of trade talks.
The authors point out that a new treaty on global warming would “require new trade rules in intellectual property, services, government procurement and product standards.” So, hey, why not combine that into trade talks?The Obama Round (as if Obama-worship has not gone far enough) “would include, as a centerpiece, addressing these potential commercial and climate trade-offs and updating the negotiating agenda.”
That, quite frankly, would be fatal for the World Trade Organization. Developing countries, now in the majority in the WTO, are in general very resistant to the idea of bringing extraneous issues into its agenda (witness constant struggles over linking trade to labor and environment issues, to name just two). More to the point, we already have a round in progress. The Doha round has been struggling over old-fashioned trade concerns like tariffs and subsidies (remember them?) since launching in 2001. The risks of overburdening the WTO agenda are, in my opinion, far greater than the possible benefits. It’s fairly clear to me why Wallach would advocate a new round full of poison pills, but not so clear why Bergsten would put his name to such a suggestion.
Return of the Trade Enforcement Canard
In defending its tire tariff decision, the White House has glommed on to the “logic” that free trade first requires enforcement of trade agreements. Scott Lincicome exposes the absurdity of that defense here. But with that fallacy serving to undergird what sounds like a pre-justification for more trade cases and more trade restrictions, let me remind the reader that we already have 299 active antidumping and countervailing duty measures in the United States, resticting or prohibiting imports from 43 different countries. We have all sorts of restrictions on imported textiles, clothing, footwear, food products, agricultural commodities, lumber, steel, pickup trucks, tobacco, and many, many more products, including tires. But despite all of this enforcement–of rules that are hard to justify, as they penalize most members of society for the benefit of a connected few–we still don’t have free trade in the United States. In other words, we’ve had the enforcement, where’s the free trade?
And if the holier-than-thou U.S. government is going to focus on enforcement of rules, then by all means do unto others. The United States remains baldly and defiantly in violation of its NAFTA commitments to open U.S. roads to Mexican trucks by the year 2000. The United States remains defiantly in protest of WTO Dispute Settlement Body decisions impugning U.S. cotton subsidies, U.S. prohibitions on gambling services offered by providers in Antigua, the antidumping calculation methodology known as “zeroing,” and the Byrd Amendment. Trade partners in some of these cases are either retaliating or have been authorized to do so.
The argument that more rigid enforcement leads to freer trade will be tested. But don’t let the inevitable slew of new 421 cases and related restictions in the name of enforcement fool you. After the restrictions, the retaliation, and the adoption of similar measures in other countries, free trade will be right around the corner. The next corner. Keep looking…
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