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American Protectionism - 30 years too late

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 “Although the decline in manufacturing employment in recent years is not a departure from long-standing trends—the sector’s share of total employment has been falling steadily for more than half a century—the recession of 2001 hit manufacturing particularly hard. Manufacturing employment had already fallen by 700,000 jobs by the time the 2001 recession started, after reaching a cyclical peak in 1998. Thus, this most recent decline in manufacturing employment is now a decade-long phenomenon.”

A commentary by the Federal Reserve Bank of Cleveland in January 2006, “Are we Engineering Ourselves out of Manufacturing Jobs” focuses on productivity improvements made in manufacturing as a factor for declining manufacturing jobs and as is often typical with studies of this nature generalizes “imports” without making any distinctions between foreign proprietary products versus American brands manufactured aboard but concludes with: 

“As recently as 1990, roughly 30 percent of U.S. gross purchases were domestically produced goods…now only 25 percent of U.S. purchases are domestically produced goods. About half of this decline is attributable to the rise of imported goods…”

Even though it may have gone largely unnoticed by most, clearly we operate under a new paradigm in global trade, a shift in the making for over 30 years. For U.S MNCs it is no longer about country first and never will be unless it benefits their bottom line. The globe is their marketplace and consequently they do not perceive the global marketplace and its labor force in terms of borders or along political party lines. Their business models and strategies are based on a global economy and have been for years. U.S. MNC have adapted to the new paradigm, in fact they created the paradigm.

In summary, these observed contrasts between 17th century and 21st century are: 

In the17th century a nations DPs solely contributed to that nations GDP and net worth. In the 21st  century U.S. MNC not only contribute to the GDP of the U.S. but also to the GDP of foreign nations through the manufacturing of their products by their affiliates. These contributions can be influenced by other financial strategies that some U.S. MNCs employ to reduce their tax liabilities as explained in the “US Multinational Companies Operations Report”

“Because firms can exercise discretion over where they recognize income resulting from the use of an intangible asset, the geographic allocation of value added can become disconnected from where the intangible asset is produced. A U.S.MNC might, for example, produce a commercial innovation in one country and then locate the ownership rights to that innovation in an affiliate in a lower tax country to reduce the tax liability on the stream of income generated by this innovation. Some analysts believe that strategic considerations compel companies to attribute a disproportionate share of income to host countries in which the tax or regulatory requirements are relatively light.”(See, pgs 10, 11)

In the 17th century countries traded for products or services they could not produce themselves or as efficiently as others. In the 21st century these disparities through comparative advantage and absolute advantage by one country’s DPs versus another have nearly disappeared. U.S. MNCs confronting these competitive disadvantages have merely overcome them by outsourcing the production of their products to other areas to capitalize on these advantages.

HP laptops, for example, are no longer manufactured in the U.S. but in China, the production of which contributes to China’s GDP but not to the U.S.’s. It would be more accurate when speaking about “imports” to say, in this example, that all three; China, HP, and their affiliates in China need American consumers to continue to buy “their” products.

In the 17th century the labor force primarily competed for a finite number of jobs within their own borders. In 21st century globalization we now compete with a larger labor pool on a global scale. The workforces of higher cost nations compete with those of lower cost nations and U.S. MNCs support labor at all points along this spectrum as they can move around the world for cheaper labor and other lower cost advantages. Today, the reality is if anyone any where on the planet will do your job cheaper than your job is potentially at risk.

The drumbeat for protectionism today is about protecting jobs but I can’t help wondering how much of this is just lip service to pacify an agitated public. But obviously the devastating consequences from outsourcing need to be addressed. In the U.S. from 1979 through 2007 some 20.3 million manufacturing jobs have been lost in the US. While some of this loss can be attributed to normal fallout as a result of typical business cycles and advancements in automation and productivity, research indicates that 38 percent or 7.6 million – which I suspect is a conservative estimate - jobs were lost as a consequence of outsourcing and off-shoring.

Collectively these factors provide some answers to the question posed earlier as to why U.S. MNCs would oppose “Buy American” legislation. In opposing the measures blue-chip companies argued that the measures “could violate trade deals the United States has signed in recent years…but most damaging, critics say, would be the “protectionist message” attached to imposing such barriers on foreign companies. It is important to bear in mind these agreements are made between governments and done so through the lobbying efforts of U.S. MNCs. But more notable is their verbiage; “imposing such barriers on foreign companies.” How many of these “foreign companies” are affiliates owned by these American blue-chip industries?

 We do indeed live in a more complex era. Few things in our human endeavors and enterprises are simple. Usually they are far more complex and multi-faceted. These circumstances present an intriguing conflict of interest for all parties plus a boatload of other complexities for America in general and American policy makers in particular. How does the higher cost American labor force (and those of Western Europe as well) effectively compete with the lower wages of the 3rd world countries? This does not bode well for the higher labor cost areas. U.S. MNC outsourcing may well have caused a pronounced decline in wages with more declines yet to come. How do America’s policy makers protect American jobs from our own U.S. MNCs who have over the past 30 years channeled campaign and lobbying monies to sway the re-arrangement of national policies enabling them to achieve globalization?

In a recent Wall Street Journal interview, New Zealand’s Prime Minister Kohn Key replied when ask by the reporter about the “Buy American” provisions:   

“Mr. Key chuckles when I ask him about the “Buy American” provision tucked into the Obama administration’s stimulus package. The previous government’s “Buy New Zealand” campaign got a “lukewarm” reception, he recalls. “There are so many component parts manufactured in different parts of the world, you’re chasing your tail the whole time about where something’s actually made.”  

From a traditional perspective how does a country protect its DP’s or their labor force in their home market from foreign competition when the DP’s themselves have essentially become the competition, are no longer domestically based, are transferring national wealth, proprietary knowledge, technology, and products to foreign nations through their foreign associations, whose dependency encompass the globe, and whose profit decisions are often self-serving and potentially detrimental to their country of origin? From a 21st century perspective, if protectionist measures are necessary, what form should they take, who would we impose them on, and what are the potential consequences? Whatever the answers to these questions might be it seems clear we need to think before we react.

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I am a political activist living in Northern California. Over the years I have become increasingly concerned at how misinformed the general public has become and by the "Bread and Circus" style conditions existing in America today. If there is a (more...)
 
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