Recently, I was among a small group of executives participating in a presentation and discussion with Dr. Sung Won Sohn, Wells Fargo Bank's distinguished chief economist. During the discussion phase, I asked him about the wisdom of our trade policies, whereby American manufacturing jobs are being exported to China, in particular.
“I am a believer in free trade,” said Dr. Sohn. “I believe that if you produce what you're good at, and I produce what I'm good at, we're both better off.” From Adam Smith to David Ricardo, no economist has put it more succinctly. But the problem is that while it sounds good, it is, in fact, very bad policy. So-called “free trade” is gutting our manufacturing base, and will cause double-digit unemployment in two to four years. How can that make us “better off”?
The free traders would have us believe that China is simply “good at” work that requires a content of manual labor. But is that so? The fact is that they aren't “good at” it whatsoever, they're just cheaper. “Good at” has nothing to do with their efficiency, and everything to do with a bloated and backward population starved for work.
And to those who think trade with China will “engage” and moderate its regime, consider what percent of Iraq's (or any totalitarian system's) oil revenues really reached or “engaged” its people under Saddam's rule: none. The people live in squalor; the high, mighty and mean keep the cash. So you and I are helping Red China's ruthless dictatorial regime via our bargain shopping at Wal-Mart and the other big-box stores. And we are kidding ourselves to think otherwise.
Nevertheless, economists heart-lessly assert that costs are costs, however they are derived. So ask them and the free-traders this: “If free trade means that a society is better off by sourcing its manufactures in low-wage areas, regardless of the reasons why the wages are so low, what is wrong with trading with a nation who can offer the cheapest labor of all, slave labor?”
The free-traders and their economists would reply — with justifiable indignation — that it would be illegal and immoral for our society to purchase goods from a regime that embraces slavery. And of course they are right. Except for one thing: They now must admit that costs are not just costs, are they?
Morality does have something to do with it after all.
At its distilled essence, the wealth of a society is created by those entities that create something from nothing: You've got to mine it, make it, or grow it. Manufacturing is directly about 20 percent of our economy; the other 80 percent indirectly services that wealth and, in turn, propagates even more. Some today scoff that our new “service economy” does not need this 20 percent. A caution: Even though your bones may be but 20 percent of your body mass, without your skeleton, you're a puddle. Same with an economy.
Some 2.1 million manufacturing jobs have been lost in America in about three years. The erosion is accelerating. The business herd smells reduced costs and higher profit and is moving to China. And we shouldn't blame them, for that's what businesses do. Meanwhile, our so-called free trade is creating ever-growing trade deficits.
Can we honestly say that a society is successful that has driven its working-class folks' wages down to Third World levels? Or simply put them on the dole? This is where we are heading. And we are all to blame. For while our leaders should see it, explain it and lead us from temptation, the workers of America who are snapping up those Wal-Mart prices are just as guilty. It's an awful circle that is tightening into a spiral.
If we want to trade with China, let's level up to plenty, not level down to poverty.
We need to create a simple and transparent tariff system that is adjustable. It would be not unlike a golf handicap system. As you get better, your handicap goes down. What's par for the course? Here in the United States, shooting par includes paid holidays and vacations, OSHA and EPA regulations; worker's compensation and unemployment; state-mandated insurances; hefty business, personal and property taxes; 14.5 percent social security tax; time and a half over 40 hours per week; and a $5.15 minimum hourly wage.
And on our course, China is currently a 36 handicap. But as China develops some of the things that we value, its handicap should drop. Until then, its handicap will reflect how far it's implemented the burdens and responsibilities of social and economic par.
Let China bear the same burdens our society has properly developed. Then, let's see how “good at” manufacturing it really is.
The export of jobs is the import of unemployment. Simple as that. This free trade is not free: Sooner or later, it will cost us dearly.
Stan D. Donnelly is chief executive officer of Donnelly Custom Manufacturing Co. in St. Paul, Minn.