Q: The U.S. manufacturing trade deficit rose from $470 billion in 2003 to $550 billion last year. What is causing that and what should be done about it?
Tonelson: Whenever you have a trend this big affecting such an important sector of the economy, obviously they never have one cause. But the one cause I would single out, and I do think it deserves No. 1 ranking, is the U.S. trade policy that has been pursued over the past roughly 15 years. What I mean by that is, a trade strategy that has focused trade negotiations on low-income countries. The rationale has been that these are the world's most exciting, most dynamic, potentially largest emerging markets.
One other very important trend persisted, and that has been the search by U.S. multinationals for low-cost production sites. It's clear to me that since the Asian financial crisis punctured the myth of emerging markets, U.S. trade policy is best seen as U.S. outsourcing policy. The trade deals we've sought have been overwhelmingly with low-income countries, and are best seen as efforts to help U.S. multinational companies send production offshore, not for serving those markets, because those markets are too small, but for serving the U.S. market.
Q: Let's focus on China. That's front and center for a lot of manufacturers, whether it's the growth of the domestic Chinese economy, the growth exports to the United States, currency issues, intellectual property issues. What does the U.S. Business and Industry Council see as the best course of action?
Tonelson: The main problem with China's emergence on the world economic stage is that China's production performance and its production potential is orders of magnitude greater than its consumption performance and its consumption potential. This wide imbalance is destroying trade flows around the world. We simply think that China is too big for the world trading system to swallow whole, as it did when China was admitted to the World Trade Organization in 2000.
We think the U.S. government needs to take unilateral steps to bring China's trade flows into a more-stable balance. We think again that the U.S. manufacturing crisis has reached such proportions that we're in a genuine emergency, and emergency measures are needed. That means tariffs. Nothing else has worked.
Q: There's been a lot of discussion lately about the gap between how large multinationals see global trade as reducing supply chain costs and how smaller, U.S. domestic-oriented manufacturers look at it more skeptically. Do you see that difference existing, and is it significant?
Tonelson: There's no question about it. The imbalances that have been building in our own economy, largely due to our outsourcing trade policies, are reaching dangerous levels.
Q: According to NAM, manufacturers exported $612 billion in 2003, and the agricultural industry by comparison exported $61 billion. There's obviously a whole Department of Agriculture in Washington, but there's a subcabinet level position for manufacturing in the Commerce Department. Do you think manufacturing gets enough attention in Washington?
Tonelson: On the all-important trade front, U.S. multinational manufacturers have gotten everything they've asked for from Washington.
What's ironic is that many of the problems they've been complaining about are a very direct result of their trade-policy successes. What they've essentially done is, they have helped to speed up this economic shift from a manufacturing-dominated economy to a service-dominated economy.
Q: How much of a connection is there between trade policy and the loss of 2.7 million manufacturing jobs? Is the manufacturing job loss connected closely to productivity gains and domestic issues like high natural gas prices, or is it due to trade policy?
Tonelson: We've had periods of high energy prices for a long time; we had very low energy prices in the 1980s. I didn't see American manufacturing performing all that well then.
The big new development in manufacturing that has been a secular change that we've never had before has been what you might call ``the great opening'' of the American economy starting about 1970. That's when American living standards, in inflation-adjusted terms, began what is now a 35-year period of stagnation.
I'm not saying there's a one-to-one cause and effect there, but it seems to be much more than simple coincidence.
Our mantra is change the trade policy. Change the terms of U.S. economic engagement with emerging Third World countries. And manage their transition to economic development much more carefully.
Alan Tonelson is a U.S. Business and Industry Council research fellow, and the author of The Race to the Bottom: Why a Global Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards.
