March 14, 2002 | Commentary on Foreign Aid and Development

The Other Side of Trade

ABC's "World News Tonight" recently ran a segment about the people of Andrews, N.C., and what they've suffered since a local textile plant moved overseas.

Americans are losing jobs elsewhere, the report hinted, as textile plants relocate to countries with lower labor costs, such as Costa Rica or Honduras. Perhaps, it implied, free trade costs too much and helps too few.

But what about the other side of the coin -- the benefits of free trade? Surely balance requires us to consider as well the jobs it creates, the higher wages it brings, the savings that flow to Americans nationwide.

Why, for example, aren't we hearing about Toledo, Ohio? Chrysler operates a Jeep factory there that employs nearly 4,000 workers. One out of every four vehicles these American workers make are sold overseas. Other companies depend even more on exports: Awareness Technology, Inc. of Florida, which makes laboratory equipment, saw its sales to foreign markets grow 38 percent (to $5.2 million) between 1995 and 1999. Three-quarters of its jobs are directly supported by overseas sales, according to the U.S. Trade Representative's Office.

Foreign markets have also helped companies such as Milgard Manufacturing, Inc. in Washington state grow by leaps and bounds. A glass manufacturer, Milgard started in 1958 with five employees. Today, it's the largest window-maker in the western United States, with nearly 2,500 employees in 14 states who sell Milgard products in countries such as Canada and Mexico -- and even as far away as Taiwan.

Free trade also allows foreign companies to operate on U.S. soil -- and create jobs for Americans in the process. More than 2,400 foreign firms operated about 5,700 businesses here in 2000, according to the Directory of Foreign Firms Operating in the United States. They paid, on average, 12 percent more than domestic firms, and they helped Americans enjoy lower prices for a variety of goods and services.

In addition, these foreign firms indirectly create many other jobs for companies that supply their factories or that serve their personal needs -- such as restaurants, retail stores and supermarkets. A 1998 University of Michigan study found that every job created by a foreign auto maker leads to more than five spin-off jobs.

And most foreign companies that open plants in the United States buy the parts here to save money -- which leads to lower-priced products and even more jobs. The four plants Honda operates in eastern Ohio, for example, use tons of steel, but they don't buy the raw material. Their suppliers buy it, turn it into doors, fenders and other car parts, and Honda buys these finished components.

This process also shows why protecting the steel industry makes no sense. The old argument for doing so -- that America needs a large steel-producing sector to fill emergency wartime needs -- doesn't wash. We already manufacture three times the steel the military could need for even the biggest buildup.

And for every steel worker, there are 57 in industries that buy and use steel. High tariffs and other protectionist measures only make their work less profitable, their products less competitive, and their jobs less secure.

Economic policies should benefit as many people as possible, and policies that promote free trade do that. They don't lead to a net loss of jobs, as opponents claim. Imports jumped from $62 billion in 1950 to $1.3 trillion in 1999 -- which coincides with the most rapid and thorough streamlining of manufacturing processes in world history. Yet despite the 2000 percent increase in imports and the gargantuan rise in labor-saving devices, the number of manufacturing jobs remained relatively constant over this period.

But stories such as the one on "World News Tonight" do more than leave out the good news about free trade. This fear-mongering about trade has consequences. No one talks about the $2,040 in savings that foreign trade brings to American families each year. No one highlights the jobs it supports. No one notices that a third of our farm sector is devoted to foreign trade.

And so there is far too little discussion of how much better off we'd be financially if President Bush had Trade Promotion Authority (formerly known as "fast track"). Today, the United States is party to three of 131 trade agreements around the world. The European Union is party to 57. Why?

"World News Tonight" can report whatever it wants. But if it wants to be balanced, it needs to highlight the people who save the money, work the jobs and harvest the crops that free trade makes possible. They're not hard to find.

Aaron Schavey is a policy analyst in the Center for International Trade and Economics at The Heritage Foundation, a Washington-based public policy research institute.

About the Author

Aaron Schavey Policy Analyst
Finance and Accounting

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