August 16, 2002 | Commentary on Foreign Aid and Development

Manufacturing Bogus Claims

To hear critics tell it, when President Bush signed the bill restoring Trade Promotion Authority (TPA) to the White House, he signed a death warrant for our nation's manufacturing sector.

If, they claim, the president has TPA -- the ability to negotiate trade deals and submit them to Congress for up-or-down votes, no amendments -- our new trade partners will exploit the lower labor costs that flow from such deals and destroy American jobs.

The critics are wrong.

Foreign countries do find it more productive to negotiate with us when TPA is in effect, as it was from 1975 to 1994. They know the deals they work out at the negotiating table will be the deals we honor. TPA's eight-year absence explains why the United States is party to just three of the world's 190 active trade agreements, and one of those -- the North American Free-Trade Agreement (NAFTA) that links America with Canada and Mexico -- was forged before TPA, then known as "fast-track" authority, lapsed.

Trade deals with Chile, Singapore and others were put on hold while the TPA legislation worked its way through Congress. Now these can move forward.

And they should. Because the fact is trade doesn't hurt the manufacturing sector. Trade bolsters it by expanding markets, providing U.S. manufacturers with lower-priced raw materials and increasing productivity.

That's why imports have increased from $9.1 billion in 1950 to more than $1 trillion in 2000 -- a 13,000 percent jump -- and why manufacturing-sector employment increased from 15.2 million to 18.5 million during the same period. Output has increased 6.2 percent a year since 1960 and now stands at $1.5 trillion.

So, why hasn't trade eroded the U.S. manufacturing base?

For one thing, average global tariffs have plummeted, from 40 percent in 1950 to 4 percent today. And with lower tariffs, American goods can compete. Today, according to the National Association of Manufacturers, one-sixth of America's manufacturing output -- including 54 percent of aircraft production, 49 percent of machine tools and 46 percent of turbine and generator output made in America -- goes to overseas markets.

Second, increased trade gives U.S. manufacturers access to lower priced goods (such as raw materials) that reduce their cost of business. This enables them to move a lot of product: In 2000, the United States imported more than $500 billion in capital goods and industrial supplies and materials.

It's impossible to look at the American auto-making industry and not see another benefit of free trade -- the inefficiency-cleansing, creativity-inducing, productivity-enhancing benefits of competition. Into the early 1970s, Japanese carmakers voraciously seized market share with smaller, more reliable and fuel-efficient models, particularly after the Arab oil embargo of 1973 revealed America's vulnerability to fluctuations in gasoline supplies and prices. Today, American firms make far better cars and adjust to changing market needs far more effectively -- as the SUV and minivan booms attest -- and the manufacturing sector enjoys twice the productivity of the rest of the economy.

Time is money with regard to trade, and the Bush administration shouldn't delay in putting its newly granted power to use. The National Association of Manufacturers estimates that our failure to pass TPA earlier has cost us $800 million in trade with Chile alone.

Today, Canada, Mexico and a few South American countries have negotiated free-trade pacts with Chile, the economic star of South America. Many of the goods they seek to sell to Chile also are produced in the United States. We've been beaten to the punch by both of our NAFTA partners and others. The European Union also seeks to beat us to -- and from -- the bargaining table. In less than a decade, the EU -- in its efforts to challenge U.S. trade supremacy worldwide -- has entered into 29 of the world's 190 trade agreements and is negotiating 12 more.

Between its decision to raise steel tariffs and acquiesce to higher farm subsidies, this administration hasn't built a great legacy with regard to trade. Now it has the tool to reverse that. And the time has come to use that tool.

Aaron Schavey, a former trade policy analyst at The Heritage Foundation (www.heritage.org), teaches economics at Northern Virginia Community College in Alexandria, Va.

About the Author

Aaron Schavey Policy Analyst
Finance and Accounting

Related Issues: Foreign Aid and Development