An “army” of lobbyists has come to Capitol Hill. American automakers are “speaking with a unified voice” in pursuit of a single goal. The business media and papers of record are pushing a message that hasn’t been this identical since this time last year, when they were competing with each other to see who could most strongly support a certain inevitable presidency.
What’s got everybody so upset?
Why, it’s NAFTA, of course. Ross Perot once said it would lead to a “giant sucking sound” as jobs crossed the border to Mexico; strictly in terms of automotive jobs, that’s proven true. The United States has lost 340,000 auto jobs while Mexico has gained nearly 400,000. Entire segments of the United States economy have been hollowed out and sent south. If you want a Fender Jimi Hendrix Stratocaster, for example, you’ll have a choice of Mexico or nothing. (Yeah, yeah, I bought it anyway.)
President Trump has called NAFTA a “bad deal” and has promised to renegotiate it away. The “unified voice” with which corporations are opposing that renegotiation makes me personally a bit nervous. Surely they wouldn’t all be in favor of NAFTA if it amounted to anything more than a way to build cars (and Chevrolet Silverados!) in Mexico and then sell them to Americans?
I could be wrong. What do you think? Does NAFTA hafta go back?
[Image: General Motors]
I’m torn.
I took macro and micro economics in college (sadly the textbook was written by the professor teaching the course) – have “International Trade” on my transcript, read “Wealth of Nations” and “Capitalism the Unknown Ideal” (yes for pleasure). But that was 20 years ago, I am no expert.
Frankly ask 10 experts and you’ll get 10 different answers.
But my brain keeps going back to Adam Smith’s underlying premise which essentially was – figure out what your are good at as a nation (that which you can do better and cheaper than anyone else) and do it. Don’t waste your resources doing something that you can purchase more cheaply from someone else.
free trade, as assumed and understood by Smith, etc would be good. An example is the US is better at making burbon, Mexico at making tequila, there should be free trade of these items. similarly, Bud made in US and Corona made in Mex should be freely traded.
it breaks down, however, when trade amounts to an existing enterprise picking up and moving then importing the formerly made goods back.
After 20 years its clear the negatives of much lower semi-skilled and manufacturing employment far outweigh the good of cheaper goods.
But the “lower semi-skilled and manufacturing employment” was bound to leave in the first place. If it hadn’t gone to Mexico, it’d have gone to dozens of other developing countries, and none of them had trade agreements with us.
If those jobs had to leave, then the logical course of action was to a) have them go closer to home, to b) a country that agreed to buy our goods and capital in return.
@FreedMike – that is the inevitability of global commerce. The USA could be self sustainable but residents would not want that financial burden nor would they want to be forced to do jobs that they don’t want to do. Add to that the financial elites would not want the loss of income.
The best solution would be to help Mexico raise its standards to be more in line with the USA and Canada. That option has already been suggested by Canada. Create not just a free trade zone but a zone of comparable socioeconomic standards. The only real hold back are the financial elites. They like the concentration of wealth and do not care about the populace as a whole.
Yes, basically, all that.
Iirc it was David Ricardo who really developed the economics of free trade, not Smith, but close enough I guess.
The US still has to figure out what manufacturing and tech it does well and how to deal with the semi-skilled who are ground up in the ceaseless economic disruptions Americans apparently approve of. For example the Europeans manufacture high-tech medical equipment well and at great profit, and also have a much more robust training infrastructure. So free trade theory is working fine in some aspects.
The US has created a lot of value in internet and other industries but kept most wealth or power from the workers involved. There is wealth in the US, it’s just being concentrated. It used to be distributed through progressive tax policies which helped create the Pax Americana.
This realization that many Americans have been screwed by NAFTA isn’t really about NAFTA or auto manufacturing in the US, it’s about what kind of economy and country will be left for the next generation. Adam Smith was a moral philosopher and in favour of regulation.
I think the borders between the three countries should be open entirely for goods at least, and that the allegedly meritocratic USA should if it’s serious, outlaw inheritance. That could sharpen some thinking.
But whatever, nothing fundamental will change in the US and we all know that.
“nor would they want to be forced to do jobs that they don’t want to do.”
Exactly.
I live in Arizona, where Anglos generally despise Mexicans who do all the ugly jobs the Anglos don’t want to do.
Bad conscience, I think…
BobNelson-I gotta take issue with “Arizona, where Anglos generally despise Mexicans who do all the ugly jobs the Anglos don’t want to do.” I truly think you see things as they are not…
@TDIandThen
“The US still has to figure out what manufacturing and tech it does well and how to deal with the semi-skilled who are ground up in the ceaseless economic disruptions Americans apparently approve of.”
I very much doubt the most Americans have the slightest understanding of these “disruptions”.
The basic problem is the sames as it has been since the beginning of the Industrial Revolution: “Who owns the machines?” Today, the question is only slightly different: “Who owns the robots?”
I would like to answer: “We the people!” … but I know that in Trump’s America, where “we the people DESIRES to give up health-care so the the rich may be even more rich…
… there is no hope…
Lou_BC, what holds back Mexico is Mexicans and their inferior culture. If they had been an English colony instead of a Spanish colony, maybe they wouldn’t be such a corrupt mess. Texas is basically Mexican geography settled by armed Scots Irish hillbillies who fought back.
“Mexicans and their inferior culture”
@George B – “Your culture” picked Drumph and Hillary as the two best candidates to lead the USA.
That alone means you shouldn’t be judging the inferiority of another culture.
BTW, a country isn’t a culture.
“After 20 years its clear the negatives of much lower semi-skilled and manufacturing employment far outweigh the good of cheaper goods.”
That’s not clear at all. The fact that you cannot identify the jobs that were created by the wealth that was saved by moving manufacturing to Mexico does not mean there were none, or that they did not more than compensate for the jobs lost.
Adam Smith lived in a very different world. Great Britain was “great”.
Trump puts us in front of a difficult question. (Which he answers nonsensically, but hey! he’s Trump!)
The question is, “Should we as a nation conscientiously promote the general interest or should we let Smith’s invisible hand do as it pleases?”
Personally, I don’t think the invisible hand is free do do as it pleases. It is bound by the ultra-rich, and will do their bidding unless the proletariat protests.
” Don’t waste your resources doing something that you can purchase more cheaply from someone else.”
That was actually Ricardo, without his work the modern international economy wouldn’t exist.
An end to NAFTA in my business would incent us to move business from this hemisphere back to Asia. Very little of what we make is feasible for placement in the USA – think of a $45 fleece blanket or a $99 fleece jacket. (Mid price points – not cheap stuff.)
We do a fair chunk of these in CA/SA and it’s all enabled by NAFTA’s lower duties on industries like Salvadoran vertical fleece mfg. These placement decisions are governed by single digit percentile differentials and would be back in Asia in 90 days if it shut off. As it is, we have to ship substantial parts of the factory equipment and the day to day consumables from Asia anyway.
I like trying to keep it in the neighborhood even if it can’t be in the backyard.
The funny thing is that the US treasury would collect more money if we killed NAFTA and sent the jackets ack back to Asia and got the 32% import duty.
**This is a gross simplification, just food for thought.
Go ahead and repeal NAFTA. You can repeal or cripple every other free trade agreement you can find. All those sweet high school diploma level jobs the Trumptards remember from their parents generation are not coming back no matter how many trade barriers they try to put up. Automation not free trade is the real enemy of the uneducated. If you don’t invest in your education and your children’s education you will be doomed to poverty forever. So go ahead, double down on stupid and let’s see it goes.
@VolvoDriver, we’ll said. +1
Every system accommodates itself — often at some expense — to the environment in which it operates. Most of the folks crying about saving NAFTA have accommodated to the NAFTA environment and would face great costs (or at least great uncertainty) if that were changed.
One argument that sophisticated opponents of NAFTA and similar “globalization” deals make is that much of this is about finding labor that is cheaper than domestic labor. Why else would you go to the expense of building a plant in Mexico to build pickup trucks (GM, Chrysler). It’s not like the Mexican domestic market is that big. But the alternative way of driving down per-unit labor costs is to make each worker more productive through automation, etc. So, these folks, argue, in the long run, allowing “global supply chains” that are mostly driven by cheap labor rates is not as generally beneficial as forcing higher productivity from existing labor through added investment.
And, you have to allow for the short-term thinking that dominates so much of American business. It’s easy to see and calculate the labor savings if you can build your product in a low-wage area. It’s not so easy to calculate in advance the additional costs of building your product in a low-wage country with a much less than transparent government and less infrastructure. You only find that out when you get there . . . and by then you’ve sunk the costs of building your new cheap labor plant.
There’s gotta be some reason that Toyota builds pickups in Texas — even in the current NAFTA environment — rather than in Mexico. Maybe Toyota doesn’t like uncertainty and doesn’t rely as much on short-term calculations.
And, speaking of cars, we can’t ignore the fact that CAFE mandates that fuel-efficient cars be sold either at a lost or at much smaller margins because of the relative lack of consumer demand.
I don’t think “repealing NAFTA” is a good idea because (1) it will impose costs on everyone and (2) the assumption that everything will be as it was before is never correct. I do think, other government policies regarding investment and government policies that drive up labor costs, without providing any benefit to the workforce should be re-examined.
“And, speaking of cars, we can’t ignore the fact that CAFE mandates that fuel-efficient cars be sold either at a lost or at much smaller margins because of the relative lack of consumer demand.”
CAFE is, for want of a better word… STUPID!!!
If America wants to reduce fuel consumption, there is a very simple means: make fuel cost more! Eliminate subsidies to Big Oil, and a gallon of gasoline will cost something like 10 dollars.
Low-consumption vehicles would be DESIRABLE! No market distortion!
There is something both sad and humorous in CAFE. America, the land of free market capitalism, refuses to use the simple, obvious tool of pump prices to guide its future. Americans are either stupid or crazy!
“Americans are either stupid or crazy!”
Why not both?
+1
“Americans are either stupid or crazy!”
Why not both?
You can be both but until you treat the crazy you can’t educate the stupid.
“If America wants to reduce fuel consumption, there is a very simple means: make fuel cost more!”
Given the lobbying power of Big Oil it’s impossible to do this on the supply side. And thanks to Grover Norquist, it’s impossible to do this on the demand side by raising fuel taxes. What else ya got?
“and a gallon of gasoline will cost something like 10 dollars.”
Yeah, screw those poor people! /s
The other argument against “free trade” agreements is that they institutionalize an economic system that can’t adapt naturally. NAFTA is designed to offshore American jobs in an orderly fashion, but at some point, the manufacturing jobs in Mexico will lead to sufficient demand for domestic production to change the demands for labor/goods between nations. At some point, it might be inefficient for Mexicans to continue producing for the United States, though wages in Mexico may still be considerably lower.
The inability of the contracts to adjust and the multilateral nature, which allows multiple countries to exploit a single country, makes people wonder why they exist in the first place.
It seems they address two primary concerns 1) the create certainty for the sake of certainty 2) they create superfluous international trade to force peace between nations.
Corporations do not want NAFTA to be touched no matter how bad it is to satisfy point 1. Point 2 is a matter of geopolitical philosophy, but the strategy only works if the agreement is beneficial for everyone. If a trade agreement is poorly designed and administered, it is more likely to lead to conflict.
Toyota does build trucks in Mexico, and they’re not even dodging unions. But its obviously not just about “cheap labor” down there. Although for some corps, it’s about labor they can afford and still stay in business.
With or without NAFTA, most (US or offshore based) corps wish not to manufacture in the US. Fact of life, that’s not gonna change. The US is a hostile environment for the manufacture of goods.
NAFTA isn’t perfect, and it’s virtually impossible to balance the trade deficit, but least Mexico shares a border with us. When they win, the US wins, directly or indirectly.
But killing NAFTA should include the killing (or freezing) of CAFE. The assumption automakers would suddenly only offer “gas guzzlers” and or big trucks is stupid. Not much would change and there’d be absolutely no need for $10 a gallon fuel.
And there even less need to turn the US into Europe with the health-related catastrophe they created solely from heavily taxed fuel.
Well, if you want more expensive vehicles, and if you want more economic suffering in Mexico – and thus MORE illegal immigrants – then NAFTA must die.
Trade is one of those bells that is hard as hell to unring.
Applause!!!
I look at Mexican made Honda Fit and I don’t see it being cheap. In fact, if you pay more for labor costs, this is good. You paying to your countrymen. Illegals are not problem. It is employers that are problem. Caught illegals working? – penalize employer. They will learn soon. Illegals have nothing to lose. They get deported and cross back. But if they can’t work, they wouldn’t come. Economic suffering in Mexico? -this is their mafia issue. Racketeering, murder, abuse of power by local authorities. 400K jobs will not save them from these things.
This is the same ham-fisted argument uneducated people make whenever they don’t understand what is going on.
I suppose it’s extra comical in this situation because the reason large nations agree to these deals with smaller nations is to control and limit the exodus of jobs.
Just cancel it and start all over.
NAFTA was a bad deal for USA from the beginning.
It needs to put the Nation first, not corporations!
NAFTA hurt Mexico….they could have been better developed nationally, if no NAFTA.
It just kept their wages low and stiffed internal development. Without NAFTA, they would have to stand on their own legs, not depending on a treaty.
The “put the nation first” stuff is debatable. There’s no guarantee that the jobs “brought back” by getting rid of NAFTA might not just go somewhere else, like China.
But there’s no debate as to whether Mexico has benefited economically from this. Their GDP has basically tripled since NAFTA was put in place.
Has that come at some expense for our economy? Undoubtedly. But if you want to “put the Nation first,” think of it this way: does the Nation want a nation with a growing economy or a complete crapshow sharing thousands of miles of basically indefensible border with us? If Mexico regresses economically, it will be absolutely no good for this country. If nothing else, the economic pain will send FAR more Mexicans to this country looking for work.
Think about that for a moment before you say NAFTA is bad for this country.
@FreedMike: “But there’s no debate as to whether Mexico has benefited economically from this. Their GDP has basically tripled since NAFTA was put in place.”
While that maybe true, economic growth is not a zero sum game. Growth in one country does not have to be at the expense of another. Mexico has grown due to a lot of reasons. Economic reform being one of them.
Our GDP has also expanded greatly since NAFTA as well, though.
In the end, I’d argue that the geopolitical security afforded by a stable, growing Mexican economy FAR outweighs the job losses here.
Does that mean we shouldn’t negotiate for a better deal? Of course not. But getting rid of NAFTA is an incredibly stupid idea.
The GDP of all three nations – Canada, Mexico and the USA – has increased since NAFTA. Canada exports about half of what it produces to the US. We really want to keep NAFTA!
thirty-three: the GNP would have increased anyway, with or without NAFTA.
However, with NAFTA, the CEOs, Wall St, and so forth, aka the people at the top, well they collected ALL the increase and more.
The other 90-95% of Americans have less than they had before.
“basically indefensible border with us”
Why is it basically indefensible?
If we redeployed a fraction of our thousands of troops on hundreds of bases around the world, I don’t think we’d have a problem protecting our own borders.
The border is 2,000 miles long. Most of it is desert and the only physical barrier between the two countries is a fairly narrow river.
Sure, we could “defend” it…like the Soviets “defended” a similar border with China.
How’d that work out for them?
But that assumes hostile military intent, which the Mexicans clearly don’t have (and wouldn’t be foolish enough to want). The key threat is individuals sneaking themselves or contraband over the border. And if anyone wants to stop THAT, he’d better be thinking far bigger than the “border wall.”
And if Mexico’s unstable, imagine how much easier it’d be for people to get into this country to do something other than menial labor. Think ISIS.
“How’d that work out for them?”
It worked out quite darn well considering there WAS an antagonistic and powerful country across the border. Look up the Sino-Soviet skirmishes near the end of the 60s. My dad grew up near the Amur river that makes up the border, he remembers when Soviet command would send in columns of tanks on trains as a show of force when the Maoists started to get feisty. Considering the millions on the Chinese side (and the rhetoric Mao was spouting off), I’d say the Soviet deterrent was quite effective indeed.
On a relative scale, preventing people/narcotics smuggling would be an easy task albeit pretty expensive/overkill to have garrisoned military posts stationed every 1/2 mile or whatever with fences/walls and monitoring in between. But on the point of cost, we’re already paying literal trillions to station hundreds of thousands of service members overseas. Cut NAFTA, if we’re that worried about some supposed influx of illegals, put in place at just a fraction of our current cost some military along the border. You’re being willfully ignorant if you don’t think we don’t have the means and know-how to safeguard that border if we really wanted to. And many do, simply politics preventing it.
@lot9: “NAFTA was a bad deal for USA from the beginning.”
I hear a lot of folks say this but never any specific details as to why.
I’m not sure why people are so torqued up over Mexico. The real trade problem was with China.
You’re right, but we can’t do the full Trumpian bulls**t-‘n-bluster act on China when they could kneecap us economically and vaporize all of our cities to boot.
Bullies never pick on the bigger guy.
@FormerFF
“I’m not sure why people are so torqued up over Mexico. ”
Simple.
They speak Spanish there. Like America’s lower classes. Despicable people…
“NAFTA was a bad deal for USA from the beginning.”
Who initiated NAFTA?
“The North American Free Trade Agreement’s history began in 1980. … The impetus for NAFTA began with President Ronald Reagan, who proposed a North American common market in his campaign.”
You saying “Trickle-down” economics don’t work?
“It needs to put the Nation first, not corporations!”
AGREED
Why have “right to work” laws, week consumer protection, militarized police forces, lax environmental and safety laws et al?
“NAFTA hurt Mexico….they could have been better developed nationally, if no NAFTA.”
Yes and no. Yes in as much as it has made Mexico very dependent upon the USA markets but as we have seen time and time again, politicians and business leaders only see time in short electoral and fiscal cycles.
No as in it has increased Mexico’s GDP exponentially.
NAFTA didn’t help but it was the GATT 1994 revisions on which dey took are jerbs.
Burn it down.
youtube.com/watch?v=wwmOkaKh3-s
28, it is a fact that US manufacturing output, in constant dollars, has doubled since NAFTA was signed.
It is also a fact that, during the same period, direct manufacturing employment has fallen by about 1/3.
Trade isn’t killing US manufacturing jobs – technology is. Just as it killed millions of agricultural jobs a century go.
Technology has also created many more new jobs than those it has destroyed – mostly in IT and other services. But those jobs require skills that low-skilled and unskilled manufacturing workers don’t have. Which leads to the conundrum of skilled jobs going begging while unskilled workers can’t find work.
Killing trade deals will only reduce American prosperity. Continuously upgrading the US labour force (which has been happening since the introduction of free public education) is the best road to success.
Lou,
What NAFTA did for Mexico is allow massive investment. Without NAFTA Mexico would of never been given the opportunity.
Even if NAFTA folds Mexico is develoed enough to have more investment, with new partners, most likely China.
@lot9
“It needs to put the Nation first, not corporations!”
Exactly.
But one of our two parties is abjectly in service to corporations (rather then the Nation)… and the other party is lost in the desert…
Make lobbying illegal – 50% of American issues will be gone
…on pain of catapult.
+1 to slavuta.
“Make lobbying illegal”
You’ve got a real 1st amendment problem there.
What 1st amendment? If you are military contractor and depend on Gov money you shouldn’t be allowed to make political contributions. This is called legal corruption.
@slavuta
We’ll also have the world’s worst regulations. Lobbyists are no fun, but our loathing for lobbyists will be replaced by an even more intense loathing for Congress, if they make clumsy attempts at regulation on their own.
Rational economic arguments are all fine and good until you are one of the 10K people in a small town who lose their job because the local t-shirt manufacturer can save $.10/shirt by making the shirts overseas. For them, that is millions of dollars in extra profit per year. But for me as a buyer, I would rather spend $1/shirt more and keep those people employed. There need to be decent paying jobs for people who just aren’t suited for anything more than simple factory work. Not everyone is cut out for college and a “career”. Some people just need lower skill jobs. Are we going to get to the point where the only jobs left are Wall Street or Walmart?
So to bring it around to NAFTA – I think free trade with Canada makes perfect sense. Free trade with Mexico means losing lots and lots of jobs, and I can’t see that the Mexican economy and wages are up to their buying enough from the US to make up for it. But what do I know? I’m a computer consultant not an economist.
You’re right, but I’d say the loss of these decent-paying, low-skill jobs was inevitable. If they jobs didn’t go to Mexico, they’d go to China, or India, or Vietnam, or dozens of other developing countries. If NAFTA goes away, then that’s exactly where all the jobs in Mexico will end up.
For me, it comes down to geopolitics. Yes, NAFTA costs us jobs, but a relatively affluent Mexico makes a million kinds of sense for this country. Put differently: imagine what our problem with illegal migration from Mexico will look with if their economy collapses. Mr. Twitter-In-Chief could build a 2,000 foot tall border wall and it wouldn’t do a bit of good.
@FreedMike
“If they jobs didn’t go to Mexico, they’d go to China, or India, or Vietnam, or dozens of other developing countries. If NAFTA goes away, then that’s exactly where all the jobs in Mexico will end up.”
Yes… but…
Only if the US government allows “free” imports from those countries. There was a time when import duties served to protect American jobs.
The question, fundamentally, is whether we favor American workers or American shareholders (and, only incidentally, American consumers).
If import duties raised the cost of T-shirts “made in Vietnam” to the level of “made in America”, then jobs would be saved… but we would pay more for our T-shirts.
And much more importantly, Sam Walton’s kids would draw less rent…
“Only if the US government allows “free” imports from those countries. There was a time when import duties served to protect American jobs.”
Are you Mr. Smoot or Mr. Hawley?
As far as USA – Canada effect of NAFTA, not much effect on trade deficit.. in 1992 ( pre NAFTA) USA exported $79 billion and imported $77 billion from Canada… currently in the $400 billion range both ways ( so appears to have benefited both countries as far as growth of exports / imports given the they have grown faster than GDP) with NAFTA USA did get a sweet deal as far as access to Canadian oil though!
Except the difference in the cost of the T-Shirt is never $1 at the consumer end, it’s often much more. And really, can you honestly say that you have clothes-shopped and looked at tags (or for retailers) that specifically manufacture in the US? MEC (here in Canada) has often advertised this but been very open about the fact that most consumers don’t care (and therefore that many of their ‘local’ manufacturing efforts have been for not). Most people don’t shop for clothes the way you are suggesting.
There are lots of types of jobs out there and I disagree that some people ‘just aren’t cut out for anything more.’ It’s a question of education. The people who end up in these jobs either weren’t encouraged or didn’t have the money to do higher education, that’s fixable.
The other problem with your argument here is that, as others have said, their is an underlying presumption that things will just go back to the way they were 50 years ago. Not so. How do company’s respond when they a forced to take on more expensive labor in a price-sensitive market (like clothes, etc.)? They increase spending on automation so that they can reduce the number of people they have to employ in the long term. You’ll have factories of machines and a few engineers, not factories fully of high-school drop-outs making $50k a year.
There comes a point at which you need to protect the working people. Or we will get to the point where 95% of the population can’t afford anything. There has to be a happy medium in there somewhere.
If we want to protect the working people, then our best move is to invest in new technologies that will create jobs for them.
The day when the majority of low skilled American workers could make a solid middle class wage in manufacturing is long gone. Once the rest of the world recovered from World War II, that party was over. Killing (or even renegotiating) NAFTA won’t bring it back.
@FreedMike – investing in emerging technologies is always been a USA strength since they lead the world in that field but it rarely “trickles down” to the populace. Education is a key factor but that has become too expensive for the portion of the population that would benefit from it. There are multiple social factors that also come into play. You aren’t going to successfully educate gang members raised in poverty until you address the issues that made them see that choice as the most viable. Militarized police and more prisons obviously doesn’t work.
@ FreedMike
“If we want to protect the working people, then our best move is to invest in new technologies that will create jobs for them.”
Problem is that the development (investment) of most new technologies is paid for by customers who want those technologies to create new efficiencies for them.
For every new technology (Uber?) that creates new jobs, there are fifty (what most software developers, including me, do all day long) that are designed and built in order to reduce the need for people. In my case, my team works for a large corporation. The parent company is in strong growth mode. Because of my team’s effort, we have kept our own hiring to zero this year despite tripling our customer base and quintupling our revenue. We’ve just automated a lot of stuff that folks used to do.
Software will eat the world.
We have low skilled people because our school system SUCKS…..We also need to get rid of
smartphones and social media web sights….
Get these devices out of our young people faces
and have them get serious about education……
If you can’t fix that then there is no hope
for our Country
95% of the population can’t afford anything? Well then who are these “evil corporations” going to sell too?
“There comes a point at which you need to protect the working people. Or we will get to the point where 95% of the population can’t afford anything.”
But… but… GDP!! /sarcasm
@krhodes1 – there is the persistent argument of jobs being lost to countries with poor social/environmental/ethical/moral standards. it is definitely cost effective on a purely financial basis to hunt for the lowest bar to step over.
Others have pointed out that most do not shop based on country of origin or country of head office. They buy what ever costs less. This drives down inflationary pressures. Another inflationary pressure that gets pushed down is wages. We have seen stagnant wages relative to inflation and that is also due partially to offshoring wages. If you are in an occupation where anyone globally can do the job, corporations will find the cheapest labour.
The 900 lb gorilla we all overlook is technology. Ironic since this debate is taking place on a blog that exists due to “new” technology and the participants are all over the globe. Most experts say that that vast majority of job losses are due to technology. That number is well over 90%.
My town is a perfect example. We have had many significant employers come to town but our population is the same. We have had many lumber mills close but our output has increased exponentially. It isn’t the fault of “offshoring” since most “go to” labour markets don’t get our wood.
Exactly this. As I said in reply to @FreedMike, above, most most technology is software and most software doesn’t create jobs; it eliminates them or prevents the need for them.
Software *is* the zombie apocalypse.
And honestly, we probably have 20% (easily) more workers than we really need to do what we do. But that’s mostly lower- and middle-management types whose jobs consist in translating subject-matter expertise from their direct reports into general understanding for their bosses.
krhodes I’m on the same wavelength on this topic. Moving to the Midwest and seeing the devastation in the Rust Belt with my own eyes drove the issue home.
“Rational economic arguments are all fine and good until you are one of the 10K people in a small town who lose their job because the local t-shirt manufacturer can save $.10/shirt by making the shirts overseas.”
Who was complaining fifty/sixty years ago when those jobs left New England and moved to the South?
@krhodes1
Don’t weep for textiles. I know it was just a hypothetical, but we really need to focus on STEM jobs. Textiles is manufacturing, but that’s all it is. Automobiles include science, technology, engineering, and manufacturing. It’s a worthy industry for high paid and highly educated Americans.
People are not losing manufacturing jobs to free trade deals; they are losing them to automation. Even if we turn back the clock and go back to something like GATT, it would mean more jobs for robots in the country of your preference.
What are all those people in China doing? Watching robots?
The folks in China will be next, Jack.
No matter how cheaply you can make stuff, someone else can make it cheaper. There’s no shortage of Asian countries that would love to take a piece of China’s cheap-exports business.
And if the folks in Africa can get over their continual warring, you ain’t seen nothin’ yet.
> The folks in China will be next, Jack
In my line of business (cameras) that already happened. Manufacturing went into China but all new low-cost manufacturing is in Thailand, Vietnam and the Philippines. Accessory lines that used to come from China are now starting to come out of places like Myanmar.
Can you imagine if there was an African version of the EU? Holy heck.
It has been said: “Africa isn’t poor, it’s being looted.”
Yep.
Africa would be a PARADISE for low-cost, low-margin manufacturing. And I can’t think of anyone in the world who’d benefit from that more than Africans. Industrialization would be an absolute godsend for that continent.
If the various factions in Africa could ever learn to live peacefully with each other, watch out.
Oh Jack! Are you French and so arrogant.
Look back in history, without your narcisstic bias. Now read below Adonis.
1. The US jumped on the mass production bandwagon and developed and mastered mass production techniques faster and better than the European in the second half of the 19th Century.
2. The Europeans back then developed more technologies, the US capitalised on them.
3. For a Century the US dominated global production with the help of a few wars.
4. Some food for thought. The US most likely was the Worlds greatest power after the Civil War (due to production capability) and not WWI like most believe. Great Britan was considered the most powerful country during WWI. Why? Because it had a larger military.
What Britan didn’t have was industrial capacity as the US had.
China is not much different now. Our biggest tool to use to defeat Chinese government is to exploit Communism against them.
The mindset in China is their weakness.
You simple people better start taking the China threat seriously and not sit back thinking how great we once were.
Whinning and crying its all not fair is bullsh!t as this will not alter reality.
The US is threatened on the global stage and you are scared. This is evident with your constant ill researched arguments.
How fncking arrogant.
AMEN to that
“What are all those people in China doing? Watching robots?”
Increasingly, yes…and rapidly increasing.
Automation/Robotics REALLY ARE destroying billions (trillions?) of hours of human labor input, and the need for the services of hundreds of millions of human laborers, from bolt spinners, to welders, to CNC operators, to surgeons, attorneys, accountants, financial sector employees, and many, many other occupations, at ever increasing levels of complexities.
This trend will not slow, but gain a rapid head of steam and accelerate.
As I write this, a formerly secretive Japanese Robotics Company is the single largest destroyer of human labor in American, German, French, UK, Japanese, and yes, Mexican, Indian, Indonesian, Malaysian, and yes, Chinese factories and other facilities (and at increasingly advanced levels of operation), so much so, that it’s now producing machines and robots to automate even technically complex tasks formerly the sole domain of human hands and brain-power, with said machines and robots being as small as 35 pounds or as large as 14 tons, and costing as little as $2,500 USD, and as much as $25 million USD per unit, with a booming secondary, used/refurbished market for said machines and robots.
Yes, the big, bad wold that will lead to (literally) hundreds of millions of semi-skilled and highly’skilled humans losing their jobs over the next decade has already begun, and the more intensive marriage of AI and this increasingly graceful, tactile, and precise robotic hardware could *literally* foment revolutions by displacing massive numbers of human employees in emerging and developed (China has the most at risk, in terms of raw numbers and revolution, actually) nations alike.
Here’s a story about a Japanese Company known as Fanuc that is the 800-pound gorilla of automation, and it has only recently begun its true ascent into its core mission-statement of finding better and more efficient ways of pairing AI/software and hardware to replace human labor:
https://www.bloomberg.com/news/features/2017-10-18/this-company-s-robots-are-making-everything-and-reshaping-the-world
It will not be long before, as just one example, auto factories are producing 10x the number of vehicles using 1/30th the number of meat-and-bone humans as was the case just a decade ago.
The AI/Robot/Skynet Revolution is a real thing, unfolding in real time, and it won’t be limited in any way to auto production or food processing/packaging; you will soon have eye surgery being done by fully autonomous robotic stations, as well as many other services and procedures now deemed “high-skill” tasks.
They have unskilled/low-skilled jobs that haven’t been automated. Yet.
False
“False”
Well I guess you win that argument
You forgot to add” NEWS”
If there were a ‘big bang’ and manufacturing jobs flooded back, who will do them? My crappy little midwestern county has a 2% unemployment rate. We can’t find anyone who either knows a trade or knows how to work a machine at my company, despite being willing to spend $70k+ to get it.
Parents and millienials (note – I’m one) don’t want to learn a trade or learn how to be a machinist – they’re all going to be chiefs of complicated surgery at Mayo, despite the fact that only one will be. There are few young plumbers or electricians. A high school friend is killing it as a quality plumber and declines work all the time because he can’t find others to work in his business.
I worked with a kid back in 2008. With only 4 years in at GM he opted for a small buy out package. The kid used the money to improve his education. He grabbed an apprenticeship in HVAC,and earned his gas license.
Today the kid is pulling down 80-100 K (CDN) . The young guy bought a “fixer upper” house before the big housing boom. Him and his buddies fixed it, flipped, it and pocketed $100K.
I spent 36 years punching the clock, and escaped “relatively ” unscathed… (emphasis on relatively )
I’m nearly 64 and if I have one life regret, it would be not getting an education.
My hat is off to this gentleman.
Mine too.
This speaks more to the current educational system that fails to identify and adequately train those more fit for trade work than gathering 100k in student loans with no gainful employment.
I’d say the Europeans are way ahead of us in this regard.
Most of the successful tradesman I know were identified by their parents, and then successfully placed in apprenticeship,but unfortunately lack of health care benefits forces most into the cubicle.
I should mention that I don’t believe automaking to be a skilled trade anymore, with automation as cited above.
@cimarron – truth Brother.
New standards are supposed to include “College and Career Readiness” – unfortunately most state governments (regardless of the party of the people in charge) are solely focused on “College” at the expense of everything else.
Nowadays, even the high schools are complicit in keeping kids from learning a trade.
I’ve read about high schools refusing to even giving out diplomas unless students show they’ve been admitted to a college. Chicago’s mayor was even trying to push that plan over the summer.
Talk about luxury, there was a time in DC when they were desperate just to maintain a 50% graduation rate.
@TMA1 – depends on the district.
In Farmington, NM has a Career and Technology Education Center (CATE) which does things like vehicle mechanics, food service, IT etc while having an onsite PreK program (and many of the students have children who attend that portion of the program). They also partner with San Juan College to push careers along with early college course work.
Sadly they are the exception and not the rule.
Is that career center a popular option in your area, Dan?
Where I live they don’t even offer shop class anymore.
So many times the bureaucracy shoots itself in the foot.
Case in point: Several years back the district built a new high school that included automotive bays down on one end of the building. The intention was to offer auto shop classes but the state got wind of the plan and slammed the brakes on because it wasn’t in the districts “strategic plan.”
Those bays still sit empty.
Assembly line labor is a commodity, but learning how to run, fix, and maintain the automated machines is.
I also agree the US education system fell on its face years ago with respect to apprenticeships. Forcing kids to go to ‘college’ (frequently meaning some BS 99% admit rate nominally non-profit private school at $30k a year financed by non-dischargable student loan debt), pursuing a useless degree and end up waiting tables or working in the gig economy.
Biggest issue, is brainwash they getting in the college.
If uneducated and illiterate Mexicans can do it, red necks can do it too
@ Nick2012
Businesses were willing to go to Mexico in the pursuit of workers. They are equally capable of finding under-utilized American labor forces, though they will probably whine about it.
Our cities are full of workforce who is currently on welfare. Companies simply don’t want to provide all the perks that American workplace has, like medical insurance. And of course, how to get these folks to move?
We have low skilled people because our school system SUCKS…..We also need to get rid of
smartphones and social media web sights….
Get these devices out of our young people faces
and have them get serious about education……
If you can’t fix that then there is no hope
for our Country
Let’s not forget about the effect of labor and environmental rules have on free trade within NAFTA. Aside from the lower wages in Mexico, the labor and environmental regs are vastly different than in the US or Canada giving manufacturers another advantage to relocate operations in Mexico. To me the lack of harmonization of rules across NAFTA was a huge mistake, but one that the Twitter in Chief could start working on instead of all the time wasting stuff he does now.
@Felix Hoenikker – I agree 100%. If one helps fix social/environmental/labour abuses then companies will have little incentive to look for the “bottom feeder” country with “bottom feeder” economies of scale.
Ignoring environmental stewardship, human rights,and human health and safety saves money in the short term but in the long term it still costs developed nations money. in the USA’s case it is lost jobs, stagnant wages and governments choosing to head to the bottom by “right to work”, repealed environmental protection, and clawing back any “universal” benefits.
We should send a UAW rep down to Mexico like Germany sent Lenin on a train back to Russia to wreak havoc so to speak.
Mexican workers are not so stupid. The existence of internet has allowed for the prevention of such things.
@ Felix
We can’t demand that Mexico commit suicide by entitlement as we have. Furthermore, Canada can’t ask our regulators to create basic single payer because our healthcare regulators are completely inept. They already spend single-payer-money just taking care of 1/3 of the American population.
Homogenizing regulatory and work environments is an impossible task, and it would take away the sovereignty of voters, which undermines democracy.
Regulators should be forced to compete with one another. It is about the only way to affect change in this day and age.
An “army” of lobbyists has come to Capitol Hill
__
If an army of lobbyists is for it, then I’m against it.
@I_like_stuff –
You must be anti-guns too!
LOL. I’ve heard some horrible analogies, but this one may well be the worst.
@I_like_stuff – You implied that you are against any large lobby group that supports something that is seen as harmful to the American populace.
There was meant to be irony in my comment and your reply was what I expected.
In other words, “Your analogy shows me to be a complete hypocrite, therefore it is a terrible analogy.”
Then I am well-armed anti-lobbyist
Can you be an “anti-lobby” lobbyist and still be a lobbyist?
People conflate FREE TRADe with TRADE. Much like immigration and ILLEGAL immigration.
Free trade is good. No, it’s actually great. But NAFTA is nothing remotely close to free trade. Not when Mexico has to abide by a different set of labor and environmental rules. When Mexico allows $2/hr wages and turns a blind eye to safety/environmental regulations, that ain’t free trade.
I’d be more than happy to have a true free trade agreement with Mexico, where they abide by OSHA standards, they abide by EPA standards and they impose a $7.25 national minimum wage law. Until then, no deal.
> I’d be more than happy to have a true free trade agreement with Mexico, where they abide by OSHA standards, they abide by EPA standards and they impose a $7.25 national minimum wage law. Until then, no deal.
That’s not free trade, that’s mutually agreed upon regulation.
When Canadian’s hear ‘abide by standards” we’ve heard it before. Decades of how CDN lumbar and dairy industries are ‘subsidized” and “unfair and must meet the US industry’s definition of free market…. all negotiation tactics. Two countries, two difference ways of working.
If trade is supposed to be a way of encouraging good behaviour (human rights, environmentalism, etc), it’s not going to work if it doesn’t grant the other party autonomy and self-determination.
“I’d be more than happy to have a true free trade agreement with Mexico, where they abide by OSHA standards, they abide by EPA standards and they impose a $7.25 national minimum wage law. Until then, no deal.”
I guess Canada, the UK or Germany could demand we provide nationalized health care to all U.S. citizens as a precondition for free trade as well. Sweden could demand we give out a free college education.
I suppose China could demand we start doing the “mobile execution van” thing like they do.
Otherwise, from their perspective, “free” trade isn’t free.
Correct?
“mobile execution van”
It does improve organ donation ;)
Futurama’s suicide booths were ahead of their time.
“Star Trek” beat them to it…watch “A Taste of Armageddon.”
Well said. It has also been said that “When goods don’t cross borders, Soldiers will”.
Although that sounds reasonable. It’s actually not; one country cannot dictate to another country what laws they should have although America has done that for a hundred years to many countries. And in any case there was hope among many economists that it will in fact be NAFTA that will bring regulations and standards into Mexico over-time. So instead of imposing rules and regulations(even if all of them good or at least well-intentioned) as a condition of trade from the outside it was hoped over-time open trade and higher standard of living will achieve that from the inside. That doesn’t seem to be happening and I believe the primary reason is that although undoubtedly the NAFTA was beneficial to Mexico, it wasn’t beneficial enough to cause a significant difference for majority of the population. As in the US the biggest gains went to the rich, often the US corporation, some gains to the middle class (which I have seen with my own eyes) which is small but growing but most of the population gained nothing.
This is why I don’t get those who think cutting corporate taxes will “create jobs.”
Money is like air, electricity, water, etc. It flows the path of least resistance. Those jobs didn’t HAVE to go south, but it was cheaper. In that line of thinking, why should we expect them to hire more people or increase wages if their production goals are already being met?
Pink Floyd has a quote for every occasion of course… “it’s no surprise they’re giving none away.”
Cutting corporate taxes certainly won’t create jobs. Companies are sitting on unprecedented piles of cash, both domestic and abroad, and those piles are getting bigger.
They aren’t spending it for all sorts of reasons, but corporate taxes—which are already low—isn’t one of them. The massive cash-pile should be an indicator that perhaps we should be taxing more, not less, so that either:
a) government can get the resources to do the work (and employ the people) that private industry won’t, or…
b) private industry will actually spend capital, instead of hoarding it tax-free.
“Cutting corporate taxes certainly won’t create jobs”
This is what I find so maddening in the current effort to cut taxes. Businesses are not holding off on expansion (read, job creation) due to a lack of cash. They hold off on expansion due to a lack of demand. Expansion and job growth will only occur when businesses of all sizes see a market to be served. Give $1.5T to the lower middle class on down and they will most certainly spend it, creating demand that will result in expansion.
The other thing is that money does not take the path of least resistance. It inevitably flows up, which is why supply-side trickle down doesn’t work. The money spent at the lower tiers of the economy will percolate up to higher tiers, ultimately reaching the coffers of the rich. The problem is that the rich don’t want to wait and take the chance that the inverted Plinko machine will put the money into their pockets, so they lobby for tax cuts to them.
psarhjinian-The kind of country you speak of exists in other parts of the world and the results speak for themselves.
“The kind of country you speak of exists in other parts of the world and the results speak for themselves.”
So true.
Living in Canada has many advantages ;)
NAFTA was a terrible deal and people like Perot were right. Of course the American worker is not going to able to compete with the 3rd world if we want any standard of living.
I’m against any trade deal that’s not bilateral. These large trade deals with multiple countries are how a country loses its sovereignty.
And nobody is making the case of NO trade, just that “free trade’ with almost zero restrictions is usually a raw deal for American manufacturing.
“I’m against any trade deal that’s not bilateral.”
American exports of goods to Mexico, 1993: $41.5 billion
American exports of goods to Mexico, 2016: $229.7 billion
And you can add $30 billion a year in services to that.
https://www.census.gov/foreign-trade/Press-Release/current_press_release/exh4s.pdf
No one said NAFTA was unilateral.
Bilateral vs multilateral. Very different
Turning it back would be completely idiotic. First of all, as others have pointed out, we have <5% unemployment in this country now, and if anything, a labor shortage. We can't get enough people to do manual labor at competitive wages here, unless they are…Mexican immigrants. We still have lots of manufacturing, mostly higher end or specialty, which is where it belongs in a high-wage country short on labor.
We have helped raise our neighbor, Mexico, from poverty to a largely middle class nation. Same with China, actually…the greatest human achievement over the past 30 years has been the rise of these countries from poverty to middle-class societies where people are no longer starving. We're talking a billion people. I know we focus on our nearby losses in this country, but if you want a manufacturing job, go work for Tesla, or Toyota, or Honda, etc. They're all growing here.
If we're going to do anything on trade, just level the playing field. Raise the tariff on imported cars from China to 35% to match what they do to American imported cars on their side. They don't need anymore favors. The 35% tariff, by the way, is enough to offset the lower labor cost gains they get from manufacturing there.
Turning back NAFTA at this point will do much more harm than good. Ford has already put the writing on the wall…"you don't like Mexico, fine, we'll make'em in China" (Focus).
“We can’t get enough people to do manual labor at competitive wages here”
Define competitive.
“I know we focus on our nearby losses in this country, but if you want a manufacturing job, go work for Tesla, or Toyota, or Honda, etc. They’re all growing here.
That’s a rather ignorant “let them eat cake” statement. To imply the few transplant auto factories (as thankful as I am for their presence and growth) even somewhat approach replacing the tens of thousands(!) of factories that various communities across the country have lost over the last 2-3 decades is uninformed to say the least.
If someone were to open a factory in any large metro area in the US with a starting wage of $15-20, they would be absolutely SWAMPED with applicants.
We don’t have a labor shortage. We have tens of millions of people who don’t even bother to work because the quality of unskilled or semi-skilled labor is virtually nonexistent, which is partly do to the taxation and regulatory burden placed on laborers.
Furthermore, I’m happy for Mexico and China. It’s only cost us $20T to give them a middle class.
The solution to bringing manufacturing jobs back is twofold:
1. Reduce regulations on businesses and factories here. It actually costs money to put factories overseas, as you constantly have to send people there to babysit them. Most companies would rather have their factories here where they can be easily monitored, but regulations keep them from doing so.
2. Increase the supply of trained workers by emphasizing vocational training over BS college majors that don’t improve societal productivity.
Master Baiter,
There’s more to it than just reducing regulations. Regulations also make it attractive for longer term investment via stability.
Education is a big thing as well.
The current model the US is working with needs an overhaul, like other countries.
The US needs to reduce disparity and redirect money into the lower socio-economic stratas in society.
There are 2 ways to do this, tax and redistribute wealth (EU model) or lift minimum wages significantly (Aussie model).
Reduce the power of big pharma and medical and nationalise health remove local school tax and nationalise it to redistribute educational opportunities more equatibly. This will take a generation and the overall tax burden is similar. I know thats how it is in Australia and our rate of tax as a product of GDP is similar to the US.
So, let’s say you’re building a car in the US. Let’s say the line rate is roughly 50 jobs an hour (or roughly 300-350k cars per year). A wage rate of 30$ an hour (about average for a line worker) would result in a burden rate around 45-50$ an hour per worker once benefits, etc. are figured in. Long story short, consider each line worker to cost about a buck a car. You probably need ~4,000 workers across two crews, so direct labor on the car is probably around 2,000$.
The average line worker at a factory in Mexico seems to make somewhere around 3$ an hour according to the internet, and I have no idea what Mexican burden rates hit. If we keep the math easy (say, 5$), you see you go to 200$ labor per car. That’s almost 2 grand in added profit and lowered MSRP. That’s what the automakers are chasing.
And note that this doesn’t vary a whole lot with the size of the car or how “nice” it is. This is why you see the economy cars all running to Mexico, but no one really cares to send a big pickup (making >$10k a pop) down there.
“but no one really cares to send a big pickup (making >$10k a pop) down there.”
You should have this talk with GM executives my friend. They make almost ALL of the luxo-boat crew cab GM trucks south of the border.
The obscene profits derived from Mexico built GM fullsize pickups also subsidize the US made GM compact and midsize cars, probably sold at a loss.
This allows GM many more US and Canada assembly lines, vs Ford than builds all F-series in the US, but builds many cars in Mexico.
Ford today only builds the Fusion, MKZ, and Fiesta in Mexico. Everything else save the Edge/MKX/Flex/MKT (Canada) and Transit Connect (Turkey) is US built.
EDIT: Oh, and the Ecosport is India I guess?
It’s a small step. Stand in line and have the cashier check you out. Those self-serve checkouts take away cashier jobs. A small start, but a beginning.
Walmart in my area reduced cashier jobs by 50% ……now 50% self check out
“…answer is better education for working Americans”
The reality is the US (and many other) economy can’t absorb them, so many college grads have low-wage jobs like Walmart and waiter/waitress–and a lot of college debt.
“..can’t make a $50 sweater at US wage rates..” well then, either US wage rates are too high OR the cost of the sweater is too low.
“Free trade” is great if you have a good job, not so good if you lost your job at XYZ Manufacturing and can’t find a comparable one. Human beings are not “capital” (money)–they don’t flow.
My favorite “…. can’t tell me that the savings generated by using cheaper labor in Mexico didn’t result in new opportunities and wealth creation”
Well, by that argument, you can’t tell me those “savings” DID create new wealth, can you?
However, you can see the effects of closing XYZ Manufacturing in middle America on the people and the community in small-town American. They are very real. That’s why people from those towns, as well as enough people with “good jobs” and advanced degrees voted Trump into the White House.
The worst thing that could happen would be swift and sudden break from NAFTA. As others have stated, the market has adapted to fit the environment and if an orderly transition isn’t baked into any change it’s going to create a lot of transient cost spikes as things realign and this will drive some companies out of business almost overnight.
I recently read a piece where a reporter talked to several people in a Pennsylvania coal town almost a year after the election. Although there were several quotes from the article that made my head spin, the most instructive one was from the owner of a light manufacturing business who wants to grow his business and is ready to hire and train welders. Given the unemployment in the area you would think people would be lined up — but no, because the unemployed are either too strung out on heroin to hold a job, or else refuse to take the job because it doesn’t involve a coal mine (or both).
I get that there’s some old-dog-new-tricks at play here, but at some point people have to compromise at least a little.