No slippage here, keep walking
For T'giving, Mellow out or you will pay

Iowa and trade... it's the prices, stupid

The Wall Street Journal has a pretty fair front page story by Greg Hitt and Deborah Solomon this morning talking about the role that trade is playing in the Iowa caucuses. It shows how Clinton, Edwards, Huckabee, Obama and even John McCain are talking about fair trade policies in their appeals to voters. But many of the commentators don't get it:

Iowa's ambivalence is all the more remarkable because the state is on the whole a big winner from global trade. "Iowa, as much as any other state, is on the plus side of the ledger," says James Leach, a 30-year Republican congressman from Iowa who now runs Harvard University's Institute of Politics...

By many measures, the global economy has been good for the state. Boosted by the ethanol and biofuels craze and surging demand for crops and farm equipment world-wide, Iowa's exports are up 77% over the past four years versus 50% nationally. The state's unemployment rate hovers around 3.7%, below the national 4.6% average...

"It's unfortunate that the Democrats are willing to describe trade as part of the problem," says Robert Reich, President Clinton's labor secretary... "It's pandering to a misconception in the public. The truth is that trade is good for the U.S. but that some people are burdened by it far more than others."

That was your former elected farm state representative and labor secretary, folks - two people that should know about the price of corn, soybeans and labor. While the volume of U.S. corn and soybean exported increased as predicted by NAFTA’s proponents, the prices received by American farmers declined to the lowest levels in recent memory. While American farmers received $12.64 per bushel of soybeans (in inflation-adjusted terms) when the NAFTA predecessor Canada FTA went into place in 1988, that price halved to $6.30 by 2006. In inflation-adjusted dollars, farmers received $4.29 a bushel for corn in 1995, the year the WTO went into effect and a year after NAFTA went into effect. But a decade later in 2005, the bushel price was at a low of $2.06, and only started increasing with the recent ethanol boom  – a development that is threatened with derailment as Brazil and other agricultural exporters plot WTO challenges against U.S. corn ethanol subsidies. 

And average and median wages, as regular readers of Eyes on Trade know, have barely budged from their 1973 levels, despite a doubling of productivity. It's not a question of compensating a few losers. MOST people, who are wage earners, are net losers from our current trade policy. (The unemployment level, mentioned in the article, is pretty irrelevant, since that is driven by interest rates. It's the composition of jobs (i.e. manufacturing v. services) that is affected by trade.) Nobody serious says that trade does not play a major if not the leading role in this. So when Reich derides candidates that "are willing to describe trade as part of the problem," that's about the least they can do in their sometimes tenuous loyalty to reality. In fact, many quoted in the article say this:

  • Gene Sperling, adviser to Clinton: "Even those of us who are supportive of the open-market policies of the '90s to take seriously that the large inflow of workers from China and India digesting American jobs is placing downward pressure on wages."
  • Leo Hindery, advisor to Edwards: "My sense is that the families of Iowa have now concluded that the modest benefit to them from cheaper goods that flow through Wal-Mart have been overwhelmed by stagnating wages."

Besides these points, there was an odd comment that deserves flagging:

Most economists argue that changing technology is more to blame for the divergence of economic fortunes. Nonetheless, worker concerns are roiling the political landscape. "Everywhere you go you've got this widespread feeling, especially in the labor community, that all of the wage problems of the middle class are due to trade," says Austan Goolsbee, a University of Chicago economist advising Democratic candidate Sen. Barack Obama.

Actually, as a paper for the Federal Reserve Bank of Atlanta (no bastion of labor they) pointed out several years ago, the argument that skill-biased technological change (rather than other factors) is driving rising inequality is a pretty weak one, for among other reasons, because inequality began its rise in the late 1970s-early 1980s, while the workplace computer revolution didn't happen until the 1990s. That's just the most straightforward example; there are many more in the paper.

Oh, and for the record, and we'll be posting this on all election related posts:

Disclosure: Global Trade Watch has no preference among the candidates.

Print Friendly and PDF



Thanks for another interesting post. I appreciate this blog for great summaries of hypocritical trade policy and criticism of the overwhelmingly weak arguments for across-the-board free trade policies.

This post, however, seems to go a little overboard in casting Iowa farmers as losers from US trade policy!!

(1) Real price declines or not -- ridiculous farm subsidies for large agribusinesses guarantee farmer’s income, export competitiveness and overproduction in the US.
(2) The same subsidies lower world agricultural prices and thus lower incomes of impoverished third world farmers.
(While these arguments are sometimes heard from within the World Bank, they maintain that for the "greatest benefits from trade liberalization" to materialize, developed country farm subsidies do not need to be removed -- just another example where the Bank's research supports rich countries' and people's position, in this case Iowa farmers. I don't belong in the Bank's camp, just for the record.)
(3) The ethanol craze is just an "easy political fix" -- only looking environmentally responsible, while pleasing one of the strongest lobbying groups in the country, ADM and the like. Ethanol shouldn't be subsidised as it is now, (a) because demand pressues drive up wheat and corn prices, again hurting the poorest around the world, and (b) ethanol’s energy balance is horrendous.
(4) The US fails to comply with current WTO rulings about cotton and sugar subsidies (as does the EU), which were ruled illegal after complaints of African cotton exporters. The US just issued a farm bill that maintains these subsidies, in order to protect incomes and jobs in places like Iowa.

Free trade talk and policy in the US is hypocritical not only because free trade fundamentally hurts wages and jobs in manufacturing and services, but furthermore because there really IS NO FREE TRADE with these policies towards the corn belt.

Now, I am not arguing for free trade. I’d just like to make the point that your otherwise careful, insightful and sometimes sarcastic reporting on trade issues should not succumb to hypocrisy in disguise.



Blogged about it myself!


The manufacturing guys over at Evolving Excellence are running a poll on which candidate would be best for manufacturing, and undeclared Bloomberg is right on top. The rest follows a more predictable pattern, at least from a management perspective. Which is also apparent in the "manufacturing issues poll" in the same post.


The comments to this entry are closed.