USTR On Why I Wanted to Wait, but Now I've Changed My Mind
The Colombia trap

Why we should care about manufacturing employment and FTAs

There's been some fretting in the blogosphere about the NAFTA job loss numbers cited by the candidates, and generated by our friends at the Economic Policy Institute (EPI). I won't do a full response to the original American Enterprise Institute comment piece that sparked the musing. Suffice it to say that the Trade Diversion site has it right when they say that "trade affects the composition, not the number, of jobs in an economy." That's right, and tradable sectors like manufacturing lose out when there's a trade deficit. A few additional points, in no particular order:

  1. There's things that you can criticize about the EPI methodology. Where people start to sound ridiculous is when they suggest that you wouldn't have more manufacturing jobs with balanced trade. You can debate the numbers, but you can't debate the underlying theory, or the political heart that EPI has after all these years trying to talk about an issue that matters to working people the neoliberal think tanks deny even exists.
  2. I mean, seriously. It is amazing the kind of flak you take in this town for just trying to put a number on something that everyone knows is happening. And all over whether input-output tables like the kind you learned in matrix algebra are the best tools to use in looking at the problem! Seriously! That's what the "fuss" is about.
  3. We've been running a trade deficit since before the Tokyo Round of the GATT, but it grew bigger after NAFTA and the WTO kicked in. To the extent that these deals offer incentives to offshore U.S. production in tradable sectors above and beyond that already promoted by the high dollar policy, then real people's work was affected.
  4. But it's true that if the only thing you care about is reducing the trade deficit, then fights over FTAs are not a first order fight for you. They may be a second order political fight because you know that time spent negotiating and passing FTAs is time not spent fighting the trade deficit, i.e. you may think it's a good indication of absolutely backward political priorities in Washington. And that's right: it seems pretty clear that the 110th Congress will have spent a year working on the Peru FTA, and will have done nothing on the trade deficit. The chief first order reason to oppose FTAs remains that they're atrocious neo-liberal policy that do the wrong things for development, for democracy, and for regulation.
  5. Bosses could use the threat of relocation to hold back wages, which because we have a national labor market, contributes to wage stagnation for everyone, not just manufacturing workers.
  6. There's a startling lack of sympathy in much of the punditry's discussion of blue collar workers. Think to a time when you had a rough personal year - maybe you got fired, had a relationship fall apart, struggled with sickness. These are years that you will remember for the rest of your life, even as you try to forget them. They carry a deep psychic toll that you may never fully recover from. This is just a fraction of what many people who lose manufacturing jobs go through. Its a real cost to our economy and our democracy and civilization, and a major cost to these people's lives. It perpetuates the injuries of class that make progressive movement building very difficult.
  7. Manufacturing is pretty sweet because it - like fast food jobs - doesn't require a lot of advance education. This is good, since most Americans don't have that much education. The thing is, there's simply not that many highly educated workers that the economy needs, with most jobs "of the future" projected to be in hospitality and related services. At a manufacturing plant, you can get on the job training, and have a pretty good shot of making a middle class income and being covered by a union contract. Whether you care about innovation or national security, manufacturing is also pretty important.
  8. Some pundits like to say that manufacturing isn't in crisis because manufacturing output is at high levels. But this stat measures that total value of shipments coming from our manufacturing facilities, and doesn't take into account the value of imported parts. U.S. manufacturing value-added, a more appropriate measure, increased 13 percent between 1993 and 2006 – the exact same rate as between 1980 and 1993.
  9. I have friends in service sector unions that say that it's important for progressives to talk about making bad service sector jobs into good jobs, just like was done with manufacturing. I don't disagree with that (I'm an SEIU member!), and I don't think that this contradicts any of the things that I've said.
  10. If you don't think that manufacturing matters, then you may not care about a small trade deficit. But if you value macroeconomic stability and predictable trade flows (something more important if you've a developing country trying to to figure out the right degree of export orientation), then you should worry about a large trade deficit in the world's largest economy. In fact, you should worry about it a good deal more than the U.S. federal budget deficit, which is about half as large as the trade deficit.
  11. If you think that having 2.3 million Americans or 1 in 100 Americans (and one in nine prime age black males) being behind bars is a national tragedy, then you might think it would be a good idea to have more entry level manufacturing jobs in the inner city. In fact, if we had a trade deficit that was the size of the budget deficit, we could (conservatively) create 1 million jobs. Wouldn't that be a good place to put some of those non-violent offenders?
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Comments

J. Sieglitz

There's one extremely critical NAFTA issue that all of the parties, pro and con, have either ignored or dodged. The issue is the denial of Mexican mandated labor and human rights by the US companies of the hapless Americans relocated to work in Mexico. The resulting contingent liabilities owed by each one of the thousands of US companies in Mexico will probably eclipse the corporate indiscretions of Enron.

Recently (2007), the Mexican Supreme Court upheld a lower courts adverse rulings against Halliburton. These two rulings shed light on the despicable practices by US companies to defraud compensation, evade payroll taxes, avoid social security levies, and reject minimal workplace safety measures - to name a few.

The Halliburton rulings are just two of a long litany of comparable rulings dating back to the 1930's. The abuse is not unknown to the Mexican Government that accedes to the corrupt influences of NAFTA and Maquiladora industry representatives.

Why would the US companies commit such indiscretions? Money - lot's of money. Estimates place the abuse of the Americans working in Mexico at c. $4.5 billion dollars yearly. Furthermore, the US companies avoid payment of c. $2.5 billion in taxes, fees and levies to the Mexican and US Government’s. To recoup lost corporate revenues, the Mexican Government has levied a personal income tax against the hapless Americans. The $6 to $7 billion dollars of income benefits the executives of the US companies who receive promotions, raises, bonuses and stock options as rewards for their activities.

The American citizenry are injured when neighbors lose their jobs because US executives decide to succumb to the temptations of dishonest higher profits and export their jobs. But, this is not the only wrong. American manufacturer’s who’ve not succumbed to temptation, must compete with intentionally undervalued goods made by the scofflaw US corporations. The American consumer is wronged when they’re duped into buying purposely undervalued goods believing they’re made by honorable US companies.

Why would the US companies leave themselves open to redress for their dishonest activities? The activities have gone on for more than seventy years. But, the last forty years has shown a dramatic growth. The hapless Americans are not told their rights by either their employers or the Mexican Immigration or Labor Departments. If one or more of the Americans happens to learn of their rights and they seek redress through the corrupt Mexican legal system, they are rewarded with a ruling that only they can levy. The Mexican Government is charged with the responsibility of enforcing the laws – the courts have little recourse.

The US companies are protected by a duplicitous Mexican Government, complicitous industry representatives, and uninformed American workers in Mexico. Representatives of the executive and/or the legislative branches of the US Government dodge the issue because it will either impact corporate donors and/or upset a whole voting segment of the American citizenry.

The President and Congress need to suspend all connections with the scofflaw corporations and their rapacious executives until all corrective actions have come to fruition. The Federal law enforcement agencies need to gather the evidence necessary to pursue charges of fraudulent transfer pricing schedules, fraudulent US Customs valuation reports, false financial reports, and false Sarbanes-Oxley reports. All of these deceptions lead to underpayment of US and State taxes, fees and duties and Mexican taxes, fees and duties.

The US Supreme Court ruled in Pasquantino vs. The United States that intentionally unpaid foreign taxes are an offense of the RICO laws of the United States. In the United States vs. The Palumbo Brothers, the court ruled that the use of the mails and wires in furtherance of payroll fraud is also a RICO offense. Most of the US companies use the mails and/or wires to gather and transmit payroll and tax data. The mails and/or wires are further used to remit payroll and taxes.

To mitigate the actions to be brought by the US Attorney, the US companies should be required to remit all earned monies, including interest, to the unfortunate Americans who’ve worked in Mexico. The US companies should also deduct the appropriate Mexican and US levies from the earned monies and interest and remit this sum including late filing charges to the US and Mexican Governments. The US companies should also compute all relevant Mexican and US corporate levies, including late filing fees and interest, and remit these sums to the Mexican and US Governments. The consequences expected to befall on the culpable US executives should depend on the repayment of all dishonestly earned rewards.

The billions due the Mexican Government will do much to; restore the pensions due retired Mexican workers, reinstate and expand the medical services provided to Mexico’s citizens, revive and enlarge the investment in the education system, provide decent wages for Mexico’s beleaguered law enforcement, and upgrade Mexico’s infrastructure. This will go a long way toward re-establishing hope among Mexico’s poor and provide them with the jobs they so desperately need.

The billions due the US and State Governments will do much to restore their fiscal security and relieving pressures to cut essential services and raise taxes. If the scofflaw US companies had fulfilled their ethical, moral, legal and fiscal responsibilities from the beginning, many of the ills facing the US and Mexico would not exist or would be ameliorated to a point irrelevancy.

For those who want to access the two Halliburton rulings, first go the Mexican Supreme Court website @ http://www.scjn.gob.mx/PortalSCJN/. Next, click on “Actividad Jurisdiccional”, then click on “Jurisprudencia”, then click on “IUS 2006”, and then click on “BUSQUEDA POR NUMERO DE IUS (TESIS).” Next input 182067 or 182068 into the space and press “BUSCAR.” When the synopsis appears, click on the underlined number. Viola!

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