Free Trade Works: Japanese Auto Edition

1. Japanese automakers like Toyota, Honda, and Nissan are responsible for more than 407,000 jobs in the U.S. The vast majority of employees are those working at Japanese auto dealerships in the U.S., but Japanese automakers employ 50,000 American workers at 29 American vehicle, engine and parts plants, and another 4,000 at 34 major R&D and design centers, reflecting $34 billion of investment in the U.S.

2. Japanese makers are producing most of the cars they sell in America in North America -- 68% altogether.

3. Exported vehicles from Japanese plants in the U.S. last year increased to more than 145,000, up from 94,000 in 2009. With a strong yen today, the trend will continue, and will be be supplemented by new exports of U.S.-built Toyotas to South Korea following the recent ratification of the free trade agreement.

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Cartoon: Free Trade

Free Trade

Cartoon: Free Trade

The Candidates on Trade

Race to the Bottom: The Presidential Candidates' Positions on
Trade by Sallie James

In recent weeks the economy has been in the headlines and in the sights of politicians seeking the presidency. Particularly on the Democratic side, the candidates have sought to paint a picture of a doom-and-gloom economy and a convenient culprit: the trade policies of the Bush administration.

Although Sen. John McCain has largely stuck to his free-trade principles, even when it might have been politically expedient to appeal to voters’ worst instincts, Sens. Hillary Clinton and Barack Obama have entered into a seemingly escalating war of words over the alleged damage done by trade liberalization. As news about the economy worsened and crucial primary contests in industrial states such as Ohio and Pennsylvania approached, the rhetoric reached a nadir.

As voters consider the mix of policy offerings by the candidates, a look at their records on trade during their time in Congress and their statements during the campaign can give some early guidance as to the direction of the next administration’s trade policy. Although trade votes are a necessarily imperfect yardstick with which to measure future policy—packaged as they often are with other, sometimes contradictory, legislation—they seem to be consistent with the campaign pledges of the candidates.

Voters could expect a President Mc-Cain to promote freer trade and cuts in market-distorting subsidies, and a President Clinton or a President Obama to view free trade between voluntary actors as something to be restrained, loaded with conditions, or counterbalanced by an expansion of the welfare state.

read the report

Free Trade is Good

Foreign Trade Angst
Walter Williams

The United States is the world's largest recipient of foreign direct investment. According the Economic Report of the President, in 2004, foreigners owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They produced $515 billion of goods and services, accounting for 5.7 percent of total U.S. private output, and employed 5.1 million workers, or 4.7 percent of the U.S. workforce in 2004. According to the Congressional Research Service, in 2006 alone, foreign investors spent $184 billion investing in U.S. businesses and real estate, the highest amount foreign investors have spent since 2000. My question to Clinton, Obama and the anti-trade lobby is, would Americans be better off if there were no foreign investment in our country?

According to the Bureau of Labor Statistics, between 1996 and 2006, about 15 million jobs were lost and 17 million created each year. That's an annual net creation of 2 million jobs. Roughly 3 percent of the jobs lost were a result of foreign competition. Most were lost because of technology, domestic competition and changes in consumer tastes...

There's great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, and it's mainly a result of technological innovation, and it's a worldwide phenomenon. Daniel W. Drezner, professor of political science at the University of Chicago, in "The Outsourcing Bogeyman" (Foreign Affairs, May/June 2004), notes that U.S. manufacturing employment between 1995 and 2002 fell by 11 percent. Globally, manufacturing job loss averaged 11 percent. China lost 15 percent of its manufacturing jobs, 4.5 million manufacturing jobs compared with the loss of 3.1 million in the U.S. Job loss is the trend among the top 10 manufacturing countries who produce 75 percent of the world's manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada and Mexico).

But guess what -- globally, manufacturing output rose by 30 percent during the same period. According to research by the Federal Reserve Bank of St. Louis, U.S. manufacturing output increased by 100 percent between 1987 and today. Technological progress and innovation is the primary cause for the decrease inmanufacturing jobs. Should we save manufacturing jobs by outlawing labor-saving equipment and technology?

read the entire essay

Free Trade and Trade Deficits

I was asked the other day by a reporter if NAFTA had been a good thing or a bad thing for America. I said that both the proponents and opponents of NAFTA had no legitimate, unassailable or even suggestive, statistical evidence on their side. I said it was absurd to think that in a $14 trillion economy, you could tease out the impact of increased trade with Mexico and Canada and disentangle it from the thousands of other changes going on.

I suggested that anyone who provided an empirical case for or against the agreement was essentially being dishonest--using statistics selectively to make the case for a pre-existing world-view.

The reporter found this viewpoint unacceptable. Surely, he said, economics can help us answer the question of whether NAFTA has been good for America or bad. Or at least good or bad, for say Ohio.

I said no, there was no empirical evidence that would be decisive. It isn't just that it's hard to measure the net impact precisely. I argued that it can't be measured....

So I'm sorry I can't be more helpful. But I do think economics has a lot to say in helping us understand the effects of increased trade. It just doesn't come from the bottom line of an empirical study.

read the entire post



Does Free Trade Destroy Jobs?
Russell Roberts (11/06)

NAFTA: Charts

Despite all of the political rhetoric about NAFTA, free trade and globalization causing U.S. job losses in manufacturing, one of the most significant factors in the recent decline of American manufacturing jobs is the significant increase in productivity of U.S. workers. Manufacturing output and productivity in the U.S. are both at all-time highs - we're able to produce more and more output with fewer and fewer workers.

Although some manufacturing jobs are gone forever, we're much better off as a country to be able to get increases in manufactruing output with fewer workers, just like the productivity gains in agriculture that eliminated millions of farming jobs. In the long run, we are much better off with fewer jobs in the farming sector producing an increasing amount of agricultural output, and likewise, we'll be better off in the long run with fewer workers in the manufacturing sector producing an increasing amount of output.

Mark Perry at Carpe Diem

Free trade is good. Productivity growth is good. Clinging to the past bad.

New Article: Protectionist Rhetoric Will Accelerate the Dollar's Slide

the conclusion:

If we can avoid the protectionist trap and reconcile the budget, the falling value of the dollar will eventually attract investors and stimulate exports. As the developing world becomes richer and freer, the US dollar is unlikely to enjoy the unchallenged superiority it once had, but maturing foreign markets will attract products and services designed in America, and we will once again become a recipient of foreign investment. Free markets and American ingenuity made the United States the greatest economy in the world. They are the only way we will keep it that way.

read the entire article

Cato Institute's Center for Trade Policy Studies

A great pro-free trade site.

freetrade.org

Dow Jones and Free Trade

As world trade increases, so does prosperity
As world trade declines, so does prosperity

read the entire report: The Fruits of Trade

Free Trade: Good or Bad

What Free Trade Really Means

Jeffrey Herbener

The Role of Government

All that government need do to foster wealth creation is protect private property and contract. By enforcing a legal code requiring restitution by criminals to property owners for theft, fraud, and other violations, government is using its power to foster trade.

When using its power to violate property and contract, however, government is managing trade. Domestically, such a policy is called regulation; internationally, it is called mercantilism. Or it was, until recently, when apologists have taken to calling it “free trade.” Both NAFTA and the Uruguay round of GATT were widely but mistakenly called free-trade agreements.

Similarly, the ink was barely dry on the Constitution when the Hamiltonians began to embody their view that centralizing, i.e., monopolizing, power over money and both interstate and international trade in the national government should be the fountainhead of a system of domestic regulation and international mercantilism.

Instead of adopting either a gold or a silver standard as a free market would, Congress opted for the Hamilton-Jefferson bimetallic standard, an unworkable hybrid that vacillates between gold and silver. Worse yet, the legality of banking with fractional reserve notes and the imposition of the Hamiltonian central bank were accepted.

Later, as Civil War emergency measures, the national government issued fiat paper money, forced its acceptance with legal tender laws, and established a federal regulatory system for banks in the National Banking System. This halfway-house to total national government control over money and banking was completed with the Federal Reserve System, which has given us the chronic inflation and business cycles of the twentieth century.

A False Dilemma

Whether or not the full exercise of national power over money in the Fed has been better than the devolution of that power in the states is an open question. But the dilemma the Founders saw is false. The way of escaping the detrimental consequences of power centralized in the national government or decentralized in the states is to choose the free market. To argue that such power cannot be denied to government is to surrender to despotism. The concept of limited government necessarily implies that valuable powers can be denied to government.

In monetary affairs this means government protection of, and absence of intervention into, private property and contract in money production. Entrepreneurs left to their own devices, within a system of private property protection, will best satisfy consumers with a pure gold standard—money as gold coin and notes and deposits 100 percent backed by gold. Such a system provides the benefits of uniform money without the drawbacks of arbitrary inflation…

... The free market, based on protection of private property, will secure the blessings of liberty without government regulation of any kind, from any source.

The lessons from American history for deciding current foreign economic policy are clear. American prosperity depends on enacting a policy of free trade at home and abroad…

If Americans choose a political solution to the current international economic problems, they will face a disastrous dilemma. Maintaining the status quo forces America into the same role as one of the original 13 states in the late eighteenth century. We will continue to suffer the ills of managed trade: trade wars, balance of payments deficits, currency devaluations, and stagnating standards of living. Accepting the logic of centralizing political power, as with the GATT-created World Trade Organization, will lead to international regulation. Supranational institutions will come to command the economies of different countries in the way that the national government came to command the economies of the various states.

We must heed the lesson that so many Americans have paid so dearly in liberty and prosperity for us to learn. America must reject the false dilemma of managed versus regulated trade and choose free trade. That means that government at all levels must step aside and allow markets to work.

read the entire article

1,028 Economists Oppose Protectionist Policies

PETITION
Concerning Protectionist Policies Against China

We, the undersigned, have serious concerns about the recent protectionist sentiments coming from Congress, especially with regards to China.

By the end of this year, China will most likely be the United States' second largest trading partner. Over the past six years, total trade between the two countries has soared, growing from $116 billion in 2000 to almost $343 billion in 2006. That's an average growth rate of almost 20% a year.

This marvelous growth has led to more affordable goods, higher productivity, strong job growth, and a higher standard of living for both countries. These economic benefits were made possible in large part because both China and the United States embraced freer trade.

As economists, we understand the vital and beneficial role that free trade plays in the world economy. Conversely, we believe that barriers to free trade destroy wealth and benefit no one in the long run. Because of these fundamental economic principles, we sign this letter to advise Congress against imposing retaliatory trade measures against China.

There is no foundation in economics that supports punitive tariffs. China currently supplies American consumers with inexpensive goods and low-interest rate loans. Retaliatory tariffs on China are tantamount to taxing ourselves as a punishment. Worse, such a move will likely encourage China to impose its own tariffs, increasing the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs, and reduced economic growth.

We urge Congress to discard any plans for increased protectionism, and instead urge lawmakers to work towards fostering stronger global economic ties through free trade.

List of economists