The gritty reality behind the outsourcing debate

As one who has written consistently about why trade restrictions are a bad idea, I know there are some misconceptions running around on both sides of the argument. One of the things I’ve heard from the Bush administration’s financial people is that free trade is good for the United States and that it will create lots of high paying jobs.
While it is true the U.S. consumer enjoys low priced products and services, and everyone benefits from low inflation, I do not necessarily see our current trade deficit as being ultimately good for Americans or that there will be loads of high-paying jobs around.
The reason I am a defender of free trade is that I do not see how any of the trade restrictions being proposed will help. In fact trade restrictions will just accelerate the decline of the standard of living for the average American.
I believe that China should be held to the rules of the World Training Organization (WTO), but even closing our borders to goods made in China will not stop the onslaught.
Toyota, Mercedes, Hyundai and all the other foreign manufacturers source in China, and unless you erect barriers to all of them, eventually General Motors, Ford and others would be forced out of business.
So I don’t think that it is assured that we will eventually all be better off if we continue our open trade policies, I just know that we will be much worse off if we try to erect trade barriers.
The only solutions are to become more competitive and to structure our trade agreements and government policy so that there are no impediments for our companies to compete effectively.
We lead the world right now in productivity improvement because of the application of computer technology. It’s just that we are not as competitive as we should be, given the pressures from low-cost countries.
How is government dragging us down? From the way we tax to the way we do health care, we put weights on our businesses both manufacturing and service in competing with jobs from low-cost countries and Western Europe.
Most countries of the world have single-payer health care systems that are financed by the general tax revenues. Also, many countries do not cover everything in their health care system, leaving many areas to the responsibility of the consumer.
Our companies are expected to pick up the tab for comprehensive health care and work through the current inefficient system of insurance companies. Employees think that health care is free and have little incentive to take part in wellness programs that address diet and exercise.
Also, many countries of the world get a large portion of their taxes from value-added taxes at the consumer level. This means that, rather than taxing every worker through payroll tax, taxes are collected only when a consumer purchases the product. This gives a great advantage to exports.
Because of our tax system and our health care system, we currently are at a 30% or greater cost disadvantage to many of our trading partners. Let me put it this way: at least half the jobs we lost to China in the last three years would still be in the United States if we had a taxing and health care strategy consistent with our competition.
However, neither Republicans nor Democrats are thinking of these kinds of strategies to make the United States more competitive. We are frozen by a gridlock of the most ridiculous elements of the right and the left.
I think the United States is in a gradual decline right now. The decline is masked by how powerful we are militarily, how rich we are and how as a safe haven we are able to borrow money at will.
Because the decline is masked, we think we can go on forever doing things as we have always done them, even though many of the costs and problems in our society and industry go unsolved.
Closing off our boarders to trade will not be the answer.
So, I don’t believe that free trade will necessarily be good for the U.S. standard of living. It will only be good if U.S. companies become more competitive and customer focused, government becomes more efficient and adopts policies that make us more competitive in world markets and individuals realize that they need to be more highly educated and competitive if they expect to continue to enjoy their current lifestyle.
The problem that I see is that there is this debate about free trade, as with many problems facing us, is locked in two camps: one demanding protectionism; and the other with a Pollyanna view of how better off we all will be with free trade. The reality is much grittier and lies somewhere in the middle, with a lot of pain in between.
Joe Geck is a principal at Accelerated Solutions, Waukesha.
April 16, 2004, Small Business Times, Milwaukee, WI