Whether you plan to vote for a Republican or not, you probably agree that the economy is the most important issue in the 2012 presidential election. Unemployment remains staggeringly high; jobs are leaving the country on a daily basis. The economy was the focus of every candidate’s campaign for much of primary season, but Rick Santorum’s surge in popularity changed that. Suddenly the country is talking about family values when it should be talking about creating jobs.
NAFTA cannot be called anything but an economic disaster for the United States, but that is not to say that profits have not been made. Multinational corporations have seen their profits grow as a result of NAFTA, but those profits have not created jobs in the United States. When the public is sold on free trade agreements, they are told that free trade agreements create economic activity through increased trade. Unfortunately for American workers, that economic activity usually means a few rich individuals are profiting at their expense.
While the U.S. struggles to get its economy back on track, numerous pundits have been calling for the U.S. to look to Germany as an example, and it’s no surprise why. Germany’s unemployment rate was 3.1 percent lower than that of the U.S. in December, at 5.5 percent. Germany’s income is more evenly distributed than the vast disparity that exists in the U.S., and in 2010, Germany’s economy grew by 3.6 percent versus America’s 2.8 percent.
America’s manufacturing sector is in decline. Unfortunately, some individuals believe that if we open our borders and allow the free market to create efficiency through competition, the American economy will recover. Elements of the free market are certainly beneficial, but believing in the infallible nature of the market ignores the lessons of history. Free trade and unregulated markets have led to our current subpar economic conditions, whereas there are numerous success stories of the government playing a role in jump starting innovation and prosperity. A clear example of this success was the U.S. heavy press program in the 1950s, which enabled decades of unmatched achievement in the aviation industry.
Heavy forging and extrusion presses allow for complex parts to be forged from lightweight materials. Without these machines, the high-tech, lightweight aircraft we now take for granted would not be possible. In the 1950s, the United States undertook a plan to build 17 heavy presses across the country. This program was created in response to the Soviet Union’s possession of what was then the world’s largest heavy press. Fearing that this would give the Soviet air force a great advantage, the American government financed the creation of bigger and better presses than those possessed by the Soviets. Although the program was eventually scaled back to ten presses, this still allowed for America to become a leader in producing both civilian and military aircraft. Eight of the 10 presses are still in operation today.
The heavy press program met Cold War military needs, but today we face economic threats rather than military. In the 1950s, our government recognized a major weakness in our manufacturing sector and took direct action to address it. The dire state of our manufacturing sector demands government intervention, but critics voice opposition using tired arguments, saying that the government should not be in the business of picking winners and losers. Indeed, the government should not be playing favorites based on political favors and backroom deals, but the government is more than capable of identifying needs and addressing them. One can only speculate on how far behind the U.S. aviation industry would have fallen without government assistance.
The United States no longer has the world’s largest heavy forging press; that honor belongs to Russia, who will soon be surpassed by China. Perhaps we do not need to be the leader in this one particular area, but our manufacturing sector does need a boost. We fell behind Russia in the 1950s, but our government stepped in to close the gap. Now we are falling behind China in green energy production, but we continue to let ourselves be outproduced. America’s manufacturing sector is crucial for our economy, our jobs and our national security, but we are neglecting it in the name of free markets. If we can move past ideology and embrace pragmatism, we can have the kind of well-structured government intervention that once made our economy great.
China is notorious for not playing by the rules in international trade. While the country demands open access to the U.S. market, it subsidizes its own industries to gain an advantage in the international marketplace. These practices have hurt a number of U.S. industries, but the toll is becoming astronomical in the auto parts sector. The United States lost over 400,000 jobs in auto parts manufacturing between 2001 and 2011, and it is no coincidence that 2001 was the year China joined the WTO.
According to a study by the Economic Policy Institute, the United States has regained only 60,000 jobs in the auto parts manufacturing industry since the worst point of the recession in 2009. Auto manufacturing has seen gains, but the influx of cheaper Chinese parts has meant that United States parts manufacturers are not reaping the benefits. In the last decade Chinese auto part exports increased by over 900 percent, putting immense pressure on American competitors. Over that same time period China provided $27.5 billion in subsidies to its auto part manufacturers, even though a large portion of these subsidies were illegal under WTO rules.
President Obama has stated that he is going to create a Trade Enforcement Unit to oversee our trade agreements and ensure compliance. This is a good step, but it will not prevent the destruction of American jobs. The subsidies that China provided may have been illegal by WTO rules, but challenging those subsidies takes time. This time is more than enough for the Chinese to dump cheap parts into the U.S., gain market share and put American companies out of business. By the time any sanctions can be mustered against Chinese actions it may be too late.
Direct subsidies are not the only way China is gaining market share. The Chinese also continue to manipulate their currency to make Chinese-made goods relatively cheaper. With some experts estimating China’s currency to be undervalued by as much as 40 percent this is no small advantage. America needs to label China as the currency manipulator it is and take appropriate action to protect American jobs. Unfortunately House Speaker John Boehner (R-Ohio) has refused to bring a bill that would allow the U.S. to address Chinese currency manipulation to the floor for a vote.
Our auto parts sector has been a vital part of the American economy for years, and now it is at risk of disappearing because of our flawed free trade policies. 6.5 percent of all jobs in Michigan are still in auto parts manufacturing, but if we do not take action those jobs may be lost as well. We have tried free trade, and it has failed us. It is time to go back to what works for Americans.
Trade Reform The Economic Collapse Blog
