The free-trade issue is all the rage in the media these days, after the Clinton/Colombia campaign crackup, and both The Wall Street Journal and The New York Times front stories on the trade deal.
The WSJ focuses on the political state of free trade, specifically a pact with Colombia that the president sent to Congress yesterday, while the Times looks at the big lobbying effort undertaken by the South Americans and our own government. That effort, the paper says in its lede, includes “all-expense paid trips” for more than fifty members of Congress “featuring coffee tastings and dinner at a posh restaurant inside an old Spanish fort.” But never fear, dear reader—those trips weren’t paid for by a foreign government. They’re fronted mostly by the Bush administration.
The Times notes that hapless Clinton campaign strategist Mark Penn isn’t the only one in her loop entangled in the Colombian lobbying effort. Her chief flack Howard Wolfson is a partner (on leave) with other former (Bill) Clintonistas in a group that lobbies for Colombia.
Both Democratic presidential candidates oppose the deal, as do the labor unions, and the WSJ says the outcome of the trade vote will signal where the nation stands on the crucial issue:
“This is the ultimate test of whether the bipartisan consensus that has underlain trade policy for 70 years has collapsed,” said C. Fred Bergsten, director of the Peterson Institute for International Economics, a free-trade think tank in Washington, D.C. “It has certainly been fraying, but there has been a modicum of Democratic support thus far.”
Weak dollar + free trade = American-made cars
In more trade news, the Journal fronts a fascinating story that says labor deals and the weak dollar have Detroit beginning to shift overseas production of cars back to the U.S.
For years the U.S. has been one of the most expensive places in the world to make cars. But the new contracts with the United Auto Workers union signed last fall significantly improve the global competitive position of Big Three plants. The weaker dollar, which makes production in the U.S. less expensive, is also helping to turn the economics of domestic production upside down.
The WSJ says foreign owners of U.S. car plants—who don’t use organized labor—are looking for new ways to cut costs. Our Paraphrase/Quote of the Day positively compares the U.S. to a third-world country:
The UAW contract signed last fall added assurance that exporting from U.S. plants could be viable, said Michael Robinet, an analyst at Northville, Mich., consulting firm CSM Worldwide. The combined effects from a falling dollar and the new UAW labor contract “make the U.S. a low-cost country” like China and Brazil, he said.
The new UAW contracts create a new generation of U.S. auto workers with wages and benefits more in line with what Toyota pays its U.S. workers, with wages for new hires at $14 an hour instead of the previous $26. It also offloads billions of dollars in retiree health-care liabilities hobbling the Big Three to outside trust funds.
To stay competitive, Toyota has stopped pegging its wages to UAW rates when it builds new plants, company executives said.
This is evidence of what’s probably happening writ large throughout the American economy as the tumbling dollar makes it cheaper to export U.S. goods and more expensive to import foreign goods. That has eased the growth of the still-huge trade deficit.
Maybe we can get labor costs down enough that we can shift stuff like textiles back onshore. Sweatshops, anyone?
The U.S. banana republic
Speaking of sewing, thread the above stories together with this one from the front page of the NYT reporting on how rising inflation with America’s low-paying trade partners is beginning to show up in the prices of the goods they export:
The free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries—first Japan and Korea, then China, and now increasingly places like Vietnam and India.
But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too
It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers.
That means not only do American consumers get hit with inflation themselves, because as the dollar falls it makes foreign goods proportionally more expensive, they’re also about to see the prices in the foreign currencies themselves go up.