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.
The Times notes a Vietnamese vase-maker who upped what it charges Pier 1 by 10 percent to recoup some of its increased labor costs, which are soaring three times as fast.
Further evidence of the banana republicization of the U.S.:
Not long ago, it would have been unlikely for a poor country with high inflation to see its money strengthen in value against the mighty dollar. But the dollar is not quite as mighty as it once was. Large American trade deficits and other problems have weakened its appeal.
And there are signs that the dollar could fall further if developing countries’ central banks stopped supporting it, particularly in Asia.
The Times does a solid job with this story, balancing evidence with just the right amount of convincing anecdote to give us a real grasp of what’s going on in this part of the world economy.
The Atlanta Journal-Constitution reminds us that inflation is already hitting home, and not just at the Pier 1.
Revenge of the activist shareholder
The WSJ says in a C1 Heard on the Street column that some board directors are facing pressure because of the credit crisis. It scoops that the head of Citigroup’s audit and risk committee is resigning from that position under pressure.
While Mr. Armstrong will remain a member of the audit committee, his exit as its head is a victory for activist shareholders who feel burned by the credit crisis. Audit committees—charged with overseeing financial statements, work by auditors and risk-management procedures —have gained stature in the post-Enron world. But until now, they have rarely faced intense outside pressure.
Shareholders are targeting directors, including audit-committee members, at other banks and Wall Street firms, including Washington Mutual Inc. and Morgan Stanley… The campaign against Mr. Armstrong could energize similar efforts, while forcing directors and companies to reassess how effectively audit committees are doing their job.
“It tells them that … they’re going to be held accountable,” says Joseph Carcello, director of research for the corporate-governance center at the University of Tennessee.
Good idea.
Greenspan: no regrets
The WSJ goes page one with Alan Greenspan’s campaign to salvage his increasingly shot reputation (yesterday he wrote a column about it in the Financial Times). The former Federal Reserve head honcho and Ayn Rand follower says “he doesn’t regret a single decision.”
Really? What about deciding to tell borrowers in 2004 it was a good idea to take out adjustable-rate mortgages? (Check out this on-the-money takedown by Slate’s Daniel Gross way back then.)
The Journal flat out says in its headline that Greenspan’s legacy is “tarnished” and that how successful he is at defending it will go a long way toward directing the reform of the financial system and how far it goes:
If Mr. Greenspan’s critics prevail, then financial companies will likely face tighter oversight and less freedom in the products they offer. If Mr. Greenspan’s views carry the day, the trend toward self-policing will continue. A repudiation of Mr. Greenspan’s monetary policies could tempt the Fed to raise interest rates relatively quickly after the current crisis passes, and even attempt to deflate future bubbles with higher interest rates.
The Journal’s Fed guru Greg Ip does a nice job of spelling out the case against Greenspan, while letting the old wizard defend himself. The story notes that critics contend the Fed lowered interest rates too much in the first part of this decade, reinflating the technology bubble and moving it to real estate. But also that they say the Fed was asleep at the switch regulation-wise.
Ip got everything but a PowerPoint presentation from Greenspan in the former banker’s self-defense, including copies of speeches and even a deathbed letter, but this stain won’t out.
Vegas shell game
In other Greenspan news, Bloomberg quotes him saying that the housing prices will stop falling by the end of this year, and that most of the housing market’s surplus inventory will be cleared out by early 2009.
This Los Angeles Times story about the glut of million-dollar homes in Las Vegas, makes that seem unlikely, at least in Sin City. It says more than 1,000 such houses are on the market, and many of them are already dated despite being built in the last four years. The LAT notes that more than half of all homes for sale are vacant.
In most of the country, prized neighborhoods become even more desirable over time (think Beverly Hills or Greenwich, Conn.). But Las Vegas isn’t about stately trees, old lawns and older money, said Gene Moehring, chairman of the University of Nevada, Las Vegas, history department and a specialist in urban history.
“In Vegas, new is the most important thing,” Moehring said.
And building homes is relatively easy in a city surrounded by desert land available for development, so there’s always room to build a newer, more-opulent golf course community across town from the last hot spot (concern about the region’s water resources has yet to stem the building boom).
Really? There’s still a building boom in Vegas? That doesn’t sound right to us with home sales off more than half and prices down nearly a fifth.
Is CBS about to vacate the journalism biz?
The NYT scoops on C1 that CBS is in talks with CNN to outsource a good deal of its journalistic functions to the cable network, something the paper says would “mark a watershed in broadcast history.” While the Times repeatedly hedges that no deal is imminent, it’s still remarkable that such discussions are even happening.
A good quote from Uncle Walter Cronkite would have been a nice touch here.
Alcoa can’t wait…for an uptick in sales
In economic news, aluminum-producer and economic bellwether Alcoa reported sharply lower profits on a 7 percent decline in sales, despite soaring prices for metals.
Consumers slowed their roll in the borrowing department last quarter. Loans rose 2.4 percent in February compared to a 4.9 percent increase in the previous month. Delinquencies are at their highest in about sixteen years, credit-card lenders are tightening standards, and home-equity borrowing has fallen.
Bush is asking Congress to let the cash-drop tax stimulus play out before trying something new, but stopped short of saying “no” to another bill. He also said “Anything they do should not hurt the economy” and “fuel is hurting people.”
The layoff news continues, this time with chipmaker AMD saying it will slash 1,650 jobs—about one in ten workers—as its business goes into the tank because of the weak economy and competition from Intel.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.