Totally open trade: The gap between ideal and real

Robert Kuttner

April 01, 1993|By Robert Kuttner

THE Clinton administration seems to be blowing hot and cold on trade policy. The Japanese government had only a few days to enjoy praise from chief trade negotiator Mickey Kantor for increasing its semiconductor imports (under heavy U.S. pressure) before President Clinton slammed the Japanese at his press conference last week for keeping too many other markets closed.

The administration's apparent zigzags on trade reflect the complexity of the issues, not inconsistency. As trade between nations becomes more open, policy must deal with the underlying differences in the economic systems and living standards of nations.

Mr. Clinton is quite consistent on one issue. He is taking a harder line to insist that our trading partners reduce barriers to American exports. This is surely sensible policy, and it reflects a growing consensus.

At a recent trade conference sponsored by Clyde Prestowitz's Economic Strategy Institute, trade hawks and doves alike agreed that Japan needed to become more open. Derek Shearer, a Clinton appointee to the Commerce Department, said flatly that he supported a "results-oriented" approach to holding Japan accountable.

Addressing the same conference, free-trader C. Fred Bergsten, director of the Institute for International Economics, drew on the recent report of the congressionally mandated Competitiveness Policy Council, which he chairs. Mr. Bergsten advocated a new emphasis on market-opening initiatives, as well as a variety of export promotion measures, tax incentives and exchange rate shifts, all aimed at making U.S. products more competitive in world markets.

Opening up foreign markets and helping American products to compete is the easiest aspect of trade policy. Much harder is deciding what to do when foreign products are made under conditions politically or economically intolerable to Americans.

For example, the proposed North American Free Trade Agreement with Canada and Mexico is running into serious trouble, as members of Congress take a closer look at industrial conditions in Mexico. All six members of a recent delegation of congressional Democrats to the industrial zone on the Mexican border returned with increased doubts about NAFTA.

The delegation, led by House Majority Leader Dick Gephardt, paid a number of unannounced visits to factories producing for the U.S. market under the low-tariff "maquiladora" program. At the Sanyo television plant in Tijuana, the delegation learned that the average wage is a bit over a dollar an hour, plus about 40 cents in benefits. This is about one-tenth the wage paid to workers in Sanyo's sister plant in Forest City, Ark.

The delegation also saw massive evidence of industrial pollution, including an abandoned, U.S.-owned lead smelter and battery recycling plant. Outside the plant is a 15,000-ton slag heap, leaching toxic metals into groundwater. Across the street is a dairy farm.

Harley Shaiken, a University of California expert on the Mexican economy, briefed the group on Ford's engine plant in Chihuahua, whose productivity now equals that of the Ford engine plant in Lima, Ohio. The plant employs Mexican workers with a high school education or less, trains them in about six weeks and pays them about one-seventh of what the Ohio workers are paid.

"The point that impressed everyone," according to Economic Policy Institute president Jeff Faux, who accompanied the delegation, "is that training is cheap." As long as Mexican high school graduates can be trained in a few weeks to work on state-of-the-art engine production, the ideal of the United States becoming more competitive by training its workers better is a fantasy; the jobs will still go to Mexico. And American workers, however highly trained, will come under growing pressure to keep trimming their wages and benefits to keep their jobs.

Far more elusive than opening markets such as Japan's is the problem of productivity rising in the Third World faster than wages.

But if workers in Mexico's auto and TV plants aren't paid enough to buy what they build, American wages and living standards remain at risk. If their wages were to rise, those Mexican workers could buy more of our products, American workers would be under less pressure to cut their own wages, and everyone would gain.

But trade law currently lacks any mechanism to bring about that result. Despite the pretense that we are one big happy common market, the United States and Mexico remain two nations, each enjoying legal sovereignty within its borders.

Mr. Gephardt is proposing to override that sovereignty, via a tri-nation commission "with teeth," to enforce labor and environmental standards, as well as a special tax to raise environmental standards in Mexico. While these measures will help, they don't begin to address the more fundamental disparity -- which is wages. One proposal, by American University economist Robert Blecker, would levy a special wage-equalization tariff on products whose workers were paid wages that didn't reflect the workers' productivity.

A harder line on traditional trade issues, such as access to markets, is certainly desirable. But the wage conundrum suggests that a world of totally open trade raises a set of thorny new issues that trade theory ignores and that lawmakers are only beginning to puzzle out.

Robert Kuttner writes a column on economic matters.

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