Blaming Free Trade Alone Ignores Deeper Systemic Issues

Arguments that free trade agreements, including recently signed Trans-Pacific Partnership Agreement (TPP), cause more harm than good are based on limited information and extensive rhetoric. Consequently, the real challenges plaguing the United States are overlooked.

Here are a couple of arguments that appear true to some degree but ignore the real causal factors and, thus, fail to offer long-term concrete solutions.

Boycott in the Senate! What will happen in the House tomorrow?

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Free Trade, Education and Employment

A piece titled, “Education Can’t Save Us from Free Trade,” argues that the TPP would worsen the plight of the middle class. To illustrate this point, the author says that “whites and blacks working side by side in semi-skilled industries made more money than they ever had” and that he “saw better race relations in the 1960s there [in South Carolina] than in parts of New England.”

This example of “racial democracy” in the workforce ignores the education, employment and income disparities of the mid-20th century. In the 1940s, the unemployment rates for African Americans were double that of Caucasians. On June 11, 1963, President John F. Kennedy noted that African Americans had “one-third as much chance of completing college, one-third as much chance of becoming a professional man, twice as much chance of becoming unemployed, about one-seventh as much chance of earning $10,000…and the prospects of earning only half as much.” The Civil Rights Act of 1964 took effect to correct for the systemic discriminatory practices that contributed to disparities in employment, as well as education and earning power.

The unemployment gap reached a peak in the late 1980s with blacks having a rate of 2.77 times higher than whites. The North American Free Trade Agreement (NAFTA), which is often blamed for the decline of U.S. manufacturing, had not even taken effect yet.

These disparities continue today, albeit slightly improved. By December 2015, black unemployment dropped to 1.59 times that of white unemployment. Nevertheless, there remains a trending disparity that has its roots in a system developed far in advance of the regulated global economy as we know it today.

Let’s not discredit education. Former Secretary of Labor and UC Berkeley professor Robert Reich finds that those with higher levels of education benefit from increased access to global markets seeking those particular skills, which leads to higher pay. At the same time, those who are not well educated lose out as trade deals may add to the loss of factory jobs that many relied upon for employment, decent pay and great benefits.

The loss of well-paying manufacturing jobs has disproportionately impacted African Americans. However, free trade is merely exacerbating a deeper problem that must addressed.

From 2006-2016, manufacturing employment dropped from 14 million to around 12 million. A higher share of manufacturers do not have a college degree relative to the overall share of U.S. workers. A few years ago, non-college educated manufacturers made 10.9 percent more than workers with similar levels of education in other parts of the economy. Simultaneously, wages in the manufacturing sector have declined dramatically within the last 15 years. Although about 75 percent of African Americans actually accounted for management, professional, service and sales/office positions at the beginning of the century, a good number remain in lower paying jobs that offer minimal opportunities for upward mobility.

Reich writes, “The core problem isn’t really free trade, or even the loss of factory jobs per se. It’s the demise of an entire economic system in which people with only high-school degrees, or less, could count on good and secure jobs.”

Access to quality education at the primary and secondary levels is the real issue. There has been progress in terms of the high school graduation rates for African Americans. However, adequate preparation for colleges and universities remains a problem. For instance, an NAACP study finds that 19 percent of African American students attend schools that do not offer advanced placement (AP) courses compared to 6 percent for Asian; 12 percent, Latino; and 15 percent, white students. As one who had the opportunity to attend public schools that offered advanced courses and had ample resources, I realize the importance of access to a quality education in order to compete.

The figures for college graduation rates also call for deeper solutions. The Journal of Blacks in Higher Education finds that black student college graduation rates have improved in recent years. Nevertheless, the nationwide graduate rate remains low at 42 percent compared to 62 percent for white students. The same study also reveals the importance of education and says, “Most important, blacks who complete a four-year college education have a median income that is near parity with similarly educated whites.”

How We Should Not Respond

While teaching undergraduate courses, some students have criticized free trade and called for protectionism. However, when these same students were asked about where they purchase their food—Walmart–and to read the labels on their clothes—Made in China—the loud rhetoric fell to a whisper.

Placing high tariffs on imports from China in order to protect jobs and save U.S. businesses is not the answer. These tariffs are in response to concerns that China manipulates its currency and subsidizes certain industries. This is an issue of unfair trade practices. The deeper issue rests with the effectiveness of the World Trade Organization (WTO) in making sure that all members, not just China, play by the rules.

As history has shown us, protectionism results in higher cost imports for businesses that rely on lower cost inputs from other countries, higher costs for consumers, businesses losing revenue in the international market, and the loss of jobs in trade-related industries such as transportation.

A More Productive Approach

In sum, free trade merely reveals deeper systemic problems in the United States. The most productive response is to address the more complex structural problems that create economic disparities and push for stronger enforcement of trade rules to reduce unfair competitive advantages in the global market.

 

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2016 U.S. Presidential Candidates on International Trade

by

Natalie Hatour

With the New York primaries having just ended, the five remaining U.S. presidential candidates continue their campaigns as they prepare for the next big round of primaries on June 7, 2016 (covering California, Montana, New Jersey, New Mexico, North Dakota and South Dakota).

As one of the top issues in the presidential race, international trade not only divides, but also brings about some commonalities in the positions of all five candidates.

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Similar Rhetoric?

To appeal to the interests and concerns of the general American population, “Democratic and Republic candidates are backing away from supporting free trade…”. Even more so, as recently noted in a Huffington Post article, “for the first time in a long time, both major party nominees [Clinton, Trump, Sanders and Cruz]…are opposed to free trade deals.” Aside from Kasich (who is a vocal proponent of free trade), every candidate has voiced their opposition to past trade deals, such as the North American Free Trade Agreement (NAFTA), and deals that are still in negotiation, such as the Trans-Pacific Partnership (TPP) agreement.

However, as mentioned in our blog post on the candidates’ views on international trade in the context of the February 2016 South Carolina primaries, it is important to note that, largely speaking, many of the candidates “…support fair trade practices and trade policies that reduce harm to U.S. workers.”

Democratic Candidates

Hillary Clinton

Generally, Hillary Clinton favors open markets and free trade, but “…has nixed deals in the past over the finer points, especially worker’ rights.” She has, however, arguably received the most criticism in regards to her changing positions on trade agreements, including NAFTA and the TPP. While she supported NAFTA as first lady when it was signed in 1993, she has since criticized the trade deal. Similarly, while she worked on the TPP as Secretary of State, saying that it “sets the gold standard in trade agreements,” in October of 2015, she opposed the TPP, citing “a number of concerns about currency manipulation and concessions to pharmaceutical companies.”

Bernie Sanders

During the New Hampshire Democratic presidential debate on February 4, 2016, Bernie Sanders expressed that he does not believe in “unfettered free trade,” rather, that he believes “…in fair trade which works for the middle class and working families of [the U.S.] and not just large multinational corporations.” Having said that, he has described the last several decades of U.S. trade policy “—and NAFTA, in particular—as a ‘disastrous’ contributor to the decline of the U.S. middle class, loss of countless jobs, and the undermining of U.S. democracy.” For similar reason, Sanders has strongly opposed the TPP. In an interview with the Philadelphia Inquirer though, Sanders stated that if he were to be elected president, he would not ignore, but renegotiate the trade deals he has criticized with partner nations, therefore, “[maintaining] the existing deals as he sought to replace them.”

Republican Candidates

Donald Trump

Overall, Donald Trump generally opposes trade deals and favors protectionism, especially when it comes to U.S. trade relations with China and Mexico. He has also claimed that the U.S. has negotiated “horrible” trade deals, including NAFTA. Unlike Sanders, Trump has expressed that he fully intends to break existing trade agreements and “…violate [NAFTA] and World Trade Organization treaties by imposing tariffs that clearly violate the deals,” if elected president. He also strongly opposes the TPP, which he believes will hurt American firms and the U.S.’ competitive advantage.

Ted Cruz

Generally, Ted Cruz appears to support free trade and trade deals. However, like all of the previously profiled candidates, he has expressed his concern over the TPP and his intention to vote against it.

John Kasich

Lastly, John Kasich seems to be the only candidate that has openly declared himself a “free trader.” While he voted for NAFTA and supports the TPP, viewing it as a good deal for the U.S. “not only in terms of economics, but also in terms of foreign policy,” he does not support every trade deal proposed, such as those that could take away American jobs.

Impact on U.S. Trade Policies

 As mentioned earlier, while there seems to be common opposition to free trade deals among the presidential candidates, there is also general support for trade practices and policies that favor American workers and the U.S. economy.

It is important to mention though that it is difficult to oppose or support a single trade deal or policy as definitively bad or good, respectively, as there are winners and losers in every deal or policy. You have to look at the short and long-term existing and potential consequences and benefits. Trade deals and policies are not as clear cut as they may seem to be when they are debated.

One thing is clear though from the campaigns on both sides of the 2016 presidential election: “the next President of the United States will impact the trading partners of America and their respective economies.”

Natalie Hatour is a member of the project support team at the Global Research Institute of International Trade. She earned her Bachelor of Arts at UCLA and a Master of International Business at Hult International Business, San Francisco. She has worked with the U.S. Department of State in Los Angeles, as well as with the U.S. Commercial Service in San Francisco and San Jose. Integrating her professional experiences with her graduate studies, Natalie is passionate about promoting public-private partnerships to expand international business and development opportunities. To learn more about Ms. Hatour, please click here.

 

Presidential election fact-free on trade but TPP will go ahead: US Chamber

TPP: Why It’s Too Early to Pop the Champagne

 

The opinions expressed by guest bloggers do not automatically reflect the views of International Trade Examiner.

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Send Rio 2016: Lessons for Business Owners and LA’s Bid for 2024 Olympics

by

Luiz Guilherme Osório

Additional research conducted by Natalie Hatour

In the past months, news coming from Brazil has been less than optimistic. The economy is in a recession, and the political environment continues to be in crisis since the last general election. While the economic and political climate seems less than ideal, there is a large range of untapped business opportunities in the country. As many Brazilian and non-Brazilian companies are involved in its planning and execution, this year’s Rio Summer Olympic Games give businesses an introduction to the Brazilian market (Latin America’s biggest economy), as well as to the opportunities available for them within a mega-event.

Companies such as Nike, Airbnb, ManpowerGroup, Microsoft, among others, are official suppliers of the Brazilian Olympic Committee. P&G, Visa and Bridgestone are also sponsors, and have their brands associated with the Games. After reading the names of these large corporations, you might be thinking to yourself that you need to be a big multinational company to take advantage in the opportunities associated with a mega-event like the Olympics. That is not necessarily the case though. In reality, most of these large companies outsource their work to smaller providers. That is where opportunities for small and medium-sized businesses, as subcontractors providing whatever those big companies need, surge.

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To put together an event, such as the Olympics, a host city has to invest billions of dollars in infrastructure, transportation, accommodations, marketing, etc. Back in 2009, the state government of Rio de Janeiro estimated that “investments in the State between 2010 and 2016 [would] reach US$ 50 billion, in sectors including infrastructure, construction, transportation and others.” Of those investments, most would be through public-private partnerships, generating “numerous business opportunities for U.S. companies.” In an interview with the LA Times, the Mayor of Rio, Eduardo Paes, also emphasized that, because it would be very difficult to get federal money to build stadiums for the Olympics, they “went to lots of partners, private partnerships.” The Rio 2016 Games have also opened many opportunities for exports and investment in the areas of tourism, IT, financial services, education, environmental technology, retail, sporting goods and equipment, etc.

LA’s Bid for 2024

Los Angeles is in the race to host the 2024 Summer Olympic Games, and has already submitted its official bid. With 97% of venues needed to host the Games in existence or already planned, such as the construction of the over US$ 2 billion football stadium in Inglewood, “organizers of Los Angeles’ bid…are promising a prudent and responsible approach to running the games that would be entirely privately financed.” As with the upcoming Rio Games, the prospect of hosting the Olympics in 2024 opens numerous opportunities to the broader business community. When Los Angeles hosted the 1984 Olympics, the Los Angeles Olympic Organizing Committee (LAOOC) raised $651 million, creating 37,500 jobs and augmenting 37,500 other existing jobs.

This time around, with the objective to host the first energy positive and sustainable Olympic Games, the LAOOC has already begun to engage “organizations in the business community, particularly in high-tech and start-up industries.” For instance, they have already started discussions with Solar City to help “engage the public in a solar-powered vision for the Games.” Therefore, the LAOOC, the city of Los Angeles, and the state of California are looking to work with innovators and companies in the areas of energy and environmental sustainability.

When Should You Start Actively Looking for Opportunities for Your Company?

In preparation for the Rio Games, “the U.S. Commercial Service [encouraged] U.S. companies to pre-register to alert the Committee as to their interest in becoming an official supplier…[as] the majority of requests for proposals [occurred] between 2014 and 2015.” By pre-registering, companies received information as short and long-term procurement and bid announcements were posted. With that said, if you are interested in providing your company’s goods and/or services to Los Angeles if it wins the 2024 Olympic Games bid, then keep your eyes open for the LAOOC’s procurement announcements for contract opportunities for small and medium-sized companies (see resources listed below to follow Los Angeles’ 2024 bid and to look over its proposal/strategic plan).

 Games, Players and Opportunities

As shown with the preparation for the upcoming Rio Summer Olympic Games, Brazil offers opportunities for U.S. exports and investment in almost every economic area, from agriculture to technology, including infrastructure and services. Whatever good or service your business provides, you might find consumers among the more than 200 million people that live in Brazil. While you need to keep in mind that competition is strong and that the current political and economic environment is a bit unstable, it is also important to remember that this is just one phase of a cycle that will pass by. Not only that, but even in uncertainty, you can find opportunities. So whether you are looking to expand your business to Brazil or to become an official sponsor of a future mega-event, like the 2024 Summer Olympic Games, make sure you: 1) start early; 2) do your research; and 3) keep your eyes open for opportunities along the way. The difference between success and failure is being able to foresee the future when everyone is blind.

Resources:

The official site, Twitter, and Facebook page of the LA24 Exploratory Committee to bring the 2024 Olympic and Paralympic Games to Los Angeles:

https://la24.org/

https://twitter.com/la2024?lang=en

https://www.facebook.com/la2024/

Overview of Investment Opportunities in Brazil

Overview of the Brazilian Market

Brazil has a big population of 202 million people, and 58% of its GDP remain in services provided by domestic companies to the internal market, according to the World Bank Report over Brazilian Exports. With improvements in the income of the population in the past years, the economy has been able to grow. This growth was also helped by the commodities boom experienced before the financial crisis in 2008.

The point here is the fact that this model of domestic demand boosting growth is no longer possible due to saturation in the market. However, the focus in the last years, has been in one sector where the country has needed considerable development: infrastructure. The Olympic Games are bringing a huge amount of investment into Rio’s infrastructure. There are other massive projects in progress to eliminate the deficiencies the country has mainly in transportation. Water and energy supplies have also been addressed, with a big number of new projects that are becoming reality now.

Private Companies in Brazil

We can provide some examples such as Belo Monte, the 4th largest electric hydropower dam in the world. Belo Monte has started its first operations this year and will be in full power in 2018. This dam was contracted by Norte Energia S.A., and is being built by the 10 largest construction companies in the country.

The Norte-Sul Railway that reached São Paulo in the last months and is already transporting harvest from Centro-Oeste, the biggest agriculture belt in the country, is being built and operated by VALEC, a state-owned company responsible for the construction and operation of the terminal. This railway connects the very interior of the country to the ports in the North, closer to the consumer markets in Europe and US. The railway has its shares divided among Vale, through its subsidiary VLI being the majority, Mitsui (20%), a public pension fund - FGTS – (15,9%) and Brooksfield, the Canadian fund (26%). Most of the supply chain and outsourced contractors were domestic companies due to a policy boosting Brazil’s internal economy. However, international companies have also had a role in this project, participating through small subsidiaries.

We can also point out the Integração do Rio São Franciso, one of the most important projects in the Northeast region that provides water for families and producers in the semiarid, one of the driest regions in the country. This project was launched in 2007, during Luís Ignácio Lula da Silva government, and the companies working on in include, Mendes Júnior, Zavattaro Engenharia e Construções LTDA e Consórcio Construtor Águas do São Francisco.

Electric wind power production is growing rapidly and demands a substantial amount of investment that Brazilian national companies are not able to provide alone, due to its expansion speed. Events like the Conference Brazil Windpower 2016 are being launched in order to attract investors and partners to put in practice many project demands. Companies like MC-Bauchemie Müller GmbH & Co. from Germany, Roxtec from Sweden, Total Wind from Denmark, AWS Truepower from the U.S., have already started projects and will highlight their experiences, challenges and successes in this conference.

Regarding agriculture, this year’s harvest reached a record of 209.5 million tons in grain production only, showing that the agriculture sector has nothing to complain about, especially now with the Brazilian currency’s devaluation. According to the US International Trade Administration, “Brazilian growers are an ideal target market for U.S. exporters of sophisticated, high-technology self-propelled machinery; post-harvest machinery, including field refrigeration units/storage for tropical fruits; GPS and precision devices; poultry equipment; irrigation equipment; and fertilizers. “ It also states that “Brazil has world-class research and development labs and graduate-level studies, which signals the development of new enterprises that work to boost crop yields through increased efficiency. The United States and Brazil have a growing bilateral trade relationship in agribusiness.”

Thus, these investments in infrastructure, energy, and agriculture are already happening. However, there is still room for much more. Last year, the federal government of Brazil launched a huge concession program for roads, ports, railways, electric connections and production. Brazilian President Dilma Rousseff was invited to the United States in the end of 2015 for an official visit with Barack Obama, and also to announce and offer investment opportunities in this concession program. She had one meeting with banks and investors such as JP Morgan Chase, Blackrock and Citygoup to draw investment to her government’s infrastructure program.

The opinions expressed by guest bloggers do not automatically reflect the views of International Trade Examiner.

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Thank You for Your Feedback

Dear ITE Subscribers,

Thank you so much for taking the time to share your thoughts about the ITE blog via our survey or just by submitting comments to our latest survey posts. Here is what people have to say:

  1. How satisfied are you with the overall content of our blog?  Satisfied – 100%
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We look forward to incorporating all suggestions to continue to meet our readers’ needs.

ITE posts will resume this Friday. Check out our guest piece on the opportunities for businesses in overseas’ markets during significant world events, such as this year’s Olympics in Brazil, and how those same opportunities present themselves locally.

Finally, per one comment, a guest blogger is analyzing the presidential candidate’s perspectives on international trade. We look forward to an interesting discussion about their policy positions and the impact it will have on international trade.

 

Sincerely,

 

Sarita D. Jackson, Ph.D.

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