Trade Dogma And The No-think Nation

in a series on America`s imperiled future.

From a superpower to a third world country, the U.S.
is in rapid decline. It is a change of which the
population—especially the “experts”—are unaware. Because
of past success, Americans live in a smug no-think

Wake up! This is the first in a series of columns
about Americans` no-think smugness in an effort to alert
Americans to their true prospects.

Today the U.S. has the
export profile of a 19th century third world colony
Columnist Bruce Bartlett takes

to this characterization, citing official
Commerce Department data that capital goods account for
44.7 percent of U.S. exports and agricultural goods
account for only 6.2 percent.

Mr. Bartlett is offering an Enron/Arthur Andersen
view of trade. A country`s trade profile resides in its
net exports, not in the gross figures Mr.
Bartlett cites.

The gross numbers make the U.S. look like a
manufacturing powerhouse. The latest numbers reporting
the first two months of this year show the U.S. exported
$82.6 billion in manufactured goods and only $9.3 in
agricultural goods.

However, exports are only half of the story. During
the same period, the U.S. imported $135.7 billion in
manufactured goods and $6.2 billion in agricultural

The net result is a $53 billion trade deficit
in manufactured goods and a $3 billion surplus in
agricultural goods. A large trade deficit in
manufactured goods and a surplus in agricultural goods
is the profile of a third world colony.

Looking at net exports, it is obvious that the U.S.
does not have trade surpluses in areas associated with
high tech industrialized economies. The U.S.`s
largest trade surplus is in soybeans
. Except for
small and apparently diminishing surpluses in airplanes
and airplane parts, scientific instruments, specialized
industrial machinery and spacecraft, U.S. trade
surpluses reside in hides and skins, cigarettes, scrap
metal, cotton, animal feeds, wheat, coal, rice, corn and

Not all U.S. exports actually are exports. Last year
U.S. firms sent $45.6 billion in goods “in bond” to
their Mexican facilities. Such goods are counted as
“exports” because they cross national borders. However,
such goods are not sold to Mexicans. It is illegal for
“in bond” goods to enter the Mexican economy.

U.S. facilities in Mexico used Mexican labor to add
$30 billion in value to these goods before they were
returned to the U.S. as $75 billion in imports. In
truth, there was no $45.6 billion in exports—just $30
billion in imports.

Another misconception is that China`s economy is a
gigantic sweatshop, cheap labor but low tech. According
to the

Financial Times
(April 19), this comforting view is out of date.
The rapid shift of manufacturing to China by
multinational firms has taken research and development
with it.

Intel, IBM, Motorola, Lucent Technologies, G.E. and
Microsoft were among the first to set up R&D labs in
China, where skilled researchers can be hired at
one-third the U.S. wage. The U.S. has trained enough
Chinese scientists and engineers to support a massive
shift in R&D from the U.S. (and

) to China.

The R&D trickle has become a flood. This month
Emerson Electric announced that it is moving at least
half of its engineering work to China and India by the
end of this year. Emerson CEO, David Farr, said, “When
we finish this calendar year 2002, 70 percent of our
manufacturing will be in low-cost countries.”

Black & Decker, battery maker Evercel, and auto parts
maker Lear Corp have recently announced closure of U.S.
operations and moves to China.

The Japanese are headed there as well. Matsushita has
opened a R&D lab in China that will employ 1,750 Chinese
engineers within a few years. Nomura is shifting
software projects to China and will soon be employing
1,000 Chinese engineers. For its new chip development
center, Toshiba is hiring 1,000 Chinese engineers.
Hitachi, Sony, Pioneer, Fujitsu, NEC, Honda and Yamaha
have announced plans for R&D operations in China.

When these facts are mentioned, free traders have a
knee-jerk reaction
and rush to the defense of free
trade, while excoriating the messenger. However, we are
not confronted with phenomena that fit the free trade
vs. protection framework. We are confronted with massive
desertion of industrial and high tech production and R&D
to China and a consequent decline in middle class jobs
and incomes in the U.S.

The U.S. is not trading with China in the normal
sense. The Chinese have access to U.S. markets for
products made with Chinese labor. In exchange U.S. firms
have access to Chinese markets and U.S. markets with
products made by Chinese labor. In this “exchange,”
where lies the advantage for the U.S. economy?

Free traders, forgetting that consumers have to work
in order to consume, think everything is fine as long as
consumers are paying lower prices.

But U.S. consumers are also

earning lower wages.
The lost manufacturing and high
tech jobs are being replaced with low productivity
retailing jobs. Wal-Mart is now the largest U.S.
corporation—with larger revenues than Exxon-Mobil and
Microsoft combined.

The old free trade argument that high American
productivity underwrites high American incomes is
undercut when U.S. capital, technology, and education
move abroad and make Chinese equally productive.
Eventually, Chinese labor will be bid up as wages and
salaries in the U.S. fall. But before a new equilibrium
is established the American middle class, the American
dream, U.S. political stability and the mighty dollar
will take a beating.

Paul Craig Roberts is the author of

The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice