I-85 is the first step in the route to both of our capitols (OK, you could take NC49; but bear with me) - Raleigh and Washington, D.C. So, I figure a little coverage of what comes down from those two places when it’s pertinent locally might be a good addition to the usual fare on this blog.
Some Flip-Flops Are Still Made Locally
Activity in the US Congress has adjourned until the beginning of September. In their typical way, a whole mess of legislation made it’s way to the floor for the “roll call” votes at the close of July. A number of bills passed through the chamber, the one of interest is H.R.3045 - a resolution by the House “to implement the Dominican Republic-Central America-United States Free Trade Agreement” Our Representative, Robin Hayes, expressed his opposition until the day of the vote. His moving from the “Noes” to the “Ayes” was the deciding vote for passage of the Central American Free Trade Agreement. This was after he had made the comment that he was “Flat-Out, Completely, Horizontally Opposed to CAFTA” I wrote him an e-mail shortly after hearing of his CAFTA vote, here’s his reply:
On July 28, I made a decision to join North Carolina Representative Sue Myrick, Senators Elizabeth Dole and Richard Burr, as well as 21 other textile state members in supporting the Central American Free Trade Agreement. I know this decision caught many off guard because I had so vocally opposed the bill leading up to the vote. I told one newspaper that I was “flat out, horizontally opposed to CAFTA.”
I meant what I said then because of problems with some of the provisions. However, I stand behind my decision to ultimately support the bill because of late changes made to the agreement and because key manufacturers and textile employers in my district said it was critical to them and their employees.
The simple reality is, if we do nothing, the textile industry is going to continue to decline and more people are going to lose their jobs. With China entering the WTO and the end of quotas, there is more pressure than ever on our domestic manufacturers. Consider this - through May, China exported $8.2 billion in textiles, apparel and yarn to the United States, a 62 percent jump from last year. From January to June, the industry lost 21,500 jobs.
Our choice is clear we can complain or we can do something about it. We have offered pro-textile legislation in Congress in the past, but we simply don’t have enough pro-textile supporters to pass it. Significant pressure brought late changes to CAFTA that made it a far better agreement for U.S. textile manufacturers than when it started.
For example:Incentives to Boost U.S. Trouser Fabric Exports: Nicaragua, a large consumer of Asian fabric, agreed to require its trouser manufacturers to increase their imports of U.S. fabric by as much as 200 percent or $90 million if they use any fabric from Asia or any non-CAFTA country.
Improved Customs Enforcement: Bans the CAFTA countries use of all woven fabric — denim, non-denim cotton fabric, man-made fiber, and wool from Mexico, until Mexico improves its enforcement procedures and allows U.S. Customs to make unannounced inspections of factories.
Incentives To preserve U.S. Pocketing Exports: new agreements on pocketing fabric preserves a $100 million business for U.S. textile companies.
While the Administration agreed to these late changes, they did a poor job of communicating these benefits to Congress and the public.
Literally, on the day of the vote, the positive impacts of these changes were brought to my attention by significant textile employers in my district.Tuscarora Yarns sent petitions signed by their employees and said that CAFTA was critical to their future in North Carolina.
Burlington Industries (International Textile Group) said that CAFTA directly impacts the production of trouser fabrics at our Burlington Richmond plant located in Cordova, NC and the Burlington Raeford plant located in Raeford, NC.
Needless to say it carries tremendous weight when our employers tell me something is critical to their continued operations. Even as I went to vote, I was still not convinced until I received the Administration’s assurances on these new provisions and about renewed efforts to crack down on the main adversary to our domestic industry - China.
The next day I asked representatives from the textile industry to identify an initiative to stop the damaging surges of Chinese products. They asked for a comprehensive textile agreement with China that keeps Chinese exports under quota control — an agreement that includes tight limits on sensitive textile and apparel products that extends until the current safeguard mechanism expires.
That request was sent to the U.S. Trade Representative’s office the next day. On Monday, the Department of Commerce announced that the U.S. Government will consult with the U.S. industry and Congress about just such an agreement. I thank the Administration for beginning to honor their pledge with such quick follow up, and I call on them to do this quickly. We are not declaring victory, because that’s an ongoing process. But this is a heck of a step in the right direction.
Obviously I did not vote for CAFTA because it was the easy thing to do. My job is to make a decision based on the facts in hand rather than perception. I have been involved with textiles all my life, and textiles have played a vital role in the economy of North Carolina. If we put partisan bickering aside and work together, we can use CAFTA and new initiatives on China to give our domestic textile industry a future in the 21st century.
Independent Tribune reader should be familiar with this is the text of his op-ed defending his CAFTA vote.
Trading Our Future
I have a special interest in the subject of trade policy. I’m an engineer and a software developer. The rise of India and other Asian nations in the world of technical outsourcing has put me in competition with people whose wages are less than half of mine. My mom is an artist who owns a small, local manufacturing firm and faces global competition from knock-off artists who would copy her work and sell it for a fraction of the price. Also, I spent my formative years watching my friends’ parents in Detroit and Toledo worry as their jobs were cut due to cost-cutting price pressure from Japan. Before I ever understood what “free trade” was, I got to learn what it can do.
Here’s the kicker - I wrote his office in support of his vote which passed CAFTA.
While the jury’s out on the balance of jobs gained or lost due to trade, I can tell you that protectionist trade policies do nothing to save anybody’s job - besides the people pushing those policies. It’s the market that creates, relocates, replaces and displaces jobs - not the government. The more that we, as a nation, engage the global marketplace; the more we, as a nation, will prosper.
Don’t arm-wrestle The Invisible Hand
Alright, many of you have heard of Adam Smith’s Invisible Hand. There is a good article that goes in-depth and will tell you more than I’ll bother to. Basically, the market is made up of a multitude of individuals persuing economic gain - higher salaries, lower expenses, lower prices, and greater profits. We all engage in this practice to acheive it we have to constantly become more productive, more creative, smarter, faster, etc. Basically, as the individuals of the world do this collectively - it becomes what’s known as “The Market”.
In a battle between the government and The Invisble Hand - the Invisible Hand will always win. It’s like if the gas pedal sticks to the floor in your car, your brakes aren’t going to stop you. Equally as futile is to believe that government policy will stop the engine of the market. Protectionist trade policy in the end only serves to frustrate the economic well-being of those affected by it, because individuals will most likely consume the cheapest goods and services they can find.
If the Sock Fits - An Alternate CAFTA scenario
Let me demonstrate with a fictional scenario, let’s say the Congress didn’t pass CAFTA, because a Dominican manufacturer (for SNL Fans, let’s call it Dominican Lou’s) can make, let’s say men’s dress socks, more cheaply with the same or better quality than any other manufacturer in the United States. All-American Socks in concert with UNITE, the textile’s workers union, “to protect” American jobs manage to defeat CAFTA in a full-court press through powerful lobbyists on Capitol Hill. Then, in an act of political pugilism, work in the next election to defeat the co-sponsors and newly elected officials pass the “Sock Workers Protection Act”. This Act would demonstrate that the CAFTA-opponents weren’t puppets of evil, multi-national corporations by placing quotas and tariffs on socks, offering government-guaranteed loans to sock manufacturers, and even spends money on an “All-American Fashion” public service campaign to promote those homegrown goods.
Meanwhile, in the Dominican Republic, Dominican Lou’s decides to double up their efforts to sell their socks and do so, because, due to recent US legislation, Dominican Lou’s dress socks are not the best socks for the dollar; but they are still the best socks for consumers with Euros, Yen, Pesos, or Yuans in their pocket. The increased demand forces Dominican Lou’s to upgrade their equipment to increase their output and they institute a quality control program. However, given the strained trade relationship with the United States, they decide to buy the new equipment from Germany and hire a Quality Control expert from Japan. Oh yeah, the Dominican Republic signed a free-trade agreement with Brazil, so there’s no US cotton in Dominican Lou’s socks.
Back in the USA, All-American Socks decides to raise prices because of their confidence in their dominance of the domestic market. With sales pretty much guaranteed, All-American Socks cuts marketing, product development, worker training, and process improvement budgets to pad the numbers for a few awesome fiscal quarters. UNITE reminds All-American Socks of all of the favors it did and the influence it wielded and gets a nice compensation bump for the workers. Ofcompensationis compenation bump is just part of a new contract agreement which makes it harder for All-American Socks to terminate or layoff any of the workers. Meanwhile, All-American Socks skelton marketing staff notes that international market share is slipping.
A couple of years after their being shut out of the American market, Dominican Lou’s is going strong. Shipments are heading around the world, and distributors are pumping product on to shelves everywhere. In order to get around quotas and tariffs, Dominican Lou’s ships their socks to a distributor in Spain who embroiders a little eagle on the socks, which are then shipped to the USA under the brand name Calcetin. These socks are of higher quality and a lower price than their main American competitor, All-American.
Back at All-American HQ, all is not well. Burdened by increasing costs from their cumbersome labor agreements, All-American switches to low-cost (and low quality) Chinese suppliers for the cotton for their socks. Then there’s this new brand that nobody can pronounce, but that’s eating into their domestic market share like a ravenous wolf. All-American’s shares plummet. Due to their low profits, they appeal for tax breaks from local and state governments and get them - as the guaranteed loans are all used up. “We’ll get through these hard times”, they promise.
Cut to Washington, D.C. The main American distributor of Dominican Lou’s and Calcetin socks wants to be able to sell more of them. He hires the lobbyists from earlier in the story to place an exception to the quotas and tariffs as long at the dyeing process is carried out in the United States. The bill passes without too much trouble - it’s “pro-textile”.
All-American Socks files for bankruptcy and closes its doors. Dominican Lou’s was able to buy some old plant equipment for their facility in Bejing at a discount because they were the high bidder at the liquidation. UNITE hit world land speed records (ala Kannapolis) leaving town and the community to help the unemployed put the pieces back together again.
Lesson Learned - Dirty Little Secret Exposed
The only American job that was protected in that scenario was that of the lobbyist and the newly elected official. Jobs that were lost were those of cotton farmers, quality consultants, equipment manufacturers, and, eventually, the textile workers. In the meantime, the government poured money into a losing enterprise - without changing the outcome. They only delayed the inevitable at a great cost to the taxpayers and other businesses - they didn’t “save” anybody’s job.
Here’s the deal. Most people in power understand how this game works and that the market ultimately decides. Now, a lot of people are picking on Congressman Hayes for his duplicity on this issue. However, political chicanery is not exclusive to any one party when it comes to trade policy. After the Pillowtex closing, I wrote my representatives to express my concern about H1-B visas, outsourcing, and our community’s ability to compete in the global marketplace, etc. Of the offices of Rep. Robin Hayes, Sen. Elizabeth Dole, and Sen. John Edwards, only Edwards’ office wrote back. His office mentioned which trade agreements he agreed to and stated the H1-B visa situation was necessary because US corporations couldn’t find Computer Science graduates (which is not the case). A week later, Candidate John Edwards complained about the amount of outsourcing under the Bush administration. A bit more duplicitious, in my humble opinion.
Trading Spaces
So, what should our trade policy be? Here’s a few ideas.
Government should work to open markets to American goods. Period. I understand that other nations have cheap labor, lower regulatory standards, subsidized industries, and political graft; but we’re more likely to change that by being engaged.
Also, in an effort to promote the general welfare, government should do what it can to prepare individuals through education to “learn to learn” thus learning new skills quickly, funding useful research thus keeping our technological edge, and just face the facts that there are some markets that other nations will outperform us in.
We’ve had enough deal making and compromise. We need leadership. We need leaders that will think of the future and America’s role as the leader of the world marketplace. We need leaders that can think ahead to a time where the world is smaller than it is right now. We need leaders that will level with the public, even if the public hasn’t leveled with itself.
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