Tug-of-War Over Trade

CHRIS HILDRETH FOR TIME NATIONAL TEXTILES: CEO Jerry Rowland worries that cheap Chinese textile and clothing imports will lead to layoffs at his North Carolina firm. The state has lost 37,500 textile jobs since the beginning of 2001.�No way they play fair,� says Rowland.

Jerry Rowland feels the dragon breathing down his neck. He's the CEO of National Textiles, a T-shirt maker in a state that has lost more than 37,000 textile jobs since the U.S. lifted quotas on Chinese imports two years ago. Unless Rowland's North Carolina workers suddenly become competitive with Chinese counterparts who earn just a few dollars a day, he fears his employees will be next. The plainspoken Southerner ticks off what he regards as China's unfair advantages: excessive government protection, an underpriced currency, cowed and underpaid workers, exports dumped below cost. If Washington won't help, Rowland says, he will have to move some jobs overseas. The new quotas slapped on some Chinese textiles last month, he contends, aren't enough. "Our government has done nothing," says Rowland, "just a little bit of hand slapping."

Half a world away, Yang Rong manages the privately run Jinhua Asset Underwear Co., with a factory tucked into verdant hills a few hundred miles from Shanghai that exports some of the world's sexiest lace bras. On his shop floor, surrounded by 200 young workers outfitted in pink kerchiefs and aprons, Yang points to the wall on which he has taped a laminated list of rules issued by Walt Disney Co., with which Asset Underwear has a contract to make clothing featuring Disney characters. The list prohibits, among other things, indentured servitude and "slavery." Yang thinks that's funny. His laborers come from villages across China to work 8-to-10-hour days for up to $120 a month and consider that a pretty good deal in a nation where urban per capita income is $78. Looking up from her C cups, Lou Xuxiao, 20, brags about the new electric moped "I never thought I'd own."

While Yang is sowing prosperity in China, the U.S.'s new penchant for protectionism could bust his big plans for brassieres. Asset Underwear, which grossed $10 million in exports last year, recently began negotiating with Sara Lee, maker of Playtex and Wonderbra, to produce some of its lingerie. But the new quotas on Chinese bras, bathrobes and knit fabrics have forced the Chicago company to withdraw. Yang is mystified. "Why can't the Americans stick to making what we can't?" he asks. "For little things like bras, nobody can compete with China."

Right you are, Mr. Yang, which is why the U.S.'s uneasy embrace of globalization is chafing against China's emergence as the world's workshop. China rules in stocking stuffers, but it's climbing the technology ladder too. Its huge pool of cheap labor — up to 500 million peasants are expected to migrate to cities in search of factory work over the next two decades — should provide 20 more years of growth for an economy that already produces a quarter of the world's television sets and washing machines and half of its cameras and photocopiers. U.S. towns built on products that seem uniquely American — think A.T. Cross pens from Lincoln, R.I.--have been devastated as employers moved whole factories to China.

The trade spat risks escalating into a nasty war, especially if politicians try to make it a major campaign issue next year. Some U.S. manufacturers are complaining and demanding protectionist legislation from an Administration that seems to be listening — at least with one ear. Although he bills himself as a free trader, Bush is finding it hard to ignore the millions of manufacturing jobs that have disappeared from states, like Pennsylvania and North Carolina, that will be pivotal in next year's election. He has unleashed Commerce Secretary Don Evans and Treasury boss John Snow to bark at the Chinese about exports and the cheap value of the yuan. Lawmakers sensitive to job dislocations among their constituents have loaded into the pipeline at least six bills that relate to trade with China. Jim Leach, the Iowa Republican who chairs the East Asian and Pacific Affairs Subcommittee of the House's International Relations Committee, says that future conflicts with Beijing will be "more about geo-economics than geopolitics" and that it's "largely up to China" to ease tensions. Last year China, at $103 billion, surpassed Japan as the country with the largest trade surplus with the U.S.

The Administration had a chance to raise some of these issues with Chinese Premier Wen Jiabao when he visited Washington last week. But there were few signs that trade issues were a big concern. Wen accepted the 19-gun salute he received on the South Lawn of the White House, then fired his own volley, gently reminding his hosts that China is the fastest-growing market for America's exports. There are certainly U.S. companies that agree. Multinationals such as Motorola and Caterpillar have invested heavily in China and strongly oppose protectionism targeted at China.

The fact is, while all countries engage in trade practices that aren't always legit (example: U.S. steel tariffs, which were lifted only two weeks ago after 20 months), China is not a particularly egregious trade cheat. China is far more open to foreign investment and imports than Japan was during its boom years in the 1980s. Few countries have embraced globalization at greater risk. The shutdown of inefficient state-owned plants has cost China tens of millions of factory jobs, with more to go.

On a more pragmatic level, the U.S. needs China's cooperation on everything from trying to halt North Korea's nuclear-weapons program to building support for Iraq policy in the United Nations. That suggests Washington should play the trade card only sparingly. For now, the two sides are getting along well politically. Bush pleased Wen last week by saying he opposes efforts by Taiwan, which Beijing considers a renegade province, to alter its status.

China emerged as a global trade power 10 years ago, when it knocked off Taiwan and South Korea as the biggest exporter of sneakers to the U.S. Last year it surpassed Japan and Mexico as America's biggest single source of consumer electronics. That came at some cost to American jobs but at a big cost to countries that compete directly with China, such as its Asian neighbors and Mexico. Along the way, China became a vital link in the global supply chain. Some Dell notebook computers from China are made by a Taiwan-owned company called Compal using Taiwanese circuitry, a U.S.-made Intel chip and a screen from Korea. All those imported parts explain why, despite a projected trade surplus with the U.S. of between $120 billion and $130 billion for this year, China's worldwide surplus will be a slim $15 billion. As America's imports from China have risen, its imports from Taiwan, Singapore and Japan have declined.

China has achieved this critical global role not by protecting its economy but by throwing it open. Tariff rates are comparatively low, and this year it surpassed the U.S. as the world's biggest recipient of foreign investment, attracting an estimated $60 billion. Accusations that China manipulates its currency miss the point. The yuan is pegged to the dollar, which has dropped in value over the past year. So Chinese exports to the U.S. have indeed grown cheaper compared with those of other countries. To support its currency, China holds about $120 billion in U.S. Treasury bonds, thus lending America the money to keep its economy humming (thanks, Beijing, for financing those tax rebates).

The Chinese and American economies have grown so interconnected that even Beijing's efforts to throw Washington a bone by curbing some exports irritate certain U.S. firms. In October, China responded to U.S. pressure by reducing a tax rebate for firms selling abroad. Multinationals operating in China complained. "Foreign companies were hurt disproportionately because so many are set up for export and expected that rebate," says a senior executive of Motorola, which sells Chinese-made mobile phones around the world. Sales from foreign companies operating in China account for more than half of China's exports. That has made U.S. businesses especially wary of American protectionism, and small U.S. firms trying to compete with China tend to receive little sympathy from their larger cousins.

One justified criticism of China is its lack of workers' rights, which contributes to its cheap labor. In the southern boomtown of Shenzhen, a hundred workers who package computer keyboards and mice that they say bear the IBM logo walked off the job last week to demand the legal minimum wage of $73 a month and the legal overtime rate of 66� an hour instead of the 34� they received. Since independent unions are banned, they took their protest directly to the government, spending a night outside city hall. The next day their employer, a Hong Kong firm called Max Infosystems, raised salaries but cut meal subsidies by the same amount, according to one of the strike's organizers, Zou Quansheng, 22.

China's detractors still have powerful weapons at their disposal. Before agreeing to allow China into the World Trade Organization, Washington negotiated a deal giving it broad powers to block Chinese products that "surge" into the market — no proof of dumping or other wrongdoing required. As elections draw near, pressure to use those powers could come from people like Doug Bartlett. His father started Bartlett Manufacturing, a circuit-board maker in Cary, Ill., in 1952. By 2000, the family business had $22 million in sales and employed 180 people.

Since that banner year, the company has been in free fall. Bartlett says cheap Chinese imports have driven down both sales and his labor force to half their former levels. He blames China's "manipulated" currency and subsidized exports. Now he faces the stark choice of abandoning his community and moving operations abroad, or lobbying for more protection. "We hope to hang on until somebody comes to their senses in Washington," he says, "[but] I don't hold out much hope." And even if Washington wants to protect him, it doesn't have much ammunition to use against China.

With reporting by James Carney and Douglas Waller/Washington, Paul Cuadros/Chapel Hill, Joyce Huang/Taipei and Leslie Whitaker/Chicago

Big Steel's surprise comeback

A Bush decision to lift tariffs on cheap imports could nonetheless have big political consequences.

By Ron Scherer | Staff writer of The Christian Science Monitor
and Adam Parker

SPARROWS POINT, MD. – The shine is coming back on the US steel industry.

After years of ruinous losses and thousands of layoffs, largely because of cheap imports, the industry is poised to post some of its biggest gains in a decade - and has quietly emerged as one of the most competitive producers in the world.

Big Steel's surprising - and still nascent - turnaround comes as President Bush has decided to lift protective tariffs on imported steel. It's a decision that nonetheless holds big political and economic ramifications.

Some analysts think the move could hurt the president in key swing states, such as Pennsylvania and Ohio, where large numbers of steel workers are concentrated. When running for office, Mr. Bush promised them he'd help, and many were hoping the tariffs would remain until 2005. "If Bush wants to be a wuss and give in to the European Union, China, and Japan, he'll feel it from the American steel workers, and instead of 30 percent voting for him, maybe only 5 percent will," says Gary Hubbard of the United Steel Workers in Washington. "It will be easy. We're organized."

But Bush was confronted with a difficult choice: remove the protective barriers or face foreign tariffs on such American goods as oranges, rice, and pool tables. Nonetheless, his lifting of the protectionist measures Thursday, in the face of a Dec. 10 World Trade Organization deadline, will force the US steel industry to continue to consolidate and innovate - something toward which it has been making strides. "The US steel industry is in the best shape for sustained profit recovery that it's been in for at least a decade," says Mark Parr, head of the metal research department at McDonald Investments, a Cleveland investment banking firm.

Helping the improvement is a host of changing economic conditions. Since January, the US dollar is down about 15 percent in value compared with the euro. Combined with the tariffs, this has helped reduce steel imports to the US by about 30 percent. "The US is a less desirable place to sell steel," says Bob Moore of Salzgitter International, a major European steel importer. At the same time, Chinese demand for steel products has accelerated. This has doubled the ocean freight rates - another factor in exporting steel to the US.

One more important change is in the US steel market itself. Bethlehem Steel, the nation's second-largest US steel manufacturer, went into bankruptcy and was acquired by the International Steel Group (ISG), which also owned LTV Steel, also coming out of bankruptcy. In addition, US Steel Corp., the nation's largest steel producer, bought bankrupt National Steel.

The consolidation gives the companies the size to compete against giant European and Japanese steel producers.

Yet probably the biggest change is on the shop floor. In an industry that has a history of difficult union-management relations, much of the animosity in the hot and noisy mills is dissipating. For example, here at Sparrows Point, ISG eliminated 200 overseers, reducing seven layers of management to three. "There are less people looking over their shoulders," says Joe Rosel, a United Steelworkers contract coordinator who helped negotiate the new contract.

Now, the workers are basically running the plant, making many of the day-to-day operating decisions. "We were 50 years coming to this point," says Jim Huber, a union trainer.

The workers are quick to point out that they are working harder too: Sometimes one hard hat is doing the work that used to be done by two or more. Some 165 different job descriptions - with all the union ramifications - have been trimmed to five. "It's been hard to get used to in the last six months," says Mr. Huber, "but a lot of growing pains have eased."

Even though wages remained the same, not everyone on the shop floor is happy. "Mouse" Banks is a mechanic who has worked at the company for 30 years. She stands in the hot strip mill beneath a moving crane whose giant hook swings gently above her head. "I'm one of the disgruntled employees," she says. "It's no better than it was," she says. "More work, less people - we go through the motions, do what we have to do, then we go home," she says with both anger and resignation in her voice.

Mr. Rosel concedes some workers are unhappy. But he says, "This was a tremendous accomplishment but not fully understood."

Some of the workers feel they are nothing more than pawns in a larger playing field. Thomas Johnson, who controls the movement of the red-hot steel bars through the mill from a "speed pulpit," thinks Bush lifted the tariffs to strengthen support abroad for the campaign in Iraq. "So what's a couple of steel workers?" asks Mr. Johnson.

It's hard to say how much politics played into Bush's final decision. But, this week, the American Institute for International Steel (AIIS) raised the ante at a press conference. Dennis Rochford, who represents the ports on the Delaware River, said the number of ships unloading steel had dropped from 400 to 150. "There are 38,000 jobs dependent on steel imports on the Delaware," he said.

The steel users had their own coalition putting pressure on Bush. They pointed out to the administration that nationally, some 100,000 businesses with 12 million workers use steel, compared with 160,000 steelworkers. And at a fundraiser on Monday, the president most likely heard from auto-parts executives in Michigan about the impact of the tariffs.

Yet with or without the tariffs, some analysts believe there will be steel shortages in the US next year. The mini-mills, which melt down scrap, are battling the Chinese for America's smashed-up used cars, so they can't expand production. Many integrated steel companies are still in bankruptcy. "By next year, steel imports will be rising, but it may not be enough to keep prices from rising too," says David Phelps, president of AIIS.

US-China trade tensions rise

Cheap imports draw growing complaints from US companies, prompting Congress and the White House to weigh new tariffs.

By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – The Bush administration is starting to target the "Made in China" label.

After listening to businesses complain about losing orders to Chinese companies, the US is starting to impose tariffs on a wide range of Chinese products - from bras to television sets. At the same time, Congress, revving up for the 2004 elections, is considering legislation that could mean higher prices for goods ranging from apple juice to CD players.

The recent moves are reviving fears of some kind of trade war between the world's largest consuming nation and one of its largest suppliers. It is likely to be one of the top items discussed when China's premier, Wen Jiabao, makes his first official visit to the United States this weekend.

A trade war is a prospect that scares everyone from Federal Reserve Chairman Alan Greenspan, who terms the Bush administration's tariff moves "creeping protectionism," to Wal-Mart, which counts on getting inexpensive goods from China.

"This issue will remain hot all the way through the election simply because the Chinese have such a great advantage on cost on so many items," says Don Straszheim of Straszheim Global Advisors in Santa Monica, Calif.

This advantage is one reason the US trade deficit with China is expected to reach $130 billion this year, up from a record $102 billion in 2002. Yet it isn't as if China is closing off its markets to US goods, the way Japan often did in the 1980s. China is now the fastest-growing export market for US products - everything from planes to soybeans. Last year, US companies increased their exports by 19 percent. This year they're up 22 percent.

Despite these gains, however, the balance of trade is expected to continue to tip heavily in Beijing's favor, particularly as an increasing number of American auto parts are made in China.

Sheri Reichart of Schaefer Brush Manufacturing - a Waukesha, Wisc., firm in business since 1905 - knows all too well the impact of these inexpensive Chinese imports. She recounts how a major customer showed her an exact copy of a wire brush Schaefer makes for plumbing fittings. Even the molded handle was the same size and color.

But the customer said he could buy it for 50 percent less than Schaefer sells it for, and unless she matched the price, the next order would come from China. "We reduced the price, but we can't continue at this rate," says Ms. Reichart, the president of Schaefer, a family-owned firm.

Reichart has written her congressman, senator, Vice President Dick Cheney, and President Bush. "We will talk to people until someone pays attention," she says.

Revolt of US manufacturers

It is a message an increasing number of companies are sending to Washington. "We're getting calls and e-mails from our members saying 'what are you guys doing supporting free trade? Haven't we had enough?' " says Frank Vargo of the National Association of Manufacturers.

The protests are resonating with some members of Congress. They're looking at legislation that would require the president to impose 27.5 percent across-the-board tariffs on Chinese goods unless Beijing lets its currency float. Presumably that would cause the yuan to rise against the dollar, helping US exports.

Sen. Charles Schumer (D) of New York, a chief sponsor of the proposed legislation, says one catalyst for him was the decision by Carrier Corp. to close a manufacturing plant in Syracuse, N.Y., and move production to China. Now he's hoping to tack the tariff proposal on as an amendment to other legislation that must be passed before Congress recesses.

Whether Congress' efforts would stick is another matter. The US is a member of the World Trade Organization (WTO) and must abide by its decisions. This week, for instance, the US is expected to eliminate tariffs on steel imposed last year. The WTO ruled them illegal and other countries were set to impose counter-tariffs if the US didn't act.

Still, US companies have other options in fighting cheap imports. They can, for instance, file complaints with the Commerce Department, which can block products from crossing the border. Yet many companies note that the complaint process is time consuming. And trade violations, such as dumping charges (selling below the cost of production), are hard to prove in a nonmarket economy like China's.

Too many apples

That's what happened to apple-juice manufacturers. In 1999, they complained about too much frozen juice concentrate coming in from Asia. In 1994, China represented 1 percent of the apple-juice market in the US. Last year, it was 27 percent. US apple growers filed a dumping charge after juice prices had dropped 53 percent.

In deciding the case, the Commerce Department had to pick a "surrogate" country to determine what it might cost the Chinese to make their juice. The agency had to choose between Poland and Turkey. It chose Turkey and then decided five of the Chinese firms were not dumping. "If they had chosen Poland, they would have maintained some duties on the companies," says Jim Cranney of US Apple, a trade group.

Now, he says, apple orchards are being sold and processing plants are shutdown. "We were disappointed," he says.

Storm Clouds

FTAA: Big Capital Brings Its Dark Circus to Miami

by Joshua Clover

The people united will never be defeated," with its amphibrachic optimism, is unavoidable at any progressive rally. Promised as the biggest U.S. direct-action protest since Seattle, the FTAA protest in Miami last week was short on people, despite the financiers' persistence in booking sites as if it were spring break at Billionaire U. The estimated 15,000 were not in fact united, as squabbles between the officially nonconfrontational labor contingent, the movement-building activists, and the dreaming barricadistas produced irreducible fissures. And still the people were not defeated. The tycoons slumming as politicians were less united still, and their new baby, the Free Trade Area of the Americas, emerged stillborn.

It's been suggested the protest movement exists in symbiotic embrace with its visible antagonists: the WTO, World Bank, World Economic Forum, IMF, NAFTA/GATT—acronymic coagulations of global capital's imperial dreams. It's a relationship exercising protesters' urge toward refusal, while allowing totalitarian moneymen to appear phantasmically as representatives of civil society. The ritualistic repetitions of the engagements can't help but feed such a cynical suspicion.

If there's a current symbiosis, it joins protesters and the police. The street struggles are now cast as tactical contests for their own sake. Popular media enthusiastically raise the specter of "another Seattle," by which they mean broken windows—not breakdowns in the corporate conspiracies seen in Seattle, or last month in Cancún. Meanwhile, offscreen, the hubristic schemes of bunkered negotiators derail agreements more incisively than any peaceful march or downtown shutdown.

The planned big day of action, Thursday the 20th, ended with over 100 arrests, somewhat fewer injuries among protesters, and fewer still among the profusion of puffy riot cops who unleashed their array of noxious gases, "less lethal" ordnance, tasers, and the occasional baton applied to the scalp until bloody. Police Chief John Timoney struck his ritual pose: "I thought the officers showed remarkable restraint. These are outsiders coming in to terrorize and vandalize our city."

Everybody likes an ironic man in uniform. Timoney, after all, is more the violent mercenary than any eco-activist or Black Blocker: The ex-NYPD bigwig was last seen rendering Philadelphia a Constitution-free zone for the 2000 Republican National Convention. Timoney traveled a fair distance to Miami to imprison more citizens for carrying big puppets.

In this newest showdown, if anything was achieved, it was the extension of police state adventurism, and the slow commonplacement of the hypothesis that political dissent ought not be distinguished from terrorism. Behind a vast outlay including eight-plus million federal dollars, no one recalled a greater profusion of gizmo-draped robocops, or as many police choppers swooping down to harry activists departing the toxic clouds of Biscayne Boulevard. As these reputedly dangerous agitators picked their way through the poverty-blasted 'hoods around downtown, residents had little difficulty parsing the scene and offering help. Very poor people, one notices, rarely experience helicopter troops as their allies.

Locals might note that the FTAA was an outsider coming to terrorize their city. It's often diagnosed as "NAFTA on steroids": a unified economic zone of 34 countries, wherein corporations achieve sovereignty, including the capacity to enter "favored nation" pacts and the confirmed right to sue governments for restraint of trade (as Bechtel has already done with Bolivia). The theory claims this will achieve greater economies of scale, so that farmers in, say, Mexico can compete with China—except it doesn't explain how this race to the bottom of the pool of wage labor will splash Mexican jobs to Colombia. And it ignores the fact that the FTAA would drown community self-reliance, divide temporary beneficiaries and the disenfranchised even further, and return commodities to the U.S. so "cheaply" that domestic producers will pay the price with their own destitution.

Such design flaws led to the walkout of Global South nations at September's WTO ministerial. Facing another Cancún, the FTAA declared victory on opening day and went home. The "victory" consisted of a few nonbinding agreements, the return of disputed issues to WTO arbitration, and a lot of air-kissing and promising to have lunch real soon. The U.S. strong-armed some individual countries into bilateral agreements; others were having none of it. As with the Iraq war, the U.S.'s flagging capacity to compel a grand coalition signals an increasing international aptitude for just saying no, and a sense the planet's interests may not lie in another American Century. It doesn't; this is why we fight.

On the Verge of a Trade War?

White House protectionism risks more than a further weakening of the dollar: It could spark retaliation from key trading partners

The Bush Administration's decision on Nov. 19 to impose temporary quotas on some textiles from China caused consternation in financial markets (See BW Online, 11/21/03, "Bush's Wobbly Line on Trade"). Nowhere was this more evident than in foreign exchange, where the U.S. dollar sank vs. other major currencies as investors worried that the move was the opening salvo of a broader protectionist push. The White House's apparent aim: saving jobs in key manufacturing states ahead of the 2004 Presidential election season.
China could soon come under Team Bush's trade microscope again, when the Commerce Dept. makes a preliminary ruling on a complaint filed on Nov. 10 that Chinese furniture imports are being "dumped" on the American market. There's little doubt at this point among forex traders that the U.S. is taking a more aggressive trade approach against China.

The key trade test for the Bush Administration and the U.S. dollar will be the President's decision on whether to lift or roll back tariffs on imported steel -- or leave them in place for another year, as U.S. producers would like. The clock is ticking down to a mid-December faceoff, when European trade officials threaten to impose countervailing duties on U.S. goods unless the tariffs are reduced (see BW Online, 11/11/03, "Will Bush Bend on Steel?").

HIGHER STAKES. The noises from the European Union come after the World Trade Organization ruled earlier in November that the tariffs imposed by the White House in March, 2003, were illegal. (Recall that the dollar also declined after that announcement.)

The stakes may be higher this time around. The current trade tiffs come as a weakened dollar is causing global currency markets to fret about how the U.S. will continue to fund its huge twin deficits -- the overall budget gap and the trade imbalance -- at a time of comparatively low interest rates and a fresh wave of U.S. financial scandals. Indeed, no less a figure than Federal Reserve Chairman Alan Greenspan entered the debate on Nov. 20, attacking "creeping protectionism" from Congress and the Commerce Dept.'s ruling to cap Chinese textiles imports.

The forex market remains worried that the Bush camp is moving toward a broad protectionist stance that leaves the dollar more vulnerable, just as the U.S. needs to attract investment inflows to continue funding its trade deficit. Persistent murmurings have it that a trade war could be triggered, adding to global instability alongside seemingly unresolvable political issues in an increasingly violent Iraq.

ANOTHER QUAGMIRE? One can argue that Team Bush is following a "targeted protectionism," in the case of steel and textile imports. The White House did show some caution, after all, in refraining from labeling China and other Asian exporters as "foreign-exchange manipulators" in the Treasury's annual review of trade.

Still, global investors fret that 2004 election politics will trump the Administration officials' dedication to free trade as they seek to secure votes in key swing states. As such, the steel issue is a critical test for avowed free-trader Bush to either step back from the brink -- or risk an ugly trade war that will likely see no winners.


Ethridge is a currency market analyst for MMS International

Bush's Threadbare Chinese Quotas

Limiting imports of bras and robes won't hurt China much -- nor will it help the almost nonexistent domestic industry

Now that the Bush Administration has slapped quotas on Chinese robes, yarn fabric, and bras, is it time to rush out and stock up on frilly foundation garments and cheap silk robes from the Middle Kingdom? Relax. The Nov. 18 decision may alarm free traders, who think it reveals a willingness by the Bush Administration to elevate politics over sound economic policy. But the quotas will barely make a dent in overall textile exports from China. The heated reactions from lobbyists on both sides of the issue are really just Washington's version of grand opera.
Beijing denounced the move "with deep regret," and Chinese exporters linked the action to next year's Presidential elections. Beijing even hinted that China might challenge the move before the World Trade Organization, where the U.S. has suffered a string of losses.

ATTRACTIVE FIGURES. That's unlikely, however. Let's look at the numbers, which show how dominant Chinese imports have become since the U.S. removed quotas on Chinese-made bras and robes in 2002. Bra imports jumped immediately from 38.4 million the year before to 127.2 million. That 231% increase gave China a 24% share of the U.S. market, up from 9% the year before. This year, China's market share climbed to 33%. The increase in another import category, robes, was even larger -- 540%.

So, to rescue the U.S. industry from this onslaught, the Bush Administration would have to roll back the quotas on China to the pre-2002 level. But that's not what's happening. The reimposed quotas are on the new base, plus an additional 7.5 percentage points. So even with the new figures, China could enjoy a 40% share of the U.S. bra market. No need to rush off to Victoria's Secret (LTD ) or Bloomingdale's (FD ) just yet.

And China hasn't got much to gain from a challenge in the WTO. To gain admission in late 2001, it had to agree to extensive economic reform. But it also had to agree to allow the U.S. to impose emergency quotas and tariffs on its exports of clothing and textiles until 2008 in the event of huge export surges to the U.S. In return, Chinese negotiators wisely cut a deal that makes American retaliation essentially meaningless. Any new quota would have to factor in the import surge and add it to the previous quota.

Finally, even if Chinese bras were banned from the U.S., it wouldn't help industry here. Bra production in the U.S. has almost disappeared anyway. Even before the quotas came off on China, foreign manufacturers had captured 85% of the U.S. market in 2001. As trade wars go, this one is already lost.


Magnusson covers trade policy for BusinessWeek in Washington
Edited by Douglas Harbrecht

Victory In Miami?

by Mark Engler

Good news has arrived for people concerned with workers' rights and the state of the environment in the hemisphere: When trade ministers meet in Miami this month to negotiate the Free Trade Area of the Americas (FTAA), their talks will probably fail. Most likely, their conference will produce only a symbolic declaration of intent and will make no real progress. For those of us who will be protesting the talks, this will be cause for celebration. However, it will also present an important challenge for the global justice movement.

The type of resistance that has gained widespread public attention since the 1999 Seattle, Wash., protests against the World Trade Organization (WTO) has gone far in wresting legitimacy from the neoliberal economic policies long imposed on the developing world and in publicizing the harmful impacts of trade pacts, such as the North American Free Trade Agreement (NAFTA). But the FTAA will fail in Miami less because of such outside opposition than because of resistance from the White House. In the past two years, U.S. President George W. Bush and his administration have been inclined to abandon multilateral approaches to trade and development in favor of a newly unmasked nationalist approach to exercising U.S. power abroad. This approach demands a fresh response from social movements resisting imperialism and corporate globalization.

Rise of Economic Nationalism

The term globalization, while remaining imprecise, in many instances has stood as a code word for imperialism, or wealthy countries wielding their power over developing economies for their own benefit. Few progressive observers of trade and development policy would doubt that Washington has carried on a drive to enrich U.S. corporations, usually at the expense of the poor.

It is clear, however, that the Bush administration's attitude toward globalization differs substantially from former President Bill Clinton's. In contrast to Clinton's support of multilateral negotiations, Bush's stance is as a nationalist. This idea should surprise no one after the preemptive war in Iraq.

However, our global justice movement has not widely acknowledged that the administration's fervent unilateral approach extends even into the realm of economic relations.

Meanwhile, the echelon of the elite across the globe has watched Bush's military aggression with uneasiness, fearing that his reckless pursuit of U.S. dominance will endanger the global economic system they constructed in past decades.

This wariness was on full display at the February 2003 World Economic Forum, where gathered business leaders and heads of state speculated about whether they weren't better off with Clinton in the White House. A candid e-mail from Newsday's Laurie Garrett (circulated far more widely than the reporter had intended) explained, "Last year the WEF was a lovefest for America. This year the mood was so ugly that it reminded me of what it felt like to be an American overseas in the Reagan years. ... When Colin Powell gave the speech of his life, trying to win over the non-American delegates [to the Iraq war effort], the sharpest attack on his comments came not from Amnesty International or some Islamic representative -- it came from the head of the largest bank in the Netherlands! ... These WEF folks are freaked out. They see very bad economics ahead, war, and more terrorism. "

In a marked shift from the Clinton era, Bush's economic nationalism has put many of the leading institutions of globalization at risk. The International Monetary Fund (IMF) and World Bank, which served as dominant mechanisms for exercising U.S. power through the 1990s, have been sidelined in the new century. As far back as the 2000 presidential election, analyst Walden Bello, director of Bangkok's Focus on the Global South, foresaw that these two leading promoters of the so-called "Washington Consensus" would face an inhospitable four years under Bush. "The Bretton Woods institutions," Bello wrote, "will lose their liberal internationalist protectors like Treasury Secretary Larry Summers who believe in using the Fund and Bank as central instruments to achieve U.S. foreign economic policy objectives."

Bello expected that the incoming administration would turn to other mechanisms to pursue its foreign policy goals. This proved to be a wise prediction. The White House has maintained a lukewarm relationship with the IMF and World Bank. In an Oct. 15 article in the Financial Times, development insider Jeffrey Sachs described "the IMF's management ... grumbling in private" about the United States' "miserliness" hindering its development schemes. While the Clinton administration was content to channel foreign assistance through these institutions to support its economic policies, the Bush White House has preferred using direct bilateral aid to further its political aims.

When the administration tried to assemble what it called a "coalition of the willing" for the Iraq war, it largely bypassed the multilateral bodies and instead explicitly tied bilateral aid packages to support for U.S. military policy. In a noteworthy example, the United States offered the Turkish government a package of grants and loans worth tens of billions of dollars in exchange for allowing U.S. troops to use Turkey as a launching point for invasion. (Remarkably, Turkey voted against the deal.) The failure of IMF-imposed policies in places such as Argentina and Bolivia, along with an upsurge of public protest and the standoffishness of the White House, has knocked the IMF off the lofty pedestal it occupied not long ago.

Collapse in Cancún

Compared with the IMF and World Bank, the much smaller and relatively more democratic WTO never stood a chance. The WTO's one-vote-per-country structure leaves the United States with far less sway than in the other two institutions, where it holds 17% of the vote and wealthy countries dominate. Unable to effectively force concessions in the WTO environment, the Bush administration has withdrawn. Anyone who was watching on-going trade debates knew well in advance that the most recent WTO talks in Cancún, Mexico, would almost certainly fail; the United States was simply not willing to make the type of compromises -- particularly around agricultural subsidies -- needed to keep the institution afloat. If this fact was not widely advertised amongst global justice activists, it reflects our own failure of reflection and discussion.

In the wake of the WTO talks' collapse in Cancún, U.S. Trade Representative Robert Zoellick declared that the United States would promote smaller regional and bilateral treaties, similar to those that it recently brokered with Chile and Singapore. Expressing his frustration with the so-called "won't-do" nations that held up trade talks in international bodies, Zoellick has vowed to work with "can-do" nations to secure individual trade agreements -- a trade formulation not wholly dissimilar to Bush's military coalition of the willing. Conveniently for U.S. interests, these "can-do" countries are generally smaller nations with little ability to stand up to the demands of a global superpower. A bilateral approach to trade abandons the dream of a uniform, rules-based economic order in which multinational corporations can function freely. Instead, it represents a bare-knuckles approach to promoting U.S. power, even at the expense of European allies.

Where does this leave the FTAA? A few analysts have grouped the FTAA together with the Central America Free Trade Agreement (CAFTA) and the Middle East Free Trade Area as the type of arrangement that the United States will pursue with new vigor as the WTO stagnates. It is more likely that the FTAA will become the next casualty of Bush's economic nationalism. Together with the United States, Brazil serves as one of the co-chairs of the FTAA talks; yet Brazil is one of the countries that forced a stalemate in Cancún. As The Economist recently explained, "Not only are [Brazil and the United States] further apart than ever on the [FTAA] accord's scope and ambition, but they have spent the past few weeks publicly bad-mouthing each other." While Washington's scare tactics have led many of the smaller nations aligned with Brazil to tone down their rhetoric, it seems unlikely that they will accept an FTAA without substantial U.S. concessions. Since those will not be forthcoming, Miami looks like another occasion for deadlock.

How to Respond?

How, then, should global justice activists respond to this new situation?

Some progressives, such as British journalist George Monbiot, now say that they were wrong in opposing international trade bodies. Seeing Bush's new economic nationalism as more coercive and dangerous than the multilateral institutions, Monbiot argues that we should try to hang on to WTO and reform it as "a Fair Trade Organization, whose purpose is to restrain the rich while emancipating the poor."

Global justice advocates, however, do not necessarily have to accept our enemy's enemy as our friend. Activists have several reasons to maintain a principled stand against agreements such as those sought in the WTO and the FTAA.

First of all, it is likely that the United States may return to a Clinton-style approach to globalization in the near future. Many of us who have worked against IMF, World Bank, and WTO policies will also be campaigning whole-heartedly to elect a Democrat in next year's presidential elections. Yet our candidate -- if he is Wesley Clark, John Kerry, John Edwards, or even Howard Dean -- promises to revive a multilateral type program of corporate globalization. These Democrats' vows to include labor and environmental standards in trade agreements closely resemble Clinton's pledges and his Vice President Al Gore's promises, all of which amounted to little in practice. The WTO and the FTAA were designed from their inception to promote the interests of multinational corporations and the economic elite. This makes reforming the agreements a difficult and long-term prospect. Global justice advocates may wisely prefer trying to eliminate the enfeebled multilateral structures rather than to risk their resuscitation as powerful instruments of corporate expansion.

Furthermore, we do not have to assume that Cancún fit nicely into the Bush administration plans. The interesting aspect of the summit was not the WTO negotiations' expected failure, but the manner in which it occurred. When the United States and European countries stonewalled on agricultural issues, countries in the developing world, led by Brazil, China, India, and South Africa, formed the "Group of 20-Plus" (G20+) countries, a negotiating block that formed to defend its members' national interests. Certainly, the G20+ is an ambiguous ally for social movements; many of the G20+ trade ministers represent the elite in their own countries and their objectives do not necessarily coincide with demands of farmers' organizations or union members. For example, even Brazil's socialist president has supported a strategy of trying to open U.S. markets to the South's agricultural exports, while many farmers in the developing world argue they would benefit more from food security strategies that protect their internal markets.

Nevertheless, as Walden Bello argues, the G20+ "is a significant new development that could contribute to altering the global balance of forces. ... The potential of this group was indicated by Celso Amorin, the Brazilian trade minister who has emerged as its spokesman, when he said that it represented over half the world's population and over two-thirds of its farmers. U.S. trade negotiators were right in discerning that the [G20+] represented a resumption of the South's push for a 'new international economic order' in the 1970s." Having resulted in a stern challenge to U.S. hegemony, Cancún may prove damaging not only to the WTO, but also to Bush's economic nationalism. Miami and Beyond

As the global justice movement prepares for the Miami protests, an appreciation of Washington's new approach to foreign policy need not alter our attitude toward multilateral agreements like the FTAA so much as our priorities and our strategies in challenging the global race to the bottom. Since large-scale international treaties will likely be stalled with or without increased activist pressure, we should use our presence at international gatherings to promote a broader set of goals.

Debt cancellation is one topic that could move to the fore of our attention. Success in the past decade at highlighting the devastating impact of developing countries' loan obligations has created a promising climate for forcing real change. With the Bush administration promoting debt forgiveness in Iraq, the United States is poorly positioned to fight against such demands. Further analysis of the developments in the global economy that have influenced Bush's economic nationalism will allow us to put the international debt crisis in a context of larger change and to identify other priority issues.

Moving beyond Miami, we need to prevent the Bush administration from framing its nationalist turn as a program to benefit U.S. workers. Today, globalization is increasingly leading to the loss not only of manufacturing work, but also of white-collar jobs in the United States, in the process dubbed "off-shoring."

Bush may attempt to co-opt this issue in the upcoming election -- to convert anti-corporate resentment into the type of nationalism witnessed in the era of former President Ronald Reagan, when protests against U.S. factory downsizing were channeled into Japan-bashing. Progressives must show that the neo-conservative empire-building favored by the White House is as detrimental to labor rights and living wages worldwide as the administration's domestic policy of weakening unions and giving tax cuts to the rich is to the great majority of U.S. citizens. Devoting energy to the issue of jobs will be an important means for U.S. activists to ground our movement in the economic realities faced by working people.

Part of our challenge in rejecting the pejorative label of "anti-globalization" is to promote our own multilateral agenda -- a brand of globalization based on international solidarity and just exchange or fair trade. This internationalism should affect not only the solutions we promote for job creation, but also our views of trade policy. While opposing coercive arrangements that maximize wealthy countries' ability to leverage concessions from the South, we should highlight poorer countries' efforts to promote inter-regional commerce and to cooperatively develop their internal markets.

An overemphasis on responding to large, multilateral agreements like the WTO and the FTAA as the leading mechanisms of globalization limits our flexibility in rising to the challenge of changing political and economic conditions. With or without the FTAA, the United States will attempt to expand its power abroad. With or without the FTAA, we need to challenge arrangements that place the drive for corporate profit ahead of local protections for workers and the environment. We need to demand an end to forced privatization and to IMF-imposed cuts in social services. And we need to connect the plight of working people in wealthy countries to the struggles of the world's poor. If we continue to be taken by surprise by the Bush administration's economic nationalism, we will lose important opportunities to advance this agenda.

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Mark Engler, a writer and activist based in New York City, is a commentator for Foreign Policy In Focus. He can be reached via the web site http://www.DemocracyUprising.com. Research assistance for this paper was provided by Jason Rowe.

'Free trade' takes increasing hits

Expanding global commerce has long been considered an engine of growth, but job losses at home stir criticism.

By David R. Francis | Staff writer of The Christian Science Monitor

Free trade, long a controversial theme in America's political and economic life, is stirring a new level of contention.

Some Democratic presidential candidates such as Richard Gephardt are winning applause with comments that tap into angst over jobs lost to cheap labor overseas. Public opinion surveys show rising concern about whether America is benefiting from a globalized economy. Even among economists, who generally argue that trade benefits all parties despite its dislocations, the topic has fresh edge.

In an October Christian Science Monitor/TIPP poll, for example, only 43 percent of Americans say free trade is "good for the economy," down from 52 percent when a similar question was asked in May 2002.

In part, such concern reflects the slow job market, which makes many wary of foreign competition. And in part, it reflects the approach of presidential primary elections. But it runs deeper than that.

Free trade, while opening the doors for US exports and helping Americans get low-cost consumer goods, has also shaken entire industries from textiles to cars. Free trade is one of the key factors behind a continuing plunge in the number of US manufacturing jobs - from 19.3 million in 1980 to 17.8 million in 1990 and about 14.6 million today. Now, worries are rising over the outsourcing of service jobs to locations such as India and the Philippines. Many wonder: Can this be good?

Jobs versus growth?

"I see no value from opening these [foreign] markets," says Ben Connolly, a software developer in Newton, Pa. "I don't see us getting more jobs." Married with two children, Mr. Connally was laid off for most of 2000. He blames it partly on the stock market bubble, but adds that "free trade hasn't helped."

In Congress, rising protectionist sentiments have resulted in 10 bills or resolutions attacking China's "unfair" trade practices and "overvalued" currency. None, though, is expected to pass. That reflects a longstanding view that the benefits of trade as an engine of growth outweigh the costs.

Both President Bush and President Clinton before him have pushed for a new round of talks to liberalize world trade. Under President Bush, a round was launched at Doha, Qatar, in 2001.

That round is still alive, despite reports of its demise after a failed ministerial meeting of the World Trade Organization in Cancun in September.

During the eight multilateral, global trade negotiations since World War II, temporary "failures are quite normal," says Robert Z. Lawrence, an economist at Harvard University's Center for International Development in Cambridge, Mass. In this case, "the agenda has been clarified. We will continue the round," he comments.

Indeed, last month the 146-nation World Trade Organization announced another meeting of trade ministers.

One reason for pressing ahead may be that consumers, though fearful of the competition from free trade, welcome its positive side - the cheap goods from China, Taiwan, or other low-cost nations.

Love affair with cheap imports

"Certainly in their buying behavior, Americans suggest they love imports," says Richard Cooper, an economist at Harvard University in Cambridge, Mass.

In fact the Monitor/TIPP survey found that a plurality of respondents believe free trade is beneficial. Still, 70 percent say they at least "sometimes" seek out products that are "Made in the USA."

Moreover, only 16 percent of Americans believe that free trade creates US jobs, while 53 percent saw it as costing the US jobs. Many lament the loss of jobs that

may accompany expanded imports or the location of production in other nations.

Free trade "costs us jobs, but it also keeps prices down," says June Causey, a senior in Jacksonville, Fla. "I'm kinda on the fence about it."

Mr. Cooper holds that just as jobs are lost to imports, jobs are also created by foreign investment and American exports.

A new twist for economic theory

Most economists, including Cooper, maintain that freer trade raises the living standards of most Americans and, for that matter, of people in other countries. But in recent years, criticisms of trade talks have become more nuanced.

Harvard University economist Dani Rodrik notes that various studies find no systematic relationship between a developing country's average level of tariff and nontariff barriers and its subsequent economic growth rate. And most of today's rich countries grew prosperous behind a high level of protective barriers, then started to dismantle those barriers.

Even Mr. Gephardt says he's for free trade but wants the WTO to establish an international minimum wage, different for each country but high enough so that American workers are not competing with slave, sweatshop, and child labor.

Another TIPP survey finding was that 61 percent of those quizzed saw "big business" as having the greatest influence on US trade policy, as opposed to labor unions, foreign governments, or average citizens. "These giant corporations are selling out America," says Lewis Holmes, a retired railway worker in Winchester, Va. "I'm for free trade as long as it's fair. But how can we be trading with China when they undersell everything we do."

Even the pro-free-trade Bush administration is taking China to task. "America's patience is wearing thin," Commerce Secretary Don Evans wrote Wednesday in the Wall Street Journal. He criticized China for a "loss of momentum" in moving toward compliance with its WTO obligations.

Talks may resume - after 2004

As for the Doha round of negotiations, it is expected to take a year or two to get the political commitments in key member nations necessary to launch another high-level negotiating session. By then, the US will have moved through the 2004 presidential election. The European Community will have a new trade commissioner.

One challenge: After several decades of reducing tariffs, today's negotiators face the obstacles that are the most intractable, such as farm subsidies. Also, as developing nations have grown in economic power and influence, WTO talks have become even more complicated - prompting the US and other nations to pursue deals with individual nations or regions.

Of more immediate importance for importers and exporters is the decline in the value of the US dollar, which promises to help US exports. That will have more impact on US trade than almost any negotiated deal, says Frank Vargo of the National Association of Manufacturers.

• Staff writer Amanda Paulson contributed to this article.

ADAM WEISKIND - STAFF SOURCE: CHRISTIAN SCIENCE MONITOR/TIPP POLL, OCT. 6-10

NAFTA's shop-floor impact

Ten years later, the trade deal costs some US jobs but buoys trade and efficiency.

By Kris Axtman | Staff writer of The Christian Science Monitor

NUEVO LAREDO, MEXICO – Inside the spotless Caterpillar plant, men and women quickly take apart used fuel injectors, identify those that can be recycled, and then retrofit them with new parts.

The goal, says plant manager Walt Mazzei, is to do it so well that no one can tell the difference between new and remanufactured - except in price. Listen for a few minutes, and it's impossible to miss Mr. Mazzei's pride in this factory - one of several thousand maquiladoras along the border, which rely on Mexican labor and foreign ownership.

He has reason. Profits at the lean manufacturing plant are growing 20 percent a year. Mazzei credits the plant's workers, who he says can go "toe to toe with any in the US." He pays them about $5 an hour, a quarter of the typical pay in the United States.

Now, on the eve of the 10th anniversary of the North American Free Trade Agreement, many experts say the treaty has cost US jobs, just as critics feared it would. But competition in manufacturing now comes increasingly from 50-cent-an-hour Chinese workers. For this and other reasons, the reality of the deal between the US, Mexico, and Canada is more nuanced than foes or boosters allow.

Yes, US jobs have been lost. But the "giant sucking sound" famously predicted by presidential candidate Ross Perot in 1992 has arguably been more of a whimper. Nor has it created enough jobs in Mexico to stem illegal immigration, as others predicted.

What it has accomplished, without dispute, is increase trade. Commerce between the US and Mexico has nearly tripled in a decade, growing twice as fast as US trade with the rest of the world.

"This increased trade has brought cheaper products and allowed US manufacturers to remain competitive in the world market," says Jorge Gonzalez, chairman of the economics department at Trinity University in San Antonio. "And that is exactly what it was supposed to do. Trade is not an engine for jobs, it's an engine for efficiency."

Most economists do not deny that NAFTA has displaced American workers and devastated entire towns - even as the US economy has added about 2 million jobs a year since 1990. It's evident from the job-training centers in southern Texas to the "NAFTA ghost towns" of North Carolina, with their shuttered textile plants.

The US Department of Labor calculates that about 500,000 jobs - mostly in manufacturing - have been lost to Canada or Mexico since NAFTA was enacted Jan. 1, 1994. Some claim that number is even higher. Robert Scott at the Economic Policy Institute in Washington, for example calculates it at 766,000.

But others say the benefits of NAFTA are unseen. Regardless of how one felt about it during the raucous debates a decade ago, NAFTA's primary benefit for Americans was clear: cheap labor. And today 3,182 plants dot Mexico's countryside.

And as prices for certain goods drop as a result, Americans have more money to spend on other things, thus stimulating the economy. In addition, some workers whose jobs go south are able to retrain for higher-skilled, higher-paid jobs. As Dan Griswold at the Cato Institute's Center for Trade Policy Studies in Washington says, "Trade is not about more jobs or fewer jobs; it's about better jobs, and NAFTA is no exception."

Trade, according to economic theory, allows countries to use their resources more effectively by reducing production in the areas where they are less efficient and increasing it where they are more efficient. This increases the standard of living for everyone, says Dr. Gonzalez. "We've basically taken two economies with vastly different resources and integrated them," he says. "That helps the whole region become more competitive."

But there is still much to be done if NAFTA is to be a success, analysts say. Issues of trucking, immigration, environment, and tariffs on certain agricultural products remain unresolved 10 years later.

In addition, increased competition from China has forced many Mexican maquiladoras to shut their doors. In fact, the number of maquiladoras here has dropped to 1999 levels - in part because of the downturn in the US economy, but also due to the lure of even cheaper labor elsewhere.

That has changed the face of NAFTA workers.Leaning on a massive length of steel, Jim Jackson motions to Mexican engineers studying blueprints at the Cives Steel Plant - one of hundreds of maquiladoras in Nuevo Laredo.

It's highly technical work - raw steel beams are fabricated for building projects in the US - so a third of all workers here have engineering backgrounds, says Mr. Jackson, the plant's general manger. "This is a custom-job shop. Employees have to be able to read and interpret blueprints."

This isn't the assembly-line factory that springs to mind when one hears the word maquiladora. These are skilled workers. Indeed, as more US companies move their unskilled, production-line jobs to Asia, Mexico is being forced in a new direction.

In fact, many economists agree that NAFTA has played a role in helping turn the Mexican economy from a model of centralized protection to decentralized, democratic capitalism. Closely tied to the US economy, it now has one of the most stable and dynamic economies in volatile Latin America.

And that has prompted steady political reform, says Russell Roberts, a professor of economics at George Mason University in Fairfax, Va. "The bottom line is this: NAFTA has caused hardship for some Americans in certain sectors, but it's made for a more stable and integrated Mexican political system - and that's a real good thing for the world."

Protectionism: all talk, no action

Job-saving protectionist proposals are mostly hot air -- and that's a good thing, economists say.

By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Amid the jobless economic recovery in the United States, President Bush and politicians from both major parties are trumpeting protectionist measures they promise will save jobs.

But analysts say these measures are precisely the wrong medicine for the world's largest economy -- and say chances are they won't be passed anyway.

Though the latest recession was declared over in November 2001 by the gurus at the National Bureau for Economic Research, the job market never got the message -- one million jobs have been lost since then. Many of them have gone overseas, as manufacturers and some service providers have taken advantage of low labor costs in places like China, India and the Phillippines.

"Of the 2.7 million jobs lost since employment's peak, roughly a third have been lost to overseas competition, and most if not all of those jobs are not coming back," Mark Zandi, chief economist at Economy.com, told CNNfn Friday. "And that trend is going to continue."

Meanwhile, a weak Chinese currency is often blamed for the continuing deterioration of the U.S. manufacturing sector, by keeping Chinese-made goods cheap relative to U.S.-made goods. And the situation is only getting worse; the Commerce Department said last week that the goods deficit with China grew to a monthly record of $11.7 billion in August.

The low price of manufactured goods from overseas also has pushed inflation lower, raising fears of a potential "deflationary" spiral, in which prices fall, corporate profits sink and the economy suffers.

Election year prompts posturing

As a result, President Bush, up for re-election in 2004, has put pressure on China to float its currency, the yuan, which the Chinese government keeps virtually on par with the dollar.

Democratic presidential candidates have called for tougher labor standards in China and other U.S. trading partners. And several protectionist bills -- such as the Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2003, which would slap tariffs on Chinese imports if China doesn't float its currency -- have been introduced in Congress.

"We simply cannot allow countries like China, to continue their illegal, anti-free market trade practices," Rep. Mark Green (R-Wis.), one of the CHINA Act's sponsors, said at a recent Congressional hearing. "Their practices are costing us jobs."

All of this sort of talk makes economists, who favor free trade, very nervous.

"Protectionist sentiment in a slow-growth economy in the leadup to an election tops our worry list," David Rosenberg, chief North American economist at Merrill Lynch said recently, citing Green's comment and some of the bills floating through Congress.

Economists generally believe that unfettered trade improves living standards around the world, in part by keeping prices low and allowing for the free exchange of ideas and capital.

In a more practical sense, protectionism could impact economic activity in the near term, some economists say. Their fear is that pending bills such as the American Manufacturing Jobs Retention Act of 2003, which would force U.S. employers to keep half their work force in the United States, could undercut corporate profits and lead to even more U.S. layoffs.

"The U.S. body politic is now taking dead aim at China, making it the poster child for the latest outbreak of scapegoatism," Morgan Stanley chief economist Stephen Roach, who has testified before Congress about these issues, said in a recent research note. "The risk is that the blame game won't stop there. America's multinational corporations could well be next in line..."

All talk, no action

Fortunately -- or unfortunately, depending on your perspective -- few of these protectionist measures seem likely to pass, according to many political analysts.

"Are there any real protectionist proposals that have chance of enactment? No," said Greg Valliere, political economist at Charles Schwab Washington Research. "The most negative thing I would say is that the prospects for further trade liberalization are not great, but what we've got in place will stay in place."

For one thing, some of the protectionist measures on the table would violate America's international trade agreements and invite massive retaliation from trading partners, said former Treasury Department official Jeffrey Schott, now a senior fellow at the Institute for International Economics and the author of several books on trade.

"Many of the bills that have been introduced are designed only to send a strong signal, both to our trading partners and to [the president]," Schott said. "Most are not designed to be implemented into law."

What's more, the Bush administration's recent experiment in protectionism, a steel tariff imposed in March 2002, has had only mixed results at best. It may have helped steel producers in Pennsylvania and West Virginia -- states with critical electoral votes for Bush's re-election effort -- but U.S. steel users say they have suffered from it, resulting in thousands of additional job cuts.

"The government should have learned its lesson from steel tariffs -- they were a big disaster," said Matthew Ellis, an economist at Wachovia Securities. "I don't think these protectionist measures will be passed."

Ellis and other economists believe the only right medicine for the U.S. economy and the millions of U.S. workers displaced by the movement of jobs overseas is patience. Though things look bleak now, they say, the U.S. economy has undergone such massive changes before, shifting from agriculture to manufacturing early in the 20th century and from manufacturing to information in the late 20th century.

As painful as those changes were in the short term, they eventually raised standards of living. The key, many economists believe, is to make sure the American work force is well-educated and able to take advantage of the next big shift in the economy.

"To stop globalization would be the exact wrong thing to do; we have to embrace what's happening," said Zandi of Economy.com. "It's in place and will remain in place. We need to help [unemployed workers], make them better trained and skilled so they can get better jobs."

--*Disclaimer

Free trade: True test for the faithful

By Charles Stein, Globe Columnist, 10/12/2003

Like all "isms," capitalism requires a certain leap of faith. You just have to accept the notion that everyone working in his own self-interest will somehow create a more vibrant economy. The leap of faith is particularly large when it comes to free trade. It is hard to see on the face of it how letting the Chinese build our furniture or encouraging Indians to write some of our software will make America a wealthier country in the end.

But that is just the outcome we can expect if we let the market work. That, at least, is the view put forth in a recent report by the McKinsey Global Institute, a think tank associated with the well-known consulting firm. The McKinsey people focused on the outsourcing of service jobs, everything from answering telephones to more sophisticated computer work, to countries such as India and the Philippines. Forrester Research in Cambridge has estimated that by the year 2015, roughly 3.3 million American service jobs will have moved overseas.

McKinsey starts with the obvious: that Americans whose jobs disappear will suffer and that they will need substantial help -- far more than we currently provide -- to make an adjustment to new careers. The pain of free trade is always easy to see. The gains are tougher to identify, but no less real, according to McKinsey. The initial gains will come in the form of cost savings to companies that hire Indian programmers for a fraction of what they would pay American programmers. A portion of those savings will show up as higher profits that can be reinvested; the rest will flow to consumers in the form of lower prices. Farther down the road, the increased prosperity of the economies in India or China will generate extra sales for American exporters. Finally, the displaced American workers will find new jobs. "Far from being bad for the US, `offshoring' creates additional value for the US economy that did not exist before," according to the McKinsey report.

History would seem to be on McKinsey's side. Other jobs, even whole industries, have gone overseas in the past. The production of televisions is one example. Yet over time the American economy expands and new jobs are created. In a recent essay, David Henderson, a researcher with the Hoover Institution, another think tank, put the matter simply. "The history of economic growth is the history of people making more with less and shifting into new jobs that were unheard of in the previous generation," wrote Henderson. Think about it. Could you ever have imagined that anyone would earn a living as a personal trainer?

The job losses also need to be put in perspective. In the 1990s the US economy created more than 30 million jobs. If Forrester is right and roughly 3 million jobs migrate in the next decade, the shift, while painful, should be manageable.

But what if the past isn't a reliable guide to the future? What if this time is different? What if the jobs on the lower end of the ladder disappear and there isn't a new rung for us to climb up to? Or what if there is a higher rung, but relatively few of us have the rarified skills necessary to reach it? Nicholas Perna, a Connecticut economist, considers himself a true believer in free trade, but in the next breath he admits, "This time I have my fingers crossed." Until now, said Perna, America has always retained a comparative advantage in enough industries to compensate for the loss of others. But as the Chinese and Indians become better skilled and educated, will enough industries be left in which the US enjoys a bona fide edge?

In the 1990s, the American economy thrived on openess -- to people, ideas, and investment. "The openness of the US economy and its inherent flexibility are recognized widely as two of its greatest strengths," wrote McKinsey. The economy remains open, but now some of the traffic is flowing in the other direction. I don't think the outsourcing of white-collar jobs will shatter our faith in capitalism, but at a minimum, it will put that faith to the test.

Charles Stein is a Globe columnist. He can be reached at stein@globe.com.

The rich world's disappearing jobs

By John Berthelsen and Indrajit Basu

If the North American Free Trade Act passes, "you will hear a giant sucking sound of jobs going south of the border". - H Ross Perot, 1992

In the developed world and particularly in the United States, the scope of jobs disappearing overseas is widening beyond all imagining, to professions that almost nobody expected to be hit, and with far higher incomes than anybody thought possible as globalization bonds with the law of unintended consequences.

The catalyst is the Internet. As instant communication becomes more ubiquitous, the developed world's white-collar professions, from CAD/CAM (computer-aided design/computer-aided manufacturing) to accounting to medicine to architecture to aircraft design to research and development to engineering to equity research and financial management to knowledge management to revenue-cycle management - a whole panorama of high-income employment - are inexorably going.

The impact on American and European society is inevitably going to be far more profound than almost anyone understands today. It is already responsible for major positive changes in the living standards of the middle class in other parts of the world.

The United States currently accounts for as much as 70 percent of the world's "outsourcing", as it is called, or sometimes offshoring. McKinsey & Co, the international consulting firm, projects that the flight of jobs offshore to developing countries will grow by 30-40 percent a year over the next five years. By the highest estimates, as many as a million jobs have disappeared overseas from the US job market since the current economic slowdown began in 2000 and could represent a major reason for the struggle the US economy is undergoing to right itself.

McKinsey puts the number lost from the United States at a much lower 400,000 today, but expects it to grow to as many as 3.3 million by 2015. The business-consulting firm A T Kearney Inc projects that half a million jobs, or 8 percent of total employment by banks, brokerage houses and insurance companies, will go overseas within five years.

But to show how extensive the phenomenon can be, consider some of the more unlikely developments over the last three months:

India is emerging as the health-care destination of choice for an increasing number of surgery candidates, with more than 60,000 foreign patients from 34 countries treated in its top-flight Apollo Hospitals chain in the past decade. A delegation of Indian doctors was recently invited to London to brief British Prime Minister Tony Blair's medical advisers on flying surgery patients from the United Kingdom to Mumbai and or New Delhi for operative and post-operative care, allowing them to recuperate, and flying them back to the UK far cheaper than treating them at home. Routine cardiac surgery at the best hospitals in India costs about US$35,000, with a success rate of 98.5 percent, compared with about $150,000 in the United States. For more complicated problems that cost far more than that, cost differentials are anywhere from 200 percent to 500 percent to off the chart. And India is not alone; breast implants in Thailand from top-flight cosmetic surgeons cost as little as 50,000 baht ($1,260) compared with a median price of about $5,000 in the United States.

Fifteen global car makers, including General Motors, Ford, DaimlerChrysler, Audi, Isuzu and Nissan, have set up design offices in India with a combined budget of $1.5 billion to outsource auto design. Industry estimates are that the cost of auto design in Europe's exclusive Pininfarina and Bertone design houses run as high as $800 an hour, while low-cost designers in Bangalore can do lower-level design for $60 an hour.

India's government is in the process of liberalizing its accounting rules under continuing World Trade Organization (WTO) negotiations on services. In a move being closely watched by the Big Four accounting firms - PriceWaterhouseCoopers, Ernst and Young, KMPG, and Deloitte Touche and Tomatsu - accounting, bookkeeping and auditing services are to be opened to overseas competition by the end of next year. Indian firms are to be given reciprocal market access abroad. Indian accounting costs are a fraction of those in the United States.

Fashion design is a fast-growing field in Vietnam and India; 350 domestic and international buyers came to Mumbai to look at India's fledgling clothing fashion designs in a glitz-filled week in July. Designer Rophit Bal is working with putative tennis star Anna Kournikova. Ritu Beri is showing in Paris. Tarin Tahiliani has been featured in New York's Fashion Week and is booked for a show in Milan, the heart of Europe's fashion industry.

The US Department of Education estimates that the United States will need an additional 2.2 million teachers over the next decade. The Executive Recruiters Association, the representative body of recruitment agencies in India, is urging the Indian government to appeal to the WTO seeking an end to what they consider to be restrictive trade practices in the teaching professions and allow more Indian teachers into the US. Indian teachers, with excellent English-language skills, would find an annual salary of $35,000 an enormous amount of money. There are already some school districts from Texas said to be recruiting in India.

This article concentrates mainly on India and is only a small specific sample of the developed-world jobs and services that are in the process of disappearing overseas. Canada, Ireland and Israel, with large English-speaking populations, are also particularly attractive to Western firms, primarily because English is widely spoken, and well. But in other countries such as India, the Philippines, South Africa, Ghana and Sri Lanka, English is also widely spoken, and well, and costs are minuscule. Russia, with its well-educated tech professions, is also a destination.

"Anywhere you have social and economic growth, any of the Third World countries are wonderful opportunities to set up services platforms. You can pretty much follow where the British Empire went," Marc Liebman, president of Everest Group, an outsource consulting firm in Dallas, told Asia Times Online. "They left strong business and physical infrastructure behind them."

In a stunningly prophetic article, Frances Cairncross, a senior editor at The Economist, wrote in 1993 that the communications revolution had wrought what she called "the death of distance". In that article, she posited that there had been three profound transport revolutions since the 19th century, the first when the arrival of steam initiated a steep fall in the cost of moving goods. The second came in the 20th century, when the cost of transporting people fell to the point where vast migrations across borders brought tens of millions of immigrants from old Europe to the Americas, and since has resulted in massive movements of economic refugees from the poor countries to the rich ones.

The third revolution, Cairncross wrote, would dominate the first half of the current century. It is the diminishing cost of transporting information. Her vision has come true even faster than she thought. Because of fiber-optic cable, satellites and digital compression, the transport of information can be basically free. The enormous charges for personal calls on telephone lines across the Atlantic or the Pacific are virtually all gravy. Once the satellite or the cable is in place and the capital expenses are paid, there is no expense. Companies with their own transponders on satellites have lowered their costs dramatically.

Thus it is possible, for instance, for Fidelity Investments to put its call centers in Ireland. It is increasingly probable that a call to any repair service or help line will be routed not to the Midwestern United States but overseas to the Philippines, Ireland, India or any one of a half-dozen other locations. Indian schools are training prospective employees to speak in American accents. Back-office processing such as accounts receivable and payable, claims processing, revenue collection and passenger management are not going to be done in the United States anymore.

JP Morgan Chase, the investment-banking firm, said it plans to move some of the work of preparing stock-market research reports to India. The Financial Times of London has more than 100 such analysts in Manila, entering data from company reports all over Asia into computers, so the information can be sold as databases for investment banks at a fraction of the cost the banks would have to pay their own people.

"What we went through 10-15 years ago with manufacturing and blue-collar jobs, we are now about to go through with white-collar jobs," said Michel Jenssen, president of supplier solutions for the Dallas-based Everest offshore consulting group. "It still takes three to six months to ship manufacturing components offshore, less if you can send by air. But with services, with telecommunications technology, movement is now measured in milliseconds. You can move the work around, you can scan images, you can move workflow to India with no more difficulty than you move it from the San Francisco Bay Area to Texas."

It is possible, as Vivek Agrawal, who led a McKinsey team studying the issue of offshoring and wrote a report titled "Offshoring: Is It a Win-Win Game?" said in an interview recently with Asia Times Online, that the departure of these jobs is healthy for American society. It frees up capital and labor for more rewarding, or productive, or effective jobs, Agrawal says. A JP Morgan Chase spokesman told reporters recently that moving market research preparation to India would get rid of number-crunching, freeing its US staff to focus on higher-level financial analysis and spending more time with customers. But it is hard to figure out what jobs are more rewarding or productive or high-end, for instance, than thoracic surgery or architectural design, or what jobs can replace them in the developed world.

Agrawal describes most of the information-technology (IT) jobs headed offshore as relatively low-skilled. If Indians or Pakistanis or other nationalities can do the really high-skilled jobs, he says, it is much more likely that they would obtain visas to move to the United States and do the jobs here - although the US government, on October 1, cut the quota for so-called H1-B visas for skilled workers from 195,000 to 65,000. The effect of that cut is most likely to be that US employers, unable to find people to do the jobs here, will take the jobs to where the workers are - and pay them lots less, thus losing the multiplier effect of their paychecks in the United States (see H1-B visas: US gets it wrong again ).

The loss of these jobs overseas is also probably going to affect developed-world inflation. The investment bank ABN-AMRO, in an October 3 analysis of the US economy, wrote that while a cyclical rebound in economic activity is forecast for late 2003, "this rebound will not produce the typical firming in underlying inflation that influenced monetary-policy decisions and the interest-rate outlook in previous recoveries".

That is at least partly because, while US Federal Reserve chairman Alan Greenspan has been given credit for keeping inflation in check in the United States over the past decade, it is equally likely that it has been due to outsourcing and offshoring. Inflation classically starts to pick up as households increase consumption spending and firms increase investment spending. That tightens the labor market, which in turn means that labor can pick and choose between jobs, and for many jobs there aren't enough workers. Workers had the luxury of going on strike to demand higher pay.

But since manufacturing jobs first began to go offshore with the assembly of consumer products in the 1950s, workers from auto plants to steel mills to the panoply of America's rust-belt industries discovered that going on strike to demand higher pay meant their jobs could disappear, first to Japan, then to South Korea and Taiwan, then to the Southeast Asian countries, and then all over the world.

Now, ominously, that is beginning to happen to the middle class as Cairncross's thesis on the death of distance starts to prove out. What happens if, for instance, US health-insurance providers cotton to the fact that an unwilling Joe Bloggs could be flown to Honduras, say, to have his gall-bladder surgery, and that his airplane fare (charter, of course, to take a planeload of surgery patients at a time) and lodging could cost half or a tenth what it costs at Sinai Mercy Omni-Surgery in Middletown, USA? The insurance company, like the British National Healthcare Service, would contemplate that the out-of-control cost of medical care in the United States is going to stabilize, no matter how much Mr Bloggs would prefer to have his gall bladder incised at home - especially if their pharmaceutical costs descend as well.

And they well could. In August, the multinational pharmaceutical companies struck a deal with the WTO to create a loophole that allows the neediest countries to override patents on expensive drugs and order cheaper copies from generic manufacturers in exchange for a small payment. A combination of AIDS drugs that in the United States costs $14,000 per patient per year can be delivered for a small fraction of that amount.

Indian pharmaceutical companies, for instance, are producing generics for many pharmaceuticals at pennies on the dollar compared with the cost in the United States. Even today, hordes of US consumers go to the Mexican and Canadian borders to buy their prescription drugs.

Americans, and later Europeans, watched with equanimity starting in the 1950s when manufacturing jobs started to disappear into low-cost factories in Asia. Only the workers who had filled these emptying factories and the labor unions who represented them railed against the loss of jobs. Nonetheless, while in 1950 about 35 percent of America's labor force were engaged in manufacturing, that figure has fallen to about 12.5 percent today.

McKinsey analyst Agrawal and the team that wrote the study argue that offshoring is not particularly bad for the United States because at least 70 percent of US jobs are in services that are produced and consumed locally.

"We would argue that not only is the US fully capable of withstanding these changes, as it will be able to create jobs faster than offshoring eliminates them, but that the current debate misses the point entirely." The point is, McKinsey says, that offshoring creates wealth for US companies and consumers and therefore for the US as a whole and is "just one more example of the innovation that keeps US companies at the leading edge of competitiveness across multiple sectors".

Indeed. It's great for companies. McKinsey estimates that management jobs moving offshore will rise from zero in 2000 to 288,281 by 2015. Business jobs will rise from 10,787 to 328,281. Computer jobs going offshore will rise from 27,171 in 2000 to 472,632 in 2015. Office jobs - the back-shop data-entry jobs that consist of keying in data - already projected at nearly 590,000 by 2005, will skyrocket to 1.66 million by 2015.

Ironically, many of the disappearing jobs owe their departure to H Ross Perot, the failed US presidential candidate whose "giant sucking sound" quote started this article and which continues to reverberate across the United States today.

The five biggest outsourcing consulting companies in the US today are in Dallas, Texas. Asked why, Marc Liebman of Everest said, "Because Ross Perot was here." Perot, first with his company EDS and later with Perot Systems Corp, pioneered data transfer and became a worldwide provider of outsourced IT services.

According to BusinessWorld, an Indian publication, Perot Systems in 1999 entered a 50 percent joint venture with HCL Technologies of India to create HCL Perot Systems to handle billing and claims for health care companies in the United States. It is a pioneer in outsourcing data overseas to cheaper labor for major corporations.

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