Obama and McCain diverge on globalized trade

Ohio has taken some of the worst hits from global economic competition. But look here, also, to see the gains that come from international trade.

What’s most obvious is the pain.

Once-mighty industrial cities have lost many jobs to other nations. And here, far from Mexico, the mid-1990s North American Free Trade Agreement remains a burning political issue.
Kevin Reilley, however, is witnessing the positive side of globalization.

As manager of operations at Columbia Chemical Corp., he’s responding to rising demand for zinc-plating materials from China, Vietnam, and Brazil. After growing from 25 employees in 2005 to about 40 today, the company has just moved into a new, larger headquarters – a tribute to growing exports that are also benefiting the whole state.

Ohio’s experience hints at why trade is an important piece of the presidential campaign puzzle – especially in a state the GOP has always needed to win the White House and where Barak Obama is inching ahead in the most recent polls.

It’s not just a matter of jobs gained or lost. Trade policy also affects the price of mangoes, or even mortgages, and the pace at which living standards rise. And with the economy struggling, many voters feel an elevated anxiety about globalization.

“Where you have a lot of uncertainty in the economy ... people tend to be more risk averse and want stability,” says Robert Atkinson, an economist who heads the Information Technology and Innovation Foundation, a research group in Washington. “You can have the illusion that you can get stability by reducing or restricting globalization.”

Such a retreat is an illusion, in his view, for several reasons. First, an outright pullback from globalization isn’t likely to occur, given the way that trade ties have deepened in recent decades. Just as important, much of the economy’s instability is driven by technological change, not competition with low-wage workers in China.

Help wanted for US workers

Neither Republican John McCain nor Democrat Barack Obama is calling for a pullback from trade. In response to public worries, both men support the idea of more federal help for workers who lose jobs due to foreign competition.

But that still leaves big questions – and important differences between them – about what policy tack to take.

Senator McCain hews closely to the traditional “free trade” doctrine that the US wins, despite any upheavals, when it leads the way toward more global commerce. That may sound like four more years of President Bush, but it’s also a view championed at other times by the likes of Bill Clinton and Franklin Roosevelt.

Senator Obama has aligned himself with the goal of “fair trade” espoused by many labor unions and others worried about globalization’s impact.

He urges tougher enforcement of existing trade laws. He’s skeptical of new trade-promotion treaties unless they contain labor and environmental standards on imported goods – provisions intended partly to level the playing field for US workers against rivals in Asia and elsewhere. Obama also voices support for renegotiating NAFTA with those same goals in mind.
To critics, Obama’s trade philosophy would undercut America’s leadership role at a time when global trade talks have already been floundering.

To supporters, Obama’s policies represent a long-overdue effort to stand up for American workers and US-based production, while stopping well short of narrow-minded protectionism.
Many voters in Ohio want to see that tougher line.

“I believe in free trade when it’s fair,” says James Ciomek, a union steelworker in Cleveland.
His own work is steady right now, and the mill he works at is busy on this day with production bound for Brazil.

But statewide, one-quarter of Ohio’s 1 million manufacturing jobs as of 1998 had disappeared by this summer.

Mr. Ciomek thanks Mr. Bush’s brief imposition of steel tariffs in 2001 (a response to alleged unfair practices by foreign producers) for helping to revive the US steel industry.

But in his community, he says, workers’ wages aren’t keeping up with inflation, and often “there’s just a threat in the back of people’s minds” that their jobs could be the next to move offshore.

One reason for the wage stagnation, he says, is treaties that have promoted trade without looking after the rights of workers.

‘Buy American’

Ciomek says he tries to buy American goods whenever he can. Recently, when he was teaching his granddaughter to shop for groceries, he was frustrated when she successfully found garlic ... grown in China.

“I’d love to see a store called ‘Made in US,’ ” he says.

Such frustrations are shared by many voters across the country.

In an early August CBS News poll, 62 percent of American adults said the economic rise of nations like China and India has been “bad” for the US economy, while 14 percent said it had been “good.”

In CNN polls, Americans shifted from neutral last October to slightly pessimistic this June on the question of whether trade is an opportunity or a threat to the nation’s economy.

By their Senate records, the choice between McCain and Obama on this issue is clear-cut. McCain and Obama have been on opposite sides of some key Senate votes on trade.
Economists generally line up in the McCain camp on this issue, warning that if the United States were to lead the world down a path of trade disputes and protectionism, growth and prosperity would take a hit.

“Trade is one of the bright spots for the US economy right now,” says Daniel Griswold, a trade expert at the libertarian Cato Institute in Washington. “Exports are booming,” he says, while “access to global markets has helped keep prices [for US consumers] down.”

Integration with the global economy brings not just goods but also new technologies that make American workers more productive. Moreover, when foreign companies cross borders to invest in the US, it can create or preserve jobs. The steel mill where Ciomek works, for example, has been running for decades but is now owned by Luxembourg-based Arcelor-Mittal.

For Columbia Chemical, just outside Cleveland, exports now outstrip domestic sales, accounting for 60 percent of business. This year, even with US sales down, the company’s overall sales are up thanks to those emerging markets abroad, says Mr. Reilley, who is vice president.

The chemicals are used in zinc-plating metal parts for a range of products, from real automobiles to toy ones of the Hot Wheels variety.

“We want to be able to sell our products all over the world, and buy products all over the world,” says Reilley. “I hope that [policymakers] allow us to continue to do that.”

Like much US manufacturing, the operation here is not very labor intensive. In this case, only a minority of Columbia’s workforce is in production jobs. Others are technicians and engineers developing products or ensuring quality control.

But businesses such as this one add up to a lot of sales. US manufactured output has never been higher, and goods exports reached a record $1.7 trillion in 2007.

Imports, of course, are much larger. The last year that exports outweighed imports in the accounts kept by the Commerce Department was 1975.

But Mr. Griswold warns against the temptation to see another nation’s gain as America’s loss.
“It’s not a zero sum game,” he says. “We will prosper even more as consumers and workers around the world raise their incomes.”

If America has sound domestic policies, that will keep US living standards rising, he says. “We shouldn’t worry about the rest of the world catching up. This is profoundly in our interest .... We’re creating a global middle class. It’s reducing poverty around the world. It’s tying nations closer together ... which provides more stability and peace.”

Those nations, in turn, will buy more US goods and services.

But trade experts also say the decisions facing America are trivialized if reduced simply to a choice between “free trade” versus getting tougher on nations such as China.

Among the concerns some voice:

•America is competing with other nations to attract high-value industries and jobs, often against nations that violate current trade rules. The US retains high-tech leadership, but that lead cannot be taken for granted.

•As part of a huge global labor market, many Americans have seen downward pressure on wages. Although economists haven’t agreed on how to gauge the scale of this problem, it’s seen as one reason US incomes aren’t rising as fast as worker productivity.

•Service jobs as well as manufacturing jobs are increasingly subject to global competition. The “safe” service jobs today are ones that require direct human contact.

•However big its benefits, free trade depends in a democratic nation on the support of voters. So public attitudes matter, and concerns such as wage inequality may require new policies.
“We have to dramatically strengthen trade enforcement,” says Mr. Atkinson in Washington. “You don’t get political support for market opening [with other nations] until you have a better sense of trust ... that we’re not being played for suckers.”

It’s fine for China to be investing in world-class research universities, he says. To the degree that they become pioneers, their efforts should benefit the whole world. But he urges a battle against policies – in China and elsewhere – such as illegal export subsidies and intellectual property theft.

He also sees a structural problem in the global economy now, with too many nations relying on exports as their key strategy for growth.

That, coupled with America’s low internal savings rates, has helped to create gaping annual trade deficits.

Ultimately, such deficits are unsustainable, many economists say. A global rebalancing is needed, with many nations doing more to nurture domestic demand, while the US expands its export prowess, they add.

Part of the answer, Atkinson says, is not what other countries do but what the US does to stay competitive: national innovation policies such as tax incentives for corporate research, public-private research partnerships, and cultivating a high-skill workforce. Both McCain and Obama have some policies along these lines. Atkinson says he’d like some items from each campaign implemented, plus more.

Americans of all ages know something of the stakes and the challenges. Middle-aged auto workers have seen round after round of job cuts. In Toledo, long a center for auto parts and glassware, young people know that a factory job is no longer the ticket to a middle-class lifestyle – at least not on a high school education.

Aaron Hudson, a student at Owens Technical College in Toledo, is among those opting for a career choice that’s not heavily exposed to foreign competition.

After working in fast-food jobs, he’s looking for a solid career and is studying to go into physical therapy. “I want something ... that only I can do,” he says. “Human contact ... will never be erased.”

As he ponders whom to vote for, the economy is his top concern. For him, it’s important that America remain a global symbol of free choice and openness. But he doesn’t want that to mean that American factories get run out of business.

“We need to get some more pride,” he says. “Made in the U.S.A. You don’t hear that anymore.”