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IMPORTING GOODS, EXPORTING JOBS
WASHINGTON HAS OPENED WIDE THE DOORS OF AMERICA, THE
WORLD'S MOST LUCRATIVE CONSUMER MARKET, TO FOREIGN
PRODUCTS, WITHOUT ADEQUATELY SAFEGUARDING AMERICAN JOBS.
By Donald L. Barlett and James B. Steele, INQUIRER STAFF WRITERS
ASK A PRESIDENT of the United States how to create good jobs for American workers. He will say: exports.
That's what Bill Clinton says, and what every president before him, Republican and Democrat, has said for 30 years and more.
"Every time we sell $1 billion of American products and services overseas, we create about 20,000 jobs" at home. That's Clinton in 1993.
"Each additional billion dollars in exports creates nearly 20,000 new jobs
here in the United States." That's George Bush, in 1991.
"Every billion dollars by which we increase exports, one hundred thousand new jobs will be created." That's Lyndon B. Johnson, in 1964, when a billion dollars went a little further.
It has become an enduring article of faith in Washington: If U.S. manufacturers can sell more goods through unrestricted global trade, the American factory worker will have a bright and secure future.
Just one problem: It doesn't work.
For the last 30 years Washington has marched steadily in the direction of "free trade" - and the American worker has just as steadily lost ground.
Blue-collar wages have eroded; good-paying manufacturing jobs, once the mainstay of the middle class, have dwindled. America is moving toward a two-class society of have-mores and have-lesses.
The problem with Washington's free-trade-equals-jobs formula is that it ignores the other half of the equation - the negative impact of imports.
For if $1 billion in exports creates 20,000 jobs, then $1 billion in imports eliminates a like number.
That's the minus of free trade.
And under Washington's open-door policy, imports have far outpaced U.S. exports. America is creating jobs, all right - in Malaysia, Taiwan, Honduras, Japan and China.
In all the presidents' statements extolling global trade, you'd be hard-pressed to find the number of American jobs lost because of imports. And no wonder:
Since 1979, 2.6 million manufacturing jobs have been eliminated.
That's equal to the entire workforce of the state of Maryland.
In the last two decades, Washington policymakers have thrown open the doors of the world's most lucrative consumer market to foreign products without adequate regard for the consequences - either for American workers or for the long-term health of American industry.
While the dropping of most U.S. tariffs on imports has meant big profits for big companies, it has been a disaster for American workers, their families and many small businesses.
Not that exports didn't account for new jobs. They did. From 1980 to 1995, the value of exports more than doubled. They went from $224 billion a year in 1980 to $576 billion in 1995, creating millions of jobs. But they were swamped by imports, which tripled, to $749 billion in 1995, wiping out millions more jobs.
In the global economy, U.S. corporations with operations around the world find it far more profitable to manufacture in low-wage countries than at home. Instead of exporting products made by U.S. workers, they increasingly employ workers in other countries to make products for foreign markets.
Today, many U.S.-based multinational companies, with operations abroad, have barely a nodding acquaintance with the word export.
General Motors Corp., the world's largest automaker, says it shipped 95,000 cars and trucks abroad from the United States in 1995 - or just 2 percent of the 4.3 million vehicles GM made here. The rest of its worldwide sales were of vehicles made overseas.
Ford Motor Co., the world's third-largest car and truck maker, says it shipped 104,000 cars and trucks abroad in 1995 - or 3 percent of the 3.45 million vehicles it made in the United States.
Indeed, a vast number of familiar "American" brand names now are produced elsewhere and imported into this country.
Take Colgate-Palmolive Co., the giant household products company.
The cover of its 1994 annual report to stockholders sums up Colgate's goals: "GLOBAL BRANDS; GLOBAL INVESTMENT; GLOBAL GROWTH."
From modest beginnings, peddling candles on Wall Street in 1806, the New York-based company has expanded so much that it now sells toothpaste, soap, shampoo and other products in nearly 200 countries. More than 70 percent of Colgate's $8 billion in annual sales comes from outside the United States.
That should mean plenty of exports and thousands of export-generated American jobs, right?
Wrong.
Lynne and Ed Tevis can tell you why.
One day in 1985, Colgate-Palmolive announced plans to close the factory in Jersey City, N.J., where they worked. The Tevises could consider themselves fortunate, though, because Colgate was going to keep them on.
True, they would have to move halfway across the country to Kansas City, Kan., where a small part of the Jersey City operation was to be transferred as part of a "restructuring." Unlike most corporate executives who relocate, they would have to pay for the move out of their own pockets. That would cost $5,000 to $10,000.
But the Tevises each had been with Colgate for 12 years. And while 1,200 others at the Jersey City plant were laid off, the Tevises were among the 80 or so families who had made the cut. So they sold their home, uprooted their family, and left relatives and friends behind to move 1,200 miles west to an area they had never seen.
They reasoned that the short-term upheaval and expense would be worth the long-term security of remaining with Colgate, where they had accumulated pension credits and other benefits. All they would lose, they were told, was their seniority.
Job security: That's what the Tevises prized most. Ed, then 50, had 12 years to go until retirement, so his wife had asked a midlevel manager in Kansas City how safe their jobs would be there.
"He reassured us about moving," she said. "He told us, 'Your husband will definitely retire from here.' He was less certain about me because I was younger. He said, 'Nobody knows what's down the road 20 years in the future, but more than likely you will retire from here, too.' So we came out here based on that."
Less than two years after they arrived in Kansas City, the Tevises were thrown out of work.
The reason? Another Colgate "restructuring." From 800 employees in 1988, the Kansas City workforce would be reduced to about 200.
The first group laid off included many new arrivals from Jersey City who had relinquished their seniority. Some had worked for Colgate more than 20 years, but that counted for nothing.
Meanwhile, as the company was thinning out its American workforce, it was hiring by the thousands overseas, where it could pay far lower wages.
Look at the people who make Colgate products today - and remember the Tevises and their futile trek to Kansas City.
From 1980 to 1996, a total of 15,390 Colgate workers in the United States lost their jobs. The company cut its domestic workforce from 21,800 to 6,410.
During that time, Colgate added 4,490 workers overseas, bringing employment in foreign countries to 30,890.
In short, the number of workers on Colgate's U.S. payroll plunged 71 percent while the number on its foreign payroll went up 17 percent.
Looked at another way, U.S. workers accounted for 45 percent of Colgate's total workforce in 1980. By 1996, U.S. workers accounted for just 17 percent.
If Colgate's American employees are faring none too well, the company itself is doing quite nicely, thank you. In the decade from 1986 to 1995, while Colgate was cutting its U.S. workforce:
- Dividends paid to holders of common stock went up 159 percent, from 68 cents to $1.76 a share.
- The stock price shot up 244 percent, from $20.44 a share to $70.25.
- And profits soared 371 percent, from $115 million to $541 million, before a restructuring charge.
While it may seem strange to regard Colgate as a predominantly foreign manufacturer, consider this Customs Service list of products and materials the company imported over a six-month period:
Toothbrushes from Colombia and South Africa. Cashmere Bouquet soap from India and Guatemala. Dental cream from Panama. Cleaning products from Mexico. Household products from Barbados and Costa Rica. Dental floss from the United Kingdom. Perfumes from Guyana. Powder puffs and pads from China. Packaging material from El Salvador.
And what did Colgate manufacture in the United States for sale abroad?
When the question was posed to a Colgate public affairs officer, she said she would contact the appropriate company official for an answer. After two weeks passed without a response, an Inquirer reporter who asked about the status of the inquiry was told:
"It was kind of lost in the shuffle. I think the reason no one got back to me was we're a multinational company with operations on the ground in many, many countries. That's probably why I was unable to get [an answer]."
As is increasingly the case with foreign trade by U.S. multinationals, the flow of Colgate goods is largely in one direction. The company manufactures products abroad and ships them into this country, but it makes little here for sale overseas.
Indeed, that applies even for Colgate products sold in neighboring Mexico. As the company put it with great pride in its 1994 annual report: "Virtually all the products we sell in Mexico are made there and do not have to be imported from the U.S.A."
That so many of the imports that kill American jobs are made by U.S. multinationals such as Colgate, which once manufactured most of their products here, is a grim irony. It was particularly grim for the small band of Colgate workers from Jersey City who demonstrated faith in their employer and trooped out to Kansas City, there to be fired.
"A lot of families were destroyed by what happened," said Terry Darago, who relocated with her husband, Stanley, a Colgate worker. "People split up. People got divorced. Some people had to sell their houses. Others had their cars repossessed. People struggled. They didn't have the income anymore."
Stanley Darago was out of work five years before he found another steady job. The family squeaked by only because Terry was employed. She was a Midwest manager of General Binding Corp., a global manufacturer and marketer of business machines and related supplies.
A year after Stanley Darago found work again, though, his wife's company also restructured and eliminated her job. She could have accepted a position elsewhere with General Binding, but she, her husband and 15-year-old son would have had to move yet again.
"So I decided to go back to school," she said. "I'm studying to be a nurse. Three months I'm back in school and I wonder, am I doing the right thing? I've got so long to go before I become a nurse and build up the tenure and experience to bring me back to the level of income I was making."
She chose nursing because she felt the future was uncertain with most large corporations.
"I wondered, what are the odds of me going to work for another company in corporate America and once I'm in my early 50s, winding up in the same boat I'm in now," Terry Darago said. "Then where do I head after I've dedicated another 10 years to another company?"
As for her husband, he has suffered the kind of economic setback that is typical of blue-collar workers whose jobs are abolished.
Stanley Darago made about $15 an hour at Colgate, not including overtime, which was often plentiful. Today, working the production line for a food-processing company, he earns $11.60 an hour, about 23 percent less than he made eight years ago.
The story of lower earnings is much the same for other former Colgate employees in Kansas City. Ed Tevis has had three jobs since Colgate - the first for a glass-cutting company, which later closed; the second for a pharmaceutical maker, where he was laid off. He now is a production worker for a bottle maker.
Lynne Tevis went back to school and learned secretarial and bookkeeping skills. She briefly kept the books for a health-care company until the firm closed the office. She has not worked since, and in the spring of 1996, Lynne, 40, gave birth to her third child, a girl.
Gus Tillman, a pipefitter who also transferred from Jersey City, was actually laid off twice by Colgate. The first time came in 1989, when his two daughters were in college. He found a job as a welder. Colgate hired him back in 1992, only to lay him off again in 1994 - permanently. He now repairs freight cars for the Union Pacific railroad at $12 an hour, or about two-thirds of what he earned at Colgate.
"What do they [corporations] expect people to do?" Tillman asks. "I know productivity at Colgate has risen. I know at one time that was their major complaint. Well, productivity went up to the standard they wanted and they still are not satisfied. So I don't know what else people can do.
"That's the part that gets you. I was told by one of my supervisors - 'It's not about work. What you do. They just want the profit.' "
For Darago, the Tevises and Tillman, Colgate's transformation into a global corporation has meant this:
The more the company sells abroad, the less it makes at home; the more money it spends overseas, the less it invests in the United States; the more money that goes to shareholders, the less that goes to employees; and the more plants it closes, the fewer jobs there are to be had.
In that, Colgate is representative of what is happening across much of corporate America.
THE NEW MATH OF FREE TRADE
To better understand the magnitude of the problem, let's return to those presidential job projections - the estimates that every $1 billion in exports creates 20,000 jobs.
And the way to encourage export sales, according to Washington and Wall Street proponents, is through "free trade": Every nation agrees to lower the tariffs that make imported products so expensive. Nations no longer protect their key industries by keeping out rival products made by foreign competitors. Industries are free to grow worldwide, limited only by the quality of what they produce.
Free trade produces exports, which produce jobs - that's the mantra recited by big business and big government.
But look at the numbers:
If the Johnson-Bush-Clinton figures were the whole story, the United States today would be awash in manufacturing jobs. That clearly isn't the case.
Consider what has happened since 1979, the peak year for manufacturing employment. The United States exported $184 billion worth of goods that year. By 1995, exports had climbed to $576 billion a year. According to presidential arithmetic, that should have created nearly 8 million new jobs.
In fact, manufacturing jobs went down, falling from 21 million in 1979 to 18.4 million in 1995. That was a loss of 2.6 million jobs - not a gain of nearly 8 million.
One reason for the drop: Since 1979, the United States has run up a merchandise trade deficit of $1.7 trillion - meaning Americans have bought that much more in foreign-made televisions, computers, clothing, autos and other products than we have sold abroad.
Not all of the job loss was due to imports, of course. Technologies change, productivity improves, old industries die, new ones take their place. But in the past, the number of jobs created by new technologies traditionally went up - until the trade deficit began to soar.
The job loss actually was much worse than the figures suggest, because the numbers were falling while the workforce was growing by 26.8 million. In 1979, 23.4 percent of American workers were in manufacturing; by 1995, it was down to 15.8 percent.
So the solution is obvious, you say: Control imports. Bring imports and exports into better balance.
Exactly.
You might call that "fair trade."
In other words, you don't close your borders to my products, and I won't close mine to you. But if you do choose to block certain imports - computer chips, let's say - in order to protect a key industry, then you balance the account by buying more of another product from me - cars, let's say.
Free-traders oppose restraints. They argue that any restrictions the United States might place on imports would bring on retaliation - that countries would close their borders to our products. The free-traders, who want the government to stand back and let market forces play out, have defined the debate. And their views have prevailed.
On the issue of trade, there has been no middle ground. Washington, Wall Street and much of the media have cast it in either/or terms: Either it's wide-open, unfettered imports or it's a wall around Fortress America.
Other nations haven't taken such a radical position. They've kept some barriers to protect their workers and their most important industries.
Thus, Germany limits imports of cars from Japan. Japan restricts imports of telecommunications equipment. France limits imports of food products.
None of America's major overseas trading partners has run up trade deficits on the scale that has occurred here. Indeed, when it comes to letting in imports, the United States stands apart from most of the world.
From 1980 to 1995, the United States compiled a perfect record - 16 trade deficits in 16 years. The string of unmatched deficits added up to $1.7 trillion. It was the worst trade performance in the world.
During the same period, Sweden posted trade surpluses in 13 of the 16 years. Its last deficit year was 1982.
The Netherlands recorded trade surpluses in 14 years. Its last deficit year was 1980.
Germany achieved trade surpluses in all 16 years, for an overall surplus of $625 billion.
And Japan had trade surpluses in 16 consecutive years, for an overall surplus of $1.1 trillion.
Remember just two numbers: Over 16 years, the United States ran a trade deficit of $1.7 trillion, while Japan had a trade surplus of $1.1 trillion.
The United States government, urged on by corporations that profit from global trade, refuses to impose tough trade restrictions; stands aside while the workforce is decimated by imports; and even sacrifices the jobs of its own citizens to create jobs for workers around the world.
The United States has allowed in just about anything that people in other countries know how to make. Sometimes, it even teaches them how to make it. More often than not, by paying lower wages, they can make it more cheaply than we can. They can sell it in this country cheaper.
And, very quickly, Americans who make those same products find themselves looking for work.
Is the problem that American businesses are somehow "unable to compete"? Judge for yourself.
When the United States indiscriminately drops its trade barriers, as it has done:
- An American company that pays its workers, say, $12 an hour must compete with foreign companies that pay their workers $12 a week.
- An American business that provides medical insurance for its workers must compete with foreign businesses that provide no medical coverage.
- An American business that is required to pay Social Security taxes to provide a basic retirement benefit for its workers must compete with foreign businesses that pay no such tax and provide no retirement benefits.
- An American business that receives no direct subsidies from local, state or federal governments must compete with foreign businesses that are subsidized by their governments.
- An American company that complies with environmental regulations to protect air and water quality must compete with foreign businesses that don't have to comply.
- An American company that must abide by endless government regulations and is subjected to open-ended litigation must compete with foreign businesses that don't face any of those mandates.
TRADING JOBS, FOR A PROFIT
American policymakers have thrown open the U.S. market even to those countries that have imposed take-it-or-leave-it ultimatums on American companies - ultimatums that, if agreed to, will put the jobs of millions of U.S. workers at risk.
Take the case of the Boeing Co., the premier manufacturer of jet aircraft.
Boeing ranks among the top half-dozen American companies in exports and thus, if the claims about the benefits of export-driven jobs are accurate, should be providing thousands of good jobs for Americans.
But look at what is happening to Boeing jobs.
In January 1990, Boeing employed 155,900 people, largely at its home plant in Seattle and at facilities in Wichita, Kan., and the Philadelphia area. Over the next six years, Boeing slashed one-third of its workforce, bringing the number of employees to 103,600 in February 1996.
One reason for the shrinking workforce: Airplane parts once made in America by Boeing employees now are manufactured by subcontractors in other countries and shipped back to the United States for assembly.
On a 747 jumbo jet, for example, the nose gear, the landing gear, the outboard and inboard flaps and spoilers all contain parts made in Japan.
At present, about 40 percent of the parts of a Boeing 777 are manufactured outside the United States. That number is expected to reach 50 percent over the next few years.
To sell planes in other countries, Boeing agreed to move a portion of its manufacturing to those countries, to provide employment for people there to make aircraft parts. That eliminated the jobs of U.S. workers.
Frank Shrontz, chairman of Boeing, explained this practice, albeit in a roundabout way, at a 1995 stockholders meeting. His comments came in response to a question about joint-production agreements with other countries. Said Shrontz:
"It is necessary, as we sell into the world market, for us to have an access to that market, and in many cases that requires that we ask the countries, and companies within those countries, to participate in our aircraft production.
"We are trying to put those activities out in which they could do a better job than we can and it does not destroy our core technologies, but some of that market access is simply going to have to be a trade for putting work outside."
To that end, Boeing buys parts of the wings for its jumbo 747s and for its 737s from the Xian Aircraft Co., the Chinese company that built MiG fighter planes. China has imposed that requirement as a condition of the sale.
Eventually, the Chinese factory will produce the tail section for the 737, which now is made at the Boeing plant in Wichita. Chinese engineers have visited Boeing facilities in the United States and Boeing engineers have visited China.
How did the Chinese factory secure the tooling and machinery required to build tail sections?
Boeing supplied the tooling.
When asked whether Boeing furnishes tooling to its subcontractors in the United States, a company representative replied: "Boeing provides tooling for some suppliers, and then some suppliers provide their own tooling. So it's both."
In addition to tooling, Boeing has provided flight and maintenance training, helped Chinese airlines establish safety departments, provided flight simulators and pilot training, and established a corporate office in China.
The company also has opened what it describes as "one of the largest aircraft spare parts centers in the world" at Beijing's Capital Airport. The center stocks more than 30,000 parts.
Larry Clarkson, Boeing's senior vice president of planning and international development, told a conference in Singapore early in 1996 that Western trade with China is "helping millions of Chinese obtain greater freedom to choose their work, their employer and their place of residence."
Now listen to another view, expressed by an American labor leader who has been an observer of the Boeing-China trade process close-up - both in the United States and China - and who is sympathetic to Boeing's predicament:
"China has all these five-year plans for autos, aerospace, etc. They are going to develop these industries. They are going to be the basis of the new China. Because it's such a huge market, they say to Boeing or Airbus or whoever wants to sell in China:
" 'We'll buy thirty 737s. We'll want to produce the back end of the 737 in China. You give us the machinery. You give us the engineers. You give us the technology. You help us set up the facility. And then we'll buy the airplane . . .'
"It is the biggest foreign subcontracting order the Chinese have ever had. They see it as a blueprint for the development of their aerospace industry. You see a top Boeing executive saying, Boeing is committed to developing the Chinese aerospace industry . . ."
The source, who has visited the Xian factory where the Chinese are making aircraft parts for the 737, went on:
"There are more than 500,000 Chinese employed in the aerospace industry. The average wage rates are $50 a month. I saw Xian, which employs 20,000 workers who live in barracks. The government role is totally coordinated, totally subsidized."
Instructing China, step by step, on how to build its aircraft, Boeing is essentially setting a competitor up in business. The day may well come when China can supply to the world at least some of the planes that Boeing does now, and do it more cheaply.
But like much of American business today, and most especially those businesses that are publicly owned and susceptible to profit pressures from Wall Street, the Boeing-China deal was made for short-term gain, at the expense of any long-term commitment in America.
It was also made at the expense of the American taxpayer - on two counts.
First, the Export-Import Bank of the United States guaranteed loans totaling $1.4 billion from 1993 to 1995 for China's purchase of Boeing aircraft. The Ex-Im Bank, an independent agency of the U.S. government, has, in its own words, "one mission: to help the private sector create and maintain American jobs by financing exports."
Thus, a U.S. government agency supported by American taxpayers helped finance the sale of planes to China that will be built, in part, by workers in China. Or, if you will, U.S. government financing will create jobs in China.
Second, Boeing and the rest of the civilian aviation industry, perhaps more than any other industry, owe their technology leadership to the tens of millions of taxpayer dollars spent on research and development of military aircraft.
Now, some of Boeing's technology is being given away to the Chinese.
Boeing is not the first American corporation to follow this path. It is merely doing what the American electronics industry did many years ago: selling off the technology and manufacturing processes that made the companies and contributed to the overall health and wealth of the nation, its workers and communities.
Back in the 1960s, Japan blocked imports of American-made television sets and instead required U.S. companies to license their technology to Japanese manufacturers - that is, Japan paid a fee for the use of it.
That's one reason why foreign suppliers today control the American market for television sets, as well as a variety of other products, including radios, VCRs and portable computer display panels. And why no American companies manufacture television sets in the United States today.
More significant, Boeing's role in the global economy underscores why Washington's trade policies have been such a failure for the ordinary working American, and why the worst is yet to come:
While Boeing cannot sell aircraft to China unless it builds part of its planes in that country, the United States does not impose any similar requirements on China or other countries.
If it did, here is how it might work:
The U.S. government would tell Tokyo Widget Corp. that if it wanted to sell widgets in the United States, it would have to manufacture, say, 20 percent of the parts in this country and ship them back to Japan for assembly and sale there. Over a period of years, that might grow to 100 percent and the U.S. government would then own Tokyo Widget's technology and manufacturing processes.
This practice of U.S. companies acceding to joint production agreements requiring ``local content'' labor - the kind of deal Boeing agreed to with China - could put the jobs of millions of U.S. workers at risk in coming years.
The point is, American corporations hungry for sales routinely agree to all manner of conditions set by foreign governments - while Washington asks little or nothing from foreign producers wanting to crack this, the largest consumer market in the world.
Call it one-way free trade, but it's not fair trade. And the numbers show it.
Ten years ago, in 1986, China exported $4.7 billion worth of goods to the United States. In 1995, imports from China into the United States totaled $45.5 billion.
U.S. exports to China trailed far behind. So the U.S. trade deficit with China jumped from $1.6 billion in 1986 to $33.8 billion in 1995 - an increase of 2,012 percent.
That's a huge number. You might want to think of it this way: If personal incomes had gone up at the same rate, the average American family in 1996 would earn more than $600,000.
In any case, if the deficit trend continues, China will replace Japan as the United States' most unequal trading partner shortly after the turn of the century.
The United States then will have massive, structural trade deficits with two countries, instead of one.
Copyright 1996 PHILADELPHIA NEWSPAPERS INC.
May not be reprinted without permission.
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