Posted by
Craig Westover on Friday, February 13th 2009
Must read today on the Pioneer Press Opinion page: Bill Frenzel, Tim Penny, and Mark Kennedy make the case that the “buy American” protectionist rules embedded in the economic stimulus package would specifically be bad for Minnesota and in general have negative effects on the American economy – fewer jobs and less wealth creation.
According to the World Trade Organization, global trade is projected to contract by 2.1 percent in 2009, despite increasing by 6.2 percent in 2008.
Such contraction in exports will have a significant effect on Minnesota. Despite the grim economic climate, Minnesota’s manufactured exports actually grew 9.5 percent through the third quarter of 2008. More than 18 percent of all manufacturing workers in Minnesota depend on exports for their jobs. With an unemployment rate of 6.9 percent in December, the highest level in this state since 1984, we cannot afford to exacerbate these losses because of a trade war.
In my recent exchange on the stimulus package with Dave Mindeman of the progressive organization “mnpACT” I made the point that “Ultimately, dollars spent on foreign goods must come back to the United States through the purchase of our products or as investment in our economy,” to which Mr. Mindeman responded, “Truth? Dollars come back to the US in the form of debt and trade deficits.”
Continuing a theme here Mr. Mindeman’s progressive perspective fails to understand the economic distinction between the “seen versus the unseen” effects of economic policy – not to mention peddling of some confused misinformation. (Foreign debt occurs when government borrows money from foreign countries to finance its deficit spending. When all the financial transactions are settled on the purchase of foreign goods, the buyer in the United States receives the value provided by the goods and the seller in a foreign country receives an equivalent share of U.S. capital. That capital must either be spent buying American products or investing in the U.S. economy, job creation activities. Foreign investment in the economy is not the same thing as foreigners holding U.S. government debt.)
Protectionist barriers and “buy American” mandates provide the visible benefits of protecting American jobs and wages in specific industries. What is unseen is the negative impact of Americans paying higher prices – of capital and labor used less effectively than if trade barriers were removed. What is not seen is the negative impact on industries that are victims of trade war retaliation by our trading partners. Frenzel et al write:
Now, as politicians in Brussels, Moscow, Beijing and Buenos Aires, among other capitals, are rushing to erect trade barriers to “protect” their workers and industries, America cannot abandon its commitment to free trade as the key to prosperity for us and our trading partners. We cannot take reactionary measures and retreat from trade policies that have a record of creating economic growth because of what is primarily a credit crisis. Piling trade barriers onto the credit crisis will “bury” American industry as exports dry up, revenues decline and more jobs are lost. … As we saw with the Smoot-Hawley Act in the Great Depression, trade barriers destroy jobs and industries; they don’t “protect” them. America, which has long led the fight for free markets and free people around the globe, must lead by example and resist domestic pressure for “protection.” If we keep our markets open, our trading partners will be more likely to resist their own domestic pressures and do the same — and all of our economies will recover more quickly.
As the authors note, the United States has lost some of its moral leadership on the importance of free markets because of our financial meltdown. I would agree with the first clause, but the financial meltdown is the spark not the powder that ignited the moral leadership collapse. The lack of economic understanding actuated by progressive economic policies implemented through fear-mongering is the underlying reason for the panicked rush from fundamental economic principle. Our future prosperity does indeed depend on our commitment to open markets, but our commitment to open markets depends on sticking to principle – even when it hurts.
Must read: Protectionism hurts
Must read today on the Pioneer Press Opinion page: Bill Frenzel, Tim Penny, and Mark Kennedy make the case that the “buy American” protectionist rules embedded in the economic stimulus package would specifically be bad for Minnesota and in general have negative effects on the American economy – fewer jobs and less wealth creation.
In my recent exchange on the stimulus package with Dave Mindeman of the progressive organization “mnpACT” I made the point that “Ultimately, dollars spent on foreign goods must come back to the United States through the purchase of our products or as investment in our economy,” to which Mr. Mindeman responded, “Truth? Dollars come back to the US in the form of debt and trade deficits.”
Continuing a theme here Mr. Mindeman’s progressive perspective fails to understand the economic distinction between the “seen versus the unseen” effects of economic policy – not to mention peddling of some confused misinformation. (Foreign debt occurs when government borrows money from foreign countries to finance its deficit spending. When all the financial transactions are settled on the purchase of foreign goods, the buyer in the United States receives the value provided by the goods and the seller in a foreign country receives an equivalent share of U.S. capital. That capital must either be spent buying American products or investing in the U.S. economy, job creation activities. Foreign investment in the economy is not the same thing as foreigners holding U.S. government debt.)
Protectionist barriers and “buy American” mandates provide the visible benefits of protecting American jobs and wages in specific industries. What is unseen is the negative impact of Americans paying higher prices – of capital and labor used less effectively than if trade barriers were removed. What is not seen is the negative impact on industries that are victims of trade war retaliation by our trading partners. Frenzel et al write:
As the authors note, the United States has lost some of its moral leadership on the importance of free markets because of our financial meltdown. I would agree with the first clause, but the financial meltdown is the spark not the powder that ignited the moral leadership collapse. The lack of economic understanding actuated by progressive economic policies implemented through fear-mongering is the underlying reason for the panicked rush from fundamental economic principle. Our future prosperity does indeed depend on our commitment to open markets, but our commitment to open markets depends on sticking to principle – even when it hurts.