Can American Workers Compete in the Global Economy?
February 10, 2004As the weather grows colder,
so too do American economic relations with the rest of the world. This is
hardly alarming to most Americans, since protecting workers from foreign competition
seems sensible. Unfortunately, our government's favored method of "protecting"
workers and industries from foreign competition is to make imported products
more expensive. This is done by applying border taxes known as import tariffs.
There's just one problem: this tactic doesn't work. Read more…
A prime example is the steel tariff that President imposed in 2002 to protect
our domestic steel producers. The domestic steel industry had claimed that
it was being threatened by cheaper steel imports and lobbied for protection
for a period of three years. While this might seem reasonable to some (particularly
to those workers in the steel-producing industry), it has wreaked havoc on
workers and businesses elsewhere in the U.S. economy and around the world.
In our own economy, this tariff made domestic and imported steel so expensive
that some small companies that use steel as an input to their production have
had to go out of business. Other steel-consuming companies have had to take
huge losses because they were locked into contracts and could not pass the
increased cost of steel along to their customers. Still others who did pass
the increased cost along to their customers lost those customers to companies
operating in countries with no steel tariffs. Some steel-using businesses
moved overseas (taking jobs with them) so that they could have access to tariff-free
steel. Industries such as metal finishing suffered the consequences.
In the end hundreds of thousands of jobs were lost in the steel-consuming
industries as a result of this tariff. Nearly all of the steel-consuming companies
were small businesses employing fewer than 500 people. Overall, the job loss
among steel users exceeded the 185,000 employed by steel makers.
The steel case shows that despite our insecurities, we cannot allow ourselves
to fall for the false promises of protectionism. Tariffs and other types of
trade barriers have unintended consequences and often do not accomplish their
intended goal of preserving jobs. Instead, they merely shift the burden from
one sector to another and drive up the cost of goods here at home. We must
be very careful that we do not drive more American manufacturers overseas
with misguided trade policies or increase the cost of living for all of us.
So how can American workers compete in the global economy without relying
on traditional protectionist measures? To remain internationally competitive
the U.S. needs to make itself as attractive a location as possible through
tax incentives for those companies that keep production in the U.S. and regulations
that aren't prohibitively expensive. We need to increase funds available for
Trade Adjustment Assistance (TAA) and do a better job of educating people
how to take advantage of available funds.
The global economy requires new ways of thinking about our competitive edge
and how to keep it. The U.S. needs to determine its strengths (skilled labor
vs. unskilled, for example) and play to them. Rather than fretting about the
gains of other countries, the U.S. should focus on creating new gains of its
own. And of course, the American workforce will need to be flexible.