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Ambivalence Toward Free Trade

Friday, August 20, 2004; Page A18

In complaining that John F. Kerry is "ambivalent" about foreign trade ["Trade and the Honest Candidate," op-ed, Aug. 2], Sebastian Mallaby said that because the manufacturing trade deficit accounts for only four of the 10 percentage points by which manfacturing's share of gross domestic product has dropped since 1970, it is not the major cause of industrial job losses. But 40 percent of any major public problem is hardly trivial.

Mr. Mallaby said not to worry about competition from China and other cheap-labor countries because any cost advantage of lower wages is erased by lower productivity. But if U.S. manufacturers get no labor cost advantage, why do they shift their production for the U.S. market to low-wage countries? Mr. Mallaby admitted that this trend might be a problem for the "unskilled," but the work of accountants, financial analysts and other professionals is also being shipped overseas.


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The theory that wages are set by productivity only is a favorite of free-trade fundamentalists, but since the passage of the North American Free Trade Agreement, for example, Mexican manufacturing productivity has risen almost 60 percent while Mexico's real wages have remained flat. In the past few years more than 200,000 Mexican jobs have moved to China, where the gap between productivity and wages is even greater.

Mr. Mallaby said that the high cost of health care and education services "reflects the fact that they aren't traded." But how does he account for health care spending in Canada -- where people live longer than we do -- being 10 percent of the GDP while it is 14 percent in the United States? Or for a college education being far cheaper in almost any other advanced nation than it is here? The answer has to do with national pri- orities, not a lack of import competition.

So here's a proposal. Let's suspend all new trade agreements until we build world-class health care, education and income maintenance programs that ensure that whatever benefits might flow from expanded trade are shared. If free trade brings such great gains, it should be worth the price. If it is not, then we should all be more ambivalent.

JEFF FAUX

Washington

The writer is a fellow at the Economic Policy Institute.


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