For as long as I can remember, some individuals have hated the UN, because they believe it neuters American sovereignty. Twenty years ago, when H. Ross Perot was running for president, he asserted loudly that if the North American Free Trade Agreement was signed into law, the “giant sucking sound” one would hear would be American jobs being pulled into Mexico. A decade ago a group of Americans were petrified about Sharia law overriding our legal system. And I can’t count how many individuals have written me over the last seven years suggesting our president did his college thesis on Karl Marx.
Concerned about the UN? As long as the Security Council can veto anything, overruling the entire world (as our vote on that council has done many times), that fear seems silly.
As for Mr. Perot’s argument against NAFTA, manufacturing jobs in our nation have been disappearing since their peak in 1979, when more than 19 million Americans held jobs with manufacturers. However, since NAFTA was signed in 1994, we’ve gone from nearly 17 million jobs in manufacturing into the trough at 11 million in 2009, and we’ve seen some recovery since then. But not all manufacturing jobs disappeared into Mexico; many factory jobs went away to China and elsewhere. But according to Public Citizen, NAFTA did create a $181 billion deficit between the U.S. and Canada-China, with a net loss of 1 million jobs here.
Sharia law? The New York Times just ran a three-part series on the insidious creep of forced legal arbitration between consumers and corporations. One column focused on arbitration agreements based not in U.S. law, but in Biblical law. Who knew?
Oh, and President Barack Obama as a Marxist, maybe not.
Trap or trade?
Of course, I’m talking about the raft of International Trade Agreements the current administration has been negotiating for years. Today the media has been focused on the Trans Pacific Partnership; but those who have read the Trade in Services Agreement’s terms, thanks to the draft leaked by Wikileaks, are even more stunned.
True, we should have trade agreements with other countries. Ever since the Phoenicians took ships and started trading around the Mediterranean some 3,000 years ago, there’s been a need to establish large-scale trading rules between countries. Ultimately, in the beginning trade agreements were specific in nature, often designed to protect the jobs and economy of the larger and more powerful nation. After all, 180 years ago, compared to the world’s GDP of that period China’s Gross Domestic Product was nearly the size of ours today. And for a century the world’s trade agreement with China was an open-door policy — enforced by gunship.
Except for oil, one might say we are a tad more civilized today.
And true, Germany’s (and most of Europe’s) tariff on imported U.S. chicken in the early Sixties prompted LBJ to place a 25 percent tariff on imported pickup trucks — which at the time included the Volkswagen Type 2 truck. Johnson claimed that authority under the GATT trade agreement; and ever since then Americans have been paying a high tariff on their favorite imported pickup truck.
By the way, the GATT agreement simply stated that one country could add a new tariff to the products of another country “in equal measures.” Meaning that the 25 percent import truck tariff, given the small numbers of VW trucks then being sold here, should have yielded the equivalent of the tariffs on all U.S. chicken imported into Europe. However, it is fair to say that over the last half century, given the rise of the small imported trucks’ popularity, including those imported from Japan, the parity laid out by the GATT agreement has long since disappeared.
Needless ruffles and flourishes
So now the Trans Pacific Partnership seems ultra concerned about the truly insignificant 2.5 percent tariff on Japanese automobiles exported to America; that’s just a minor part of the 5,544-page trade agreement. The Japanese automakers were far more unhappy with its verbiage about requiring them to have the same percentage of local parts content as required by other trade agreements, such as NAFTA. Mexico was demanding that local parts content for automobile production be 50 percent or more. The Japanese wanted a smaller figure as they are using more and more auto parts from Chinese suppliers. Guess who won the argument? Japan.
Now the correct answer to all of this is, who cares? It’s a cheesy little 2.5 percent tariff that will be phased out over the next quarter-century. Moreover, this new agreement still won’t do anything to quickly remove that 1963 Chicken War Tariff of 25 percent on imported pickup trucks; it will remain in place for another 30 years. That’s called jumping over dollars to pick up pennies.
Maybe the most confusing part of all of this is the fact that we already do a substantial amount of trade with Japan, Canada, Australia, Mexico, New Zealand, Malaysia and Vietnam. Here the CATO Institute is right: It’s going to take months and months of going over the 5,544 pages of new codified agreements, line by line, product by product, to figure out who’ll be the new winners and losers when this agreement goes into force.
But what is true is that once it’s signed, corporations and nations involved in these trade pacts no longer are tied to their country of origin, particularly for legal arbitration. No, disputes will be resolved, not by U.S. courts, but by panels set up by the countries involved, the same way World Trade Organization disagreements are handled.
There’s your loss of sovereignty, kids, not at the UN.
Watch the other hand
As always, these agreements are sold to the public by suggesting that stuff you really want to buy will become cheaper and somehow more jobs will be created here in America. The job part tends not to be true; and the cheaper goods part means more imports, which in the long term depresses our blue-collar wages and alters our trade deficits.
Worse, when you get rid of tariff after tariff, that gives corporations huge cost savings on imported goods, but it also gives our government a huge reduction in tax revenues. One wonders where the government could possibly go to cover the loss of all of this revenue. Oh, that’s right: You.
NAFTA was not nearly as bad as H. Ross Perot predicted, nor was it anywhere near as good as Clinton claimed. But it wasn’t a true free trade agreement, either: Detroit had language inserted that forced Japanese car companies to build factories in Mexico if they wanted to export U.S.- or Canadian-made vehicles into Mexico tariff-free. So we did lose some plants that could have been built here or remained here. In any case, we had already been losing automotive jobs to Mexico for decades at that point, and more and more Mexican car production was being sold here. So did NAFTA really change anything? Maybe not.
However, in a few years we’ll know both the positive and the ill-thought-out unintended consequences of the Trans Pacific Partnership; when it comes to cars, the tariffs have a 25 to 30-year phase-out. But when the day comes that our government has to privatize all of its functions and government pension plans are simply invalidated, you might ask why everyone focused on the TPP and no one even mentioned Obama’s Trade in Services Agreement.
© Ed Wallace 2015
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Association. He hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: email@example.com, and read all of Ed’s work at www.insideautomotive.com.