The Globalization Backlash Is America Slouching Towards Protectionism?

Declining wages and the unchecked outsourcing of jobs are cause for concern in the United States. The doctrine of free trade, the core of US economic policy, is faltering. Has the age of protectionism begun?
Von Gabor Steingart

A Toshiba employee from Tennessee doesn't have to travel far to see what happened to his former job. All it takes is a short flight to El Paso, Texas, and a ride in a taxi toward the US-Mexican border.

The border crossing, in its coarseness, is reminiscent of the East German side of the former border between the two Germanys, except that the face on wall posters is that of George W. Bush and not of the former East German leader Erich Honecker. It isn't exactly a welcoming sort of place, this border crossing with its posters cataloging the potentially dire consequences of breaking the rules -- including the illegal purchase of parrots ("You're buying yourself bird flu") and human trafficking ("Death is only one of the ways of losing your life").

Ciudad Juárez, a city with an estimated population of 1.3 million people on the Mexican side of the border, is in some ways little more than an endless array of industrial parks interspersed with fast-food restaurants, junk dealers and palm trees practically groaning under the weight of power lines and satellite dishes.

The Parque Industrial Río Bravo is now home to jobs that once existed in Tennessee. Toshiba manager Saul Rodriguez, a US citizen with Mexican parents, brought them here. When he began shifting jobs to Ciudad Juárez 20 years ago, Toshiba's Mexican TV manufacturing operation was conceived as a supplement to the company's factory in Tennessee -- or at least that's what workers were told. Today it's the replacement for the Tennessee plant, which will bid farewell to its last worker by the end of the year.

That last worker will have been replaced by Mexicans. In Toshiba's Ciudad Juárez plant, close to 3,000 people, most of them young women, stand at large tables, where they screw together, drill and assemble the components delivered from China until the final product looks just like the LCD television screen hanging in the lobby. Toshiba pays its Mexican factory workers a starting wage of $8 -- per day, not hour. "Once a year," says Rodriguez, who now heads the plant's human resources department, he organizes a big picnic for all employees and their families. There's even music and free food, he crows. And, according to Rodriguez, everyone always has a good time.

In the United States, on the other hand, no one is laughing anymore. Americans wouldn't have such a hard time accepting the gradual disappearance of their old, once well-paid factory jobs if the jobs that have replaced them weren't so awful. They were promised a modern service industry, but what they got instead were low-paying, unskilled jobs packaging and delivering products. Even after five years of economic recovery, the US Bureau of Labor Statistics recently wrote in a special report, real wages are now lower than they were in 1999. To put it cynically, even progress isn't what it used to be.

But cynicism isn't enough to keep a politician afloat, especially during an election campaign.

Instead, the current presidential contenders have become adept at taking every opportunity to express their indignation. The winner of the Iowa Democratic caucuses, Illinois Senator Barack Obama, has clearly intensified his rhetoric against China in recent weeks. In the middle of the Christmas shopping season, Obama said that if he had his way he would ban toys made in Asia from American stores. Eighty percent of all toys sold in the United States are made in China. The fact that global trade makes products cheaper is no longer a valid argument, says Obama. "People don't want cheaper T-shirts if it costs their job."

The Democrats' second-place finisher in Iowa, John Edwards, has conducted his campaign under the motto "The Two Americas," which consist of "hard-working people" on one side, who are threatened by outsourcing and the decline in real wages and, on the other side, the "greedy corporations" that have allied themselves with a "pack of lobbyists."

Edwards rejected all American free trade agreements in recent years, even during the era of former President Bill Clinton, and he accuses the Bush administration of conducting a trade policy that exclusively benefits international corporations and the People's Republic of China. "But the American people are losing out," he says. As president, Edwards says that he would encourage Americans to "buy local," because this would be the only way to protect both jobs and the environment.

The most prominent new additions to the club of globalization critics are two of the current presidential candidates, Democrat Hillary Clinton and Republican Mike Huckabee. According to Clinton, free trade in its current form is harmful to America. And according to Huckabee, "If somebody in the presidency doesn't begin to understand that we can't have free trade if it's not fair trade, we're going to continually see people who have worked for 20 and 30 years for companies one day walk in and get the pink slip and be told, 'I'm sorry, but everything you spent your life working for is no longer here.'"

Just in time for the recession and widespread layoffs many economists fear the American economy could face this spring, the presidential campaign has suddenly found its new hot-button issue: the dark side of globalization. The mortgage crisis, declining real wages and the fear that companies could even accelerate their outsourcing activities in a recession have relegated explosions in Iraq to the role of political background noise.

Only 28 Percent of Americans Believe Globalization Is Good

According to the results, published last Thursday, of an analysis of the shift in issues by TNS Media Intelligence, the word "Iraq" appeared in 40 percent of all Democratic political ads on TV in the autumn of 2007. By December, that number had dropped to only 3 percent. "When we launched the campaign," says Clinton's chief strategist Mark Penn, "the war was the big issue. Now it's a combination of the war, the economy and healthcare."

For Americans, the evening news has been filled with too much bad economic news lately. In 2007, for example, more foreign cars than American models were sold in the United States -- for the second year in a row, no less. The country's balance of trade deficit with China continues to grow. The United States has even lost its title of "world's biggest exporter of information technology" to China. It has lost 3 million blue-collar jobs since the turn of the millennium. Today only 15 percent of American workers are involved in the actual production of goods. Americans are learning that, as inexpensive as imported products are, they can also be dangerous and hazardous to their health. In 2007, toxic chemicals turned up in many products from the Far East , including pet food, toothpaste and toys. In the past few months alone, more than 20 million imported Chinese products had to be recalled from the United States. Three children died.

Many Americans have stopped believing that vigorous international trade promotes the wealth of nations. According to an opinion poll the Wall Street Journal and the NBC television network conducted shortly before Christmas, there has been a decisive shift in American attitudes about globalization: Only 28 percent of respondents agreed that globalization is a good thing.

White-collar workers have now joined their blue-collar counterparts in rejecting the form of international trade in place today. For the first time, a majority in both political camps -- 55 percent of Republican and 63 percent of Democratic voters -- are convinced that globalization is bad for the country.

Hillary Clinton says that if she becomes president, a continuation of the Bush administration's trade policies will "not be an option." Instead, Clinton is arguing for a "time-out" when it comes to free trade agreements. Although the Bush administration continues to move full steam ahead in its efforts to expand trade agreements with Panama and Colombia, whether the Congress and Senate will support its plans is more than questionable. "The new, cooler approach to trade policy within the political class and the results of current opinion polls mark a new consensus," says Douglas Schoen, co-founder of the political consulting firm Penn, Schoen & Berland.

Until now, the free trade doctrine has been as inseparable from post-World War II America as ketchup from a hamburger. Globalization in its current form would be inconceivable without the Americans' dogged and sometimes brutal insistence that all kinds of goods and services be traded freely. Down with customs duties! No more national regulations! This was the creed of an entire era.

Even the export offensive of a reinvigorated Japan in the early 1970s could not truly shake Americans' faith in the blessings of a global economic world without borders. When it came to trade policy, Americans were free traders first and partisans second. Bill Clinton insisted, and constantly reiterated, that free trade creates prosperity and jobs for all, and that it is in America's best interest. It was Clinton who completed the negotiations over the North American Free Trade Agreement with Mexico and Canada begun by his predecessor, President George H.W. Bush. Indeed, Clinton is partly responsible for the success of Ciudad Juárez as a manufacturing center.

America's Poor Backyard

Seen from the outside, America's poor backyard looks pretty much the way one imagines it would look: surreal, hostile and, most of all, filthy. Discarded plastic bags blow across the streets and get caught in the barbed-wire fences surrounding all of the new plants. The factories themselves look like giant warehouses, windowless and mostly unpainted. Many of the West's major industrial corporations have set up operations here, including aircraft maker Bombardier, Hewlett-Packard and General Motors. The signs identifying these and other Western companies have been kept noticeably small, as if the builders of these nondescript factories had already known that they would not serve as showcases in their worldwide production chains.

Whenever the doors to the loading docks are opened, each of these buildings spews out hundreds of cardboard boxes into waiting trucks -- boxes filled with DVD players, inkjet printers, toasters, stereos and TV sets destined for consumption-happy Americans across the border. Last year, Toshiba alone shipped 1.1 million TV sets from its Mexican factories -- a record, according to Rodriguez.

The city is also plagued by a high crime rate. In the evenings and at night, after tens of thousands of factory workers have gone home, criminal gangs take over in Ciudad Juárez. The streets become perilous, especially for women, the pillars of the city's industrial economy by day, an economy as industrious as it is depressing.

Drawn by the promise of new jobs, tens of thousands of women have come to the city from Mexico's interior. Without their families to protect them, these women are easy targets for the men of Juárez, where more than 500 young women have been raped and murdered in recent years.

Hollywood film producers, even more than the local police, soon developed an interest in the dangers of life in Juárez, especially for women. The film "Bordertown," starring Jennifer Lopez, is a tale of life and death in Juárez. In the United States, the city has come to symbolize a system of international trade that benefits only a few and harms the overwhelming majority, a system as detrimental to the wages of American workers as it is to moral standards.

Whenever an American politician talks about free trade today, the average American's pulse begins to race. For the majority, free trade is synonymous with job loss and inhumane working conditions. Hardly any other expression has plunged as deeply in the public eye. According to an international study by the German Marshall Fund, France is the only other country in the world where public animosity to unfettered international trade is as pronounced as it is in the United States.

A majority in both countries wants to see greater protections for domestic companies and rejects further deregulation. More than 50 percent of Americans and close to two-thirds of the French agree with this sentence: "I am in favor of maintaining trade barriers to protect our economy."

Experts are running out of arguments to defuse these sentiments. The truth is that the global distribution of labor is no longer as obviously beneficial to the United States as it was in the past. The days are gone when US corporations dominated the world economy -- the age of "Coca-Cola imperialism." For decades, America dictated trading conditions to the rest of the world, the dollar dominated the world's currencies, US companies were able to impose their technical standards on everyone else, and workers at foreign plants were still suppliers, not the competitors they are today.

The Worlds Biggest Borrower and Importer

Nowadays America is both the world's biggest borrower and its biggest importer. Many of the suppliers of days gone by are now competitors in their own right. Big US corporations may be reporting record profits and Wall Street may be awash in bonus payments, but workers -- blue-collar and white-collar alike -- are suffering.

The American middle class is suddenly finding itself confronted with the conditions of the past, as wages decline and companies increasingly eliminate their contributions to their employees' health insurance and retirement pensions. After a brief strike by auto workers at Detroit's Big Three carmakers -- Ford, Chrysler and General Motors -- the unions agreed to a new entry-level wage of only about $14, or barely €10 an hour. During the two terms of President George W. Bush, an additional 9 million Americans, most of them employees of multinational corporations, have joined the ranks of those without health insurance. Of the 300 million people living in the United States today, about 47 million have no health insurance.

The gap between rich and poor has grown by leaps and bounds in America, far more so than in countries like Germany. One-fifth of Americans earn more than half of all wages and salaries. Ten percent of the population owns 70 percent of all assets. This is what presidential candidate John Edwards calls the "two Americas."

The Republicans have studiously ignored the Democratic candidates' rhetoric on inequality and economic fears until now. But this was a mistake, says Karl Rove, a friend of the current president and the architect of his two election victories. His advice to the Republicans is not to ignore the change in issues. According to Rove, the presidential candidates should "visibly, vocally and forcefully" begin addressing the issues that are important "around the kitchen table," issues like healthcare policy, anxiety about job loss and the entire range of fears resulting from that contradictory process we generally refer to as globalization.

Tony Blankley agrees. A speechwriter for former President Ronald Reagan who later served as press secretary to the former Republican Speaker of the House Newt Gingrich, Blankley is now one of the country's most prominent conservative commentators and a frequent guest on its political talk shows. According to Blankley, classic free traders would characterize the words of people like Clinton and Huckabee as cynicism, populism and demagoguery. "But it's quite possible," he adds, "that the American people have a better sense of the real dangers than the elites, who are strongly committed to the globalization project."

Ordinary Americans are no longer alone with their concerns and fears. More and more experts are coming up with evidence that globalization is not in the country's best interest. The most prominent new addition to their ranks is undoubtedly Alan Blinder, a professor at Princeton University who served as vice-chairman of the Federal Reserve Bank in the mid-1990s, during Alan Greenspan's tenure as chairman. Until now, Blinder has enjoyed an unblemished reputation as a proponent of free trade.

The new factories in China's Yangtze Delta and in Mexico's border cities are only the beginning, and not the end, of a development, Blinder now says with a hint of foreboding in his voice. According to Blinder, former third-world countries are working their way up into high-tech sectors like the software, pharmaceutical and biotechnology industries at a breathtaking pace. Contrary to the free trade theories of the past, America today will not benefit from this development, says Blinder. In fact, it could be seriously harmed as a result. Blinder estimates that the United States will lose up to 40 million jobs in the next 10 to 20 years, including many well-paying white-collar jobs.

Despite these concerns, Blinder, Clinton and others by no means favor erecting protectionist barriers and putting an end to global free trade.

However, they do support a trade policy that would require the Chinese, the Indians and the Mexicans to introduce reforms in their countries in return for access to American markets, reform that would include more stringent environment standards, the development of their own social welfare states and the revaluation of their currencies. Under this new approach to trade policy, bilateral trade agreements, instead of global regulations, could be used as tools to make trade both free and fair.

Saul Rodriguez, the Toshiba manager in Juárez, understands America's concerns all too well. He too has Chinese competitors to worry about. His own company has now opened a plant in China, and this year the production of smaller televisions sets will be transferred from the Mexican plant where he works to Toshiba's new Chinese factory. Rodriguez shrugs his shoulders. "We're better, but they're cheaper."

Executives at Toshiba headquarters have assured Rodriguez that the Chinese plant is not intended as a replacement for Juárez, just as a supplement. But Rodriguez takes a realistic view of the durability of such assurances.

Translated from the German by Christopher Sultan