New York Times columnist Thomas Friedman has long been a cheerleader for globalism, and has led the charge for “free trade.” One could say that his naive enthusiasm for the offshoring of U.S. manufacturing has contributed to lost manufacturing jobs in the U.S. as well as an expansion of overseas jobs in factories with abusive workplace conditions. It’s all good according to Friedman, though, since global trade will soon unite all of planet earth in one big happy family…
Let’s take a look at Friedman’s latest column today in the New York Times, in which he simultaneously celebrates and denounces the China currency legislation that recently passed the U.S. Senate and is now kicking around in the House of Representatives…
1. Friedman says he hopes “no one thinks this legislation will make any sustainable dent in our unemployment problem.” The Economic Policy Institute (EPI) recently calculated that America’s massive, growing trade deficit with China cost the U.S. 2.8 million jobs in the last decade. This becomes apparent when one travels through Ohio, for example, and witnesses hundreds of closed factories. It’s also conversely apparent when one considers all the consumer product that Americans purchase from China. Simply put, China’s currency peg has had an inordinately detrimental effect on U.S. manufacturing, allowing Chinese exporters to undercut comparable U.S. goods. Reversing that trend, and giving U.S. manufacturers some breathing room, can only create jobs.
**However, even Friedman admits he’s wrong, saying that if pushing a
currency bill “even marginally slows the pace of American firms
shifting operations here [Hong Kong], and gives others more time to adapt, it will
be worth it.”
2. Friedman says that China “never responds to in-your-face pressure — not immediately.” A moment later he admits that the last time the Senate pressed for action on currency, China “began revaluing its currency upward.” China does indeed respond to pressure and has head-faked on currency numerous times in order to avoid or delay action. Two examples:  Ahead of Vice President Biden’s summer trip to Beijing, the Yuan moved;  Before a G20 meeting, Beijing promised action.
3. Friedman has given up on U.S. manufacturing, saying, “We are never going to get those labor-intensive assembly jobs back from China — the wage differentials are far too great, no matter how much China revalues its currency. We need to focus on multiplying more people at the high-value ideation and orchestration end of the supply chain, and in the manufacturing processes where one person can be highly productive, and well paid, by operating multiple machines.”
**Actually, wages only constitute a small portion of the input cost for many manufactured goods. With something as important as steel, for example, labor amounts to only a tiny percentage of total production costs. Currency is actually a far greater differential.
But Friedman obviously hasn’t visited a modern steel plant, so he’s unaware of how streamlined and advanced U.S. manufacturing has become in order to stay competitive. Likewise, he assumes that every able-bodied U.S. worker will easily step up to a high-tech job. Unfortunately, not everyone possesss the aptitude to build websites. Even more troubling, though, is that high-tech jobs are being disproportionately lost in the trade shuffle with China. Between 2001 and 2010, the U.S. computer and electronic parts industry was hit the hardest, with more than 909,400 good, middle-class jobs displaced. Simply put, we are losing our “best and brightest” jobs.
4. Friedman admits that “China manipulates its currency and market access” but says the U.S. is “vulnerable” because “we have no leverage.” That’s sort of a strange argument to make because even Friedman acknowledges that Beijing uses “low wages and a cheap currency to build up an enormous export-led growth engine.” That export-led growth has seen the annual U.S. trade deficit with China skyrocket roughly $200 billion in the last decade, reaching $273 billion in 2010. That massive flow of dollars leaving the country is indeed leverage. China needs the U.S. market– desperately in fact. Without access to the U.S. market, China has little room to go elsewhere and sell the goods for its “export-led growth engine.”
5. Sadly, Friedman fears a “trade war” if the U.S. begins to enforce its trade laws. It’s a strange worry since China has been predatorily attacking the U.S. for years in ways that even Friedman admits– with currency and forced technology transfer being just two examples. In essence, Friedman is lamenting that the U.S. might start to defend itself. (See point #2 above, as well– with China repeatedly faking action in order to avert action on its currency undervaluation).
6. Amazingly, Friedman cites Hong Kong’s rise as a tourist economy to suggest America’s path forward. He points to how “Hong Kong has transformed itself into a huge tourist center that last year received 36 million visitors.” Boosting tourism is just an inane plan for saving the U.S. economy; what makes more sense is to increase value-added sectors in manufacturing. Friedman says that the “intensification of globalization means more parts of any product or service can be produced anywhere.” The question then is why they can’t be made in the U.S. in order to support Middle Class American jobs.
BOTTOM LINE: Friedman’s views are naive, dangerously so. The U.S. needs jobs and it needs them now. Manufacturing should be ramped up, not dismantled. Thankfully, the American people understand this, and have a more complete picture of economics than does Mr. Friedman.