Obama’s Double Game on Outsourcing
Ripping Romney while Pushing “Free” Trade
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the September/October 2012 issue of Dollars & Sense magazine.
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A wickedly barbed Barack Obama TV ad features Mitt Romney croaking “America the Beautiful” while the camera pans over scenes of Bain Capital sending jobs to Mexico and China and Romney’s use of tropical tax havens.
The ad, designed to define Mitt Romney as a job destroyer in the eyes of working-class voters in industrial states, has reportedly been effective. With 86% of Americans convinced that the offshoring of jobs contributes significantly to the nation’s economic problems, the 2012 election’s outcome may very well hinge on the perception of Obama as the defender of the public interest versus Romney the “vulture capitalist” and offshorer.
But is Obama’s record much better? Obama has aggressively promoted a set of new “free-trade” agreements that foster the shift of production from the United States to low-wage offshore sites—often in authoritarian nations denying basic labor rights. At the same time, these agreements directly and severely constrain democratically elected governments under an emerging doctrine of global corporate supremacy privileging maximum investor profits over protections for workers, consumers, and the environment. Instead of challenging the corporate prerogative to relocate family- and community-sustaining U.S. jobs to low-wage dictatorships, Obama has resorted to high-profile but hollow gestures.
About-Face on Trade Agreements
Since Obama took office, he has expressed ardent support for “free trade” agreements that provide the ground rules under which companies like Bain can generate such massive profits. Obama’s backing for these agreements, modeled on the investor rights-centered North American Free Trade Agreement (NAFTA), directly contradicts his hard-hitting message in the 2008 presidential campaign. “Decades of trade deals like NAFTA and China have been signed with plenty of protections for corporations and their profits,” he declared before GM workers in Janesville, Wisconsin, “but none for our environment or our workers who’ve seen factories shut their doors and millions of jobs disappear.”
Despite his campaign rhetoric, Obama has championed George W. Bush-negotiated “free-trade” deals with labor-rights pariah Colombia, tax-haven Panama, and South Korea. Trade economist Robert Scott of the Economic Policy Institute (EPI) estimated that the South Korea deal alone will cost 159,000 U.S. workers their jobs. Union leaders also worry that the agreement will serve as a “funnel” for component parts produced under near-slavery conditions in North Korea and China under a South Korean label, says Matt McKinnon, political director for the International Association fo Machinists and Aerospace Workers (IAMAW).
Meanwhile, the Obama administration is hammering out the biggest, farthest-reaching, and most secretive “free trade” deal ever, the Trans-Pacific Partnership (TPP). The TPP would include numerous nations on the Pacific Rim, including Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. U.S. Trade representatives have negotiated its terms under such an unusual level of secrecy, with only 600 corporate executives apprised of the content, that even pro-”free trade” members of Congress have complained about being excluded from the talks.
An analysis of leaked TPP documents led Public Citizen’s Global Trade Watch to conclude in June that the deal would “extend the incentives for U.S. firms to offshore investment and jobs to lower-wage countries.” The TPP would also create expanded powers for corporations to challenge—before secretive dispute resolution tribunals—protective regulations on finance, the environment, workplace safety, and other vital measures enacted by democratically elected governments.
Obama is promoting the notion of tax incentives for firms to “insource”—i.e., bring jobs back to the United States. Since last fall, he has been busy declaring that U.S.-based manufacturers are suddenly returning to America’s shores. Obama has suggested that rising labor costs in China are a central factor in these decisions by U.S. firms.
The purported insourcing trend would be reinforced by substantial tax credits equalling 20% of the costs of relocating jobs back to America. There are fundamental problems with this model, under which “good firms” would be rewarded with taxpayer money, “bad” firms engaged in offshoring would be punished with the loss of tax credits, and U.S. workers would, presumably, benefit from a greater supply of family-supporting jobs.
For one thing, there is almost no evidence of a meaningful trend toward insourcing. EPI’s Robert Scott told Dollars & Sense, “I have seen no evidence of this [insourcing] in our trade performance. The U.S. trade deficit [in goods] has risen much faster than the GDP the past three years,” reaching $738.4 billion in goods for 2011. (The total deficit including services was $599.9 billion.)
Labor costs are rising in China, but not sharply enough to drive away U.S. companies, both EPI’s Scott and University of Wisconsin labor economist Frank Emspak told Dollars & Sense. Chinese labor costs—starting from a base as low as 30 cents an hour—are climbing in the range of 5% to 30% per year, hardly enough to make a significant difference to the U.S. firms that have invested so heavily in China. For example, Milwaukee-based Johnson Controls has continued to expand rapidly in China, and now has no fewer than 60 plants there. General Electric recently shifted the headquarters of its medical equipment division from Wisconsin to Beijing.
Moreover, U.S.-based firms like Apple have developed intricate and effective supply chains in China. As global justice advocate Walden Bello has pointed out, “Chinese suppliers, with subsidies from the state, have established an unbeatable supply chain of contiguous factories, radically bringing down transport cost, enabling rapid assembly of an iPod or phone, and thus satisfying customers in a highly competitive market in record time.”
In any case, since so many U.S.-based firms can legally avoid paying corporate income taxes, it is hard to imagine how sufficient incentives can be constructed, at least through tax credits alone, to influence their conduct. David Cay Johnston, tax expert and writer for Reuters, sees little hope that Obama’s tax plans will yield more jobs in the United States, though they will likely produce a further windfall of tax benefits for the corporations. Scott of EPI agrees. “The corporations will use their ability to set up subsidiaries overseas, manipulate their prices and profits, and shift revenues,” predicted Scott.
AFL-CIO President Richard Trumka, frustrated with Democrats selling out labor, fumed last year that he’d had “a snootful of this shit.” While he seems to be aware of the emptiness of Obama’s pledges against the offshoring of jobs, Trumka is holding off on public criticism of the administration on volatile trade issues as we draw closer to the November election. Asked about the TPP, Trumka told Mike Elk of In These Times, “This president has been better on trade than the last several presidents. He has enforced the trade laws better than I think anybody else and done a good job at that. Do we disagree on some things? Absolutely we do…. We will continue to work with them.”
But others in and around the labor movement view the current moment as our last chance to pressure Obama to step back from promoting the TPP and instead start taking effective action against offshoring. That is the stance adopted by the 5,000-member Association of Western Paper and Pulp Workers (AWPPW), which recently held a demonstration of several hundred outside an Obama fundraiser in Portland, Ore.
For many in labor, it’s now-or-never. “Where is the sense of urgency that the TPP must be stopped?” demands Chris Townsend, political director of the United Electrical, Radio, and Machine Workers (UE). “It’s an absurd moment when people in the Administration are saying that ‘free trade’ and the TPP will do anything but create more destruction.”
John R. MacArthur, who detailed the Clinton administration’s machinations for NAFTA in his 2001 book The Selling of Free Trade, sees close parallels between the manipulative strategies of Obama and Clinton on trade. While adopting a populist tone of concern about the fate of workers and the U.S. manufacturing base, they both remained committed to the “free trade” policies enriching their large donors. MacArthur points to the contributions pouring into Obama’s campaign “from hedge-fund partners and law firms structuring deals based on ‘free trade’.”
While Obama has drawn criticism from Democrats close to Wall Street—Newark Mayor Cory Booker, former Pennsylvania Gov. Ed Rendell, and Massachusetts Gov. Deval Patrick—over his attacks on Bain Capital and the private equity industry as a whole, MacArthur regards this conflict as a mere “pantomime” to confer illusory populist credentials on Obama. “It helps to keep people ignorant,” argues MacArthur, “about the push for free trade going on behind the scenes.”
Not all of labor has been diverted by the pantomime. The critical “action behind the scenes” has riveted the attention of some unions like the UE and the APPW, whose leadership sees passivity on the TPP and offshoring as ultimately suicidal for workers. “These trade agreements have been the number one job killer for our members,” the APPW’s vice president, Greg Pallesen, told Dollars & Sense. “Our members have made it clear they are sick and tired of the trade agreements. If we don’t take this moment to act and put pressure on the president, when will he listen?”