March 3, 2008

Obama and Clinton Flunk Econ 101

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This week’s Democratic primaries in Ohio and Texas may decide who the Democratic nominee for President will be. Obama and Clinton have recently been debating who can most effectively destroy the economy–I mean, help the “working man.” In trying to cater to those in Ohio who have fallen on hard economic times, Obama and Clinton are in a battle to one up each other concerning who can most efficiently amend the North American Free Trade Agreement (NAFTA). In the debate this passed week, both candidates even threatened to unilaterally withdraw from NAFTA and Hillary Clinton called for “trade time outs.” But the fact of the matter is that Obama and Clinton are simply wrong on their trade positions.
Trade, especially NAFTA, has indeed benefited Ohio’s economy. It is easy for voters to fall prey to the rhetoric of the Democratic candidates. Of course it sounds good when the candidates claim that trade is hurting the little man, and the government has to make sure that evil trade agreements benefit everybody and not just multi-billion dollar corporations. Yet, if there is one thing that Ohio needs, it is more trade. The U.S. Department of Commerce reports that 21.1 percent of all manufacturing workers in Ohio depend on exports for employment. In 2005, 10,999 companies exported from Ohio. Furthermore, in 2005 foreign-owned companies employed 213,800 workers in Ohio, who accounted for about 4.5 percent of the state’s private sector employment. Just last year, Ohio’s export shipments totaled $42.4 billion, which were the eight largest exports out of all 50 states. But here is the clincher. In 2007 Canada was the largest recipient of Ohio’s exports, accounting for 41 percent ($19.6 billion) of all the state’s exports. In addition, Ohio’s second largest trading partner was Mexico, accounting for $3.0 billion. Of course, it makes sense that Canada and Mexico are Ohio’s largest trading partners, because NAFTA ensures that trade barriers between the United States, Canada and Mexico are low. If Barack Obama or Hillary Clinton issued a “trade time out,” what would happen to the $42.4 billion in revenue that Ohio receives from exports, or the 213,800 private sector employees who are employed by foreign-owned companies?
The problem in Ohio, Michigan and other places that have suffered economically is that the United States is losing manufacturing jobs. Yes, losing manufacturing jobs hurts those who become unemployed in the short run. However, the middle and long-term outlooks are much brighter. We should want the United States to be at the leading edge of technology and innovation. This will ultimately bring more wealth, more jobs and better paying jobs to America. The process works as follows (California serves as a good example). When a company that originally had its manufacturing plants in Ohio decides to move them to Mexico because of incentives provided by NAFTA, Ohio’s manufacturing workers will be unemployed. In the long run, however, by having manufacturing plants in Mexico the company can build a research and development plant in Ohio, where there would be more skilled jobs and higher pay. In this fashion, the low-skilled manufacturing jobs would be in Mexico and the jobs that require skill, pay a better salary and are at the leading edge of innovation would be located in the United States. Ohio is currently stuck in a phase where companies are moving manufacturing jobs elsewhere and the now unemployed simply need to be trained and learn new skills so that they can obtain higher paying jobs.
NAFTA has helped the United States and it is the Democrats who are hypocrites. The U.S. Department of Agriculture determined that in 2007 U.S. farm and food exports to Mexico exceeded $11.5 billion. In addition, farm and food exports to Canada were $11.9 billion in 2006. The Wall Street Journal reports that U.S. exports to Canada have increased 38 percent since the inception of NAFTA, and in the same amount of time the U.S. economy has added 18 million jobs. Certainly NAFTA is not responsible for all of this success. However, NAFTA is just one part of an increasingly globalized economy that has benefited many nations including the United States.
As I previously mentioned, Obama and Clinton both threatened to withdraw from NAFTA. They have rightly criticized the Bush administration for acting unilaterally in many instances concerning foreign policy. When it comes to trade, however, both Democratic candidates think that it is acceptable to act unilaterally without regard for other nations. This type of hypocrisy is shrouded in rhetoric that is hard to sift through. Voters need to realize that the populist economic plans that the Democrats espouse will do nothing to help those in Ohio, Michigan, Texas or the United States.