The Betrayal of the American Dream (26 page)

The resulting price collapse has had a devastating impact on the U.S. solar cell and panel industry, resulting in shutdowns, layoffs, and bankruptcies throughout the country. Over the past 18 months, seven solar plants have shut down or downsized, eliminating thousands of U.S. solar manufacturing jobs in Arizona, California, Massachusetts, Maryland, New York, and Pennsylvania.

One of those plants, in Frederick, Maryland, had grown steadily since opening in 1982 and for a long time had been thought to have a promising future. Owned by BP Solar, the plant had undergone a major expansion as recently as 2006 so it could produce more collectors for the burgeoning U.S. market. But in October 2010, BP suddenly closed the plant, throwing more than three hundred machine operators out of work. The company couldn’t match the cutthroat pricing of the Chinese.

In March 2012, responding to a complaint by the U.S. solar manufacturing industry, the U.S. Commerce Department ruled that China did indeed engage in unfair trade practices in the solar industry, but the additional tariffs the Obama administration imposed on Chinese solar products were so low—ranging from 2.90 to 4.73 percent—as to be meaningless. Even if stiffer tariffs are assessed, the U.S. solar manufacturing industry has been so weakened by Chinese trade practices that it has little hope of regaining its position as a major player.

Despite the obvious damage that unrestricted free trade is causing in the lives of many American workers, the policy remains firmly in place. The economic elite wouldn’t have it any other way. They view free trade as a way to hold down wages and increase profits—which lead to higher dividends and more robust stock prices. In the corporate world, America’s multinationals are the most ardent backers of unrestricted free trade. And why not? Free trade lets them operate much more freely than if they were bound only by the laws and labor market of the United States. Free trade allows them to pursue a bottom-line strategy without concern for the social consequences, in the United States or elsewhere.

The politicians, in hock to the corporate elite and other members of the ruling class, have fallen into line on free trade. They routinely enact legislation that U.S. multinational corporations request to “liberalize” trade laws. They mouth the same platitudes of corporate America about the evils of protectionism and the wonders of free markets. They dismiss any concerns about what such laws will do to the domestic labor market, urging workers to go back to school so they can compete in the new economy.

In addition to politicians, financial types, corporate executives, and economists, free trade has one other influential group of supporters. This is the media. Generally speaking, when a trade dispute arises, the media invariably come down on the side of unrestricted free trade and portray those who question its merits as protectionists or reactionaries out of touch with modern times.

Prominent among these advocates is Thomas Friedman, the
New York Times
columnist who set forth his views extensively in his best-selling book
The World Is Flat.
After weighing the pros and cons of free trade, Friedman wrote:

Even as the world gets flat, America as a whole will benefit more by sticking to the general principles of free trade, as it always has, than by trying to erect walls, which will only provoke others to do the same and impoverish us all.

Like all free-trade boosters, Friedman speaks in absolutes: either you have free trade or you are a protectionist; either you leave the door wide open to imports or you build a wall around the country. The idea that a nation might selectively apply tariffs or other sanctions when a domestic industry is unfairly targeted isn’t discussed as a possibility. But that is precisely how such a policy could be applied. In truth, the United States has never come close to erecting a picket fence on the border, let alone a wall.

Friedman contends, as do other free-traders, that all nations benefit from free trade, and he cites trade between India and the United States as an example. By allowing the free flow of commerce between the two nations, Friedman says, each nation has benefited, and “one can see evidence of this mutual benefit in the sharp increase in exports and imports between the United States and India in recent years.” That imports and exports between the two nations rose is correct. But the biggest increase was in the U.S. trade deficit with India. From 2000 to 2011, it more than doubled, from $7 billion in 2000 to $14.5 billion in 2011—an all-time high. Like most of our major trading partners, India sells more to us than it buys from us—a trade gap that widens every year.

Friedman does recognize that free trade causes displacements, and as a solution he offers two ideas that have long been part of the free-trade manifesto. The first, as we discussed earlier, is to educate working Americans to give them the skills that will enable them to compete in the global economy. This should be accompanied, Friedman contends, by “a foreign strategy of opening restricted markets all over the world . . . thereby bringing more countries into the global free-trade system.”

For decades the United States has negotiated agreements to open foreign markets. In Japan’s case alone, the United States has followed this route countless times, cutting deals that supposedly would allow our products into the Japanese market. But there has been very little penetration. Most U.S. products and services still haven’t made headway in Japan. When a trade agreement isn’t honored, as has long been the case with Japan, how can the United States enforce the law other than by building, at least temporarily, a wall to keep out certain Japanese products? But Friedman and other free-traders are against walls of any kind. So we are left with unenforceable agreements that are selectively ignored to suit their own domestic needs by our so-called trading “partners.” This casual disregard for the way export markets are rigged against U.S. business has to cease. Otherwise, we have to ask: free trade is free for whom exactly? It’s costing us plenty.

Free-trade advocates say that American consumers are the beneficiaries of U.S. trade policy. But the real winners are America’s multinational corporations. Free trade has given them enormous power and influence—the ability to depress the wages of U.S. workers, to move jobs at will around the globe, to richly reward executives, and to pay handsome dividends to stockholders.

Thanks to Washington’s rule makers, a global corporation that moves its operations to a cheap labor zone anywhere in the world can bring its product back into the United States with few if any import duties and sell it in the domestic market for the same price it charged when the product was made by workers in Dubuque, Iowa. Congress has sweetened the deal even further with tax policies that allow corporations to park billions of earnings in offshore accounts beyond the reach of the U.S. Treasury—tax-free.

It’s natural for corporations to pursue their self-interest, but in decades past, Washington set policies that struck a balance between those interests and those of the nation as a whole. The complete triumph of free-trade ideology has upset that balance. For many Americans, this has meant stagnant or declining earnings, reduced benefits, and fewer job opportunities. This is not the result of inexorable global economic forces. These trade and tax policies were bought and paid for by the major corporations through their investments in congressmen and the lobbyists who know their way around Washington.

Although workers have paid the steepest price for free trade, costs have also been heavy for thousands of domestic companies—like Bartlett Manufacturing—that were unable or unwilling to move their operations offshore. For them, free trade has been a disaster. And those that survive often pay taxes at a higher rate than the multinational corporations that have relocated offshore.

Even when an effort is made in Washington to try to help domestic industries fighting for their lives against unfair trade practices, the money on the other side overwhelms it. In 2008 U.S. Customs and Border Protection proposed a change in the way duties are assessed on imported goods. Customs had long suspected that multinational corporations and importers were not declaring the full cost of goods they produced overseas. This deprived Treasury of revenue and made the cost of the imported goods artificially low, which undercut domestic manufacturers and their workers.

Customs proposed using a system that would conform with the way most other nations value imports. Even China, where most of the U.S. imports were made, uses a system similar to the one proposed by Customs. The change was supported by a trade association, the American Manufacturing Trade Action Coalition (AMTAC), composed of about one hundred domestic manufacturers, many in the textile industry.

But to the trade lobby, the change meant war. To scuttle the proposal, Boeing, Xerox, and other multinational interests joined forces with other importing companies as well as lobbyists for several foreign governments. Under the direction of their Washington lobbyist, himself a former customs official, they formed an ad hoc committee called the First Sale Coalition—so named for an obscure provision in customs law by which imported items are valued for tariff purposes. A friendly congressman then inserted a clause on their behalf in a pending bill to put the Customs proposal on hold. Eventually, they succeeded in killing it altogether. The ruling class had showed once more how firmly it was in control of the system.

FOR YEARS AMERICAN policymakers have tried to fool the electorate into believing that in a global economy everything will eventually work out. Poor countries with lots of cheap labor will take the dirty, unskilled jobs, leaving the smart jobs to countries with loads of educated people who have an entrepreneurial spirit.

We lost the so-called dirty jobs, and now we’re losing the jobs they told us we would keep. You can find some of them in a sleek new building in an ultramodern commercial and industrial park just outside the ancient Chinese city of Wuxi, 125 miles west of Shanghai. The Wuxi R&D Center is a principal research facility for Caterpillar Inc., the Peoria, Illinois–based maker of construction and mining equipment. Caterpillar’s Wuxi research hub is a 10,000-square-foot LEED-certified facility that conducts research on a wide range of Caterpillar products. Its laboratories test new engines, materials, systems integration, and electronics. Opened in 2009, Caterpillar staffed Wuxi with five hundred engineers and support staff.

The R&D lab followed Caterpillar’s major investment in manufacturing plants in China. Since 2007, when Caterpillar opened its first factory there, the company has been on a tear in the People’s Republic. A Caterpillar plant in Xuzhou manufactures excavating machines, a plant in Suzhou turns out graders, a factory in Tongzhou produces large wheel loaders, a plant in Jiangsu province makes engines. All told, the company has seventeen manufacturing plants in China so far.

Just two years after opening the Wuxi R&D Center, Caterpillar announced a major expansion there to add more laboratories for fuel systems, electronics, cooling, rollover protection, and virtual reality. Caterpillar said the center also would have “extended design capabilities.”

“China is the largest construction equipment market in the world, and Caterpillar continues to invest in China to help our Chinese customers succeed and to position Caterpillar for long-term leadership in China,” said Caterpillar vice president and chief technology officer Tana Utley. “The Wuxi R&D center is enabling Caterpillar’s product development success in China and other growth markets,” Utley added.

The exodus of American plants offshore has become commonplace, but the flight of more and more high-value jobs to facilities such as the Caterpillar laboratory wasn’t supposed to happen. Those were to be our jobs, the next stage in our development after we offloaded the low-skilled jobs. But things aren’t working out according to plan. The Chinese government isn’t content to just snag a plant of a Fortune 500 corporation; it wants some of the company’s brainpower too. And American multinationals, lured by the prospect of cheap labor and higher profits, are giving the Chinese what they want.

In exchange for the right to build plants in China, corporations are agreeing to turn over proprietary technology. Soon the Chinese will make the products for themselves without the help of their American tutors. In some cases, engineering and design knowledge—some of it funded by U.S. taxpayers—will flow to the Chinese, allowing them to shortcut a development process that ordinarily takes generations. R&D centers in which U.S. companies develop new products in tandem with the Chinese are found in many locations in China today. Boeing has one, and so does DuPont. So do scores of other U.S. multinationals.

Eli Lilly, the Indiana-based global pharmaceutical giant, represents yet another step in the transfer of high-value jobs. The corporation has established with a Chinese company laboratories in Shanghai and Beijing that will develop new prescription drugs. Pharmaceutical researchers in the United States are among the more highly paid members of America’s middle class. Without a doubt, more and more of these jobs will be flowing to China, India, and other developing nations.