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Balancing free trade, U.S. jobs can be a messy business

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By James McCusker
Herald Columnist
Manufacturing is one of those things that looks simple from a distance, but can be messy up close. It's a lot like economics in that respect.
For over a half-century, since the end of World War II, the United States has been preaching and practicing an economic policy based on ending import tariffs and other barriers to free trade.
The policy made sense from a theoretical standpoint. Since the time of Adam Smith and David Ricardo, economics has painted a clear picture of the efficiency and consumer benefits of free trade.
Free trade also made sense politically and practically, in the sense that it furthered U.S. interests overseas. No sooner had World War II ended than we found ourselves in a global struggle with world communism. Getting rid of trade barriers fit in well with the joint goal of furthering democracy and economic development as the best bulwark against communist expansion.
As a practical matter, also, the U.S. held so much of the world's manufacturing and agricultural production capability that its capacity greatly exceeded domestic demand. Opening up global markets was the answer to our full employment prayers.
It worked, especially the political part. The spread of democracy and economic growth around the world provided developing countries enough energy and staying power to outlast communism's dreams of world domination.
The U.S. now faces new threats and new economic challenges, though, some of which are the unintended consequences of those same trade policies.
President Barack Obama has made it clear that he wishes to encourage U.S. manufacturing capability, but generally he has seemed more interested in underwriting the development of new technologies than in nurturing and promoting our existing capabilities. He is also interested, quite correctly, in insuring the availability of a skilled work force prepared for today's manufacturing environment.
New technologies and educational changes, however, all deal with the pristine future, still unmarred by the imperfections of the real world. American manufacturing jobs, though, are caught up in the messy present, which has enough grime, politics and jobs on the line to satisfy anybody's taste for reality.
There are two interesting trade policy cases that will test the Obama administration's support for U.S. manufacturing, and its willingness to deal with messy reality.
One of these cases involves Boston-based, New Balance Athletic Shoe, Inc., the last maker of athletic shoes to have a manufacturing facility in the United States. It employs more than 1,300 people in its shoe factories in Maine, turning out about a quarter of the shoes sold by the company. The rest are imported.
New Balance has only a minority share of the U.S. market, but a serious effort has been mounted to eliminate the tariff on imported shoes because other U.S. shoe companies see the import duty as draining funds they could put to better use.
Eliminating the tariff would almost certainly mean the end of the New Balance manufacturing jobs. Essentially, the federal government will have to choose between its devotion to free trade and its responsibility to U.S. jobs. It's not easy. It's not clear. It's messy.
Another trade policy case involves an U.S. Air Force contract for Light Air Support airplanes that are destined for use by the Afghan air force. The Beechcraft Co., based in Wichita, Kan., which recently emerged from bankruptcy, has filed a protest over the award of this contract to a team representing Embraer, based in Brazil.
Each of the competing aircraft are capable planes, but the U.S. Air Force has had a clear preference for Sierra-Nevada team that would use the Embraer A29 Super Tucano, which is already in use by several Latin American countries. The Beechcraft Turbo AT-6 promises to be as capable and is considerably less expensive.
Both the Beechcraft and Embraer aircraft have modern capabilities, but designs that are pleasingly retro, evocative of the P-40s of Flying Tigers fame. Several South American air forces flying the Embraer Super Tucano have added the Flying Tiger-like emblematic teeth to their planes' livery and the Beechcraft prototype includes them as well.
The jobs picture in the aircraft decision is not as clear cut as in the New Balance case, since both planes would be assembled in the U.S. and the bulk of the parts for the Embraer would be produced by U.S. manufacturers. However, the larger jobs picture, dependent on Beechcraft's survival as an aircraft manufacturer, is at issue in this contract. It will not be an easy decision. It's messy reality.
Together, the New Balance and the Beechcraft decisions will be a test for the Obama administration's commitment to the reality of U.S. manufacturing, and its willingness to mix it up in the scrimmage of domestic and international negotiations when jobs are on the line.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.
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