The striking workers at John Deere just rejected the second contract proposal offered by the company. The workers need to be careful to not put John Deere in the position of being not competitive in world markets.
About 40% of John Deere’s revenues come from outside the U.S. If the company is not competitive internationally it will see a dramatic decline in revenues, profits… and jobs. Many people today push us to “buy American”. That sounds good and patriotic, but if other countries do the same we will all be poorer.
International free trade, just like free trade among the states in the U.S., has two sides: In the long run, it makes everyone better off, but in the short run disrupts the lives of many. The best policy is to have a safety net that helps those who lose their jobs transition to new jobs, while allowing free trade to help improve the income and wealth of people around the world.
Below is the link to an excellent article by Eric Boehm from Reason magazine’s August/September issue. It gives specific evidence that shows how international trade makes us safer in a world-wide pandemic rather than the opposite. There is a knee-jerk reaction when we have shortages to assume that we would be better off if we did not depend on other countries for our various needed products. This essay shows that the facts indicate otherwise.
The letter to the editor in the Des Moines Register on July 4, 2012 by Mark Cooper, president of the South Central Iowa AFL-CIO, makes clear that he refuses to recognize the laws of economics and want government to tip the balance in his favor. He bemoaned, “The closure of more than 50,000 manufacturing facilities, the loss of nearly 6 million manufacturing jobs, and chronic trade deficits are all signs of our diminished industrial and innovative capability.” In fact, over the past 30 years manufacturing output has more than doubled after adjusting for inflation. U.S. manufacturers are very innovative and have increased capability. Innovation and improvements in technology have allowed higher output with fewer jobs – especially fewer unskilled jobs. It used to be that an honest, hard working person with few skills could get a job in a factory that paid well. Over time, machines have been developed to do the strenuous, repetitive and dangerous tasks. It is specifically innovation, not international trade and low wages in foreign countries, that has caused most of the job losses in manufacturing.
International free trade does put downward pressure on wages, but it also has the benefit or lowering the prices we pay for many products and services. There have been real losses in jobs and manufacturing since the recession started in 2008, but the recession was caused by a government abetted speculative bubble in the housing market, not international trade. Minimum wage laws price out of the market those with the least skills, and at the same time tends to keep prices high when they otherwise might fall. What exactly would be wrong if wages fell 25% but prices fell by 50%. Unfortunately, our government has a vested interest in making sure that we have inflation in our economy. They are working very hard to push up the prices of houses, which probably has the biggest negative effect on relative poor people who don’t have a home but would like to buy one.
Philosophically, people should be free to peacefully and voluntarily exchange their labor and their property without interference by government. When government gets started in regulating trade, those with the most political power will get protection and everyone else will pay higher prices.