The Betrayal of the American Dream

by Donald L. Barlett

  In lauding the bill, Republican senator John Danforth of Missouri recited a script handed down from earlier debates. Danforth promised that the new law “significantly strengthens . . . that provision in the law which provides our government with the ability to retaliate against unfair practices against U.S. exports.” Democratic senator Lloyd Bentsen of Texas praised the bill for setting the United States on a new course and scolded our trading partners: “The United States has taken the lead in building support for an open international trading system. The rest of the world, unfortunately, has not reciprocated. Our partners in trade have been quick to take advantage of our open markets while often managing to keep theirs closed or protected.”

  Three years later, the goods trade deficit soared to $160 billion, yet another record. Once more, sounding as though Congress was suffering from collective amnesia, lawmakers said that they were getting serious as they crafted the Omnibus Trade and Competitiveness Act of 1988. Republican representative Nancy Johnson of Connecticut called it a “tough trade law” providing real reform. “Its tough penalties include mandating retaliation when negotiated agreements are broken, compensation for parties that are injured by dumping,” she said. Her Republican colleague Don Sundquist of Tennessee said that the bill would allow the United States to “go to our trading partners . . . [as] a strong, unified front against unfair foreign trade practices.” Democratic representative William J. Coyne of Pennsylvania said that it gave the United States all the tools “we need to strengthen America’s hand against unfair trade practices and start on the road toward reducing this enormous trade deficit.” Democratic senator Bennett Johnston of Louisiana said that the trade law sent a forceful message to the rest of the world: “When the United States and its products are discriminated against by other countries, we are not going to take it lying down; we are going to do something about it.”

  It did no such thing. But that’s because Congress’s actions ensured that the country’s workers would have to continue “to take it lying down.” Five years later, another trade bill to open foreign markets was once again back before Congress. This was NAFTA (the North American Free Trade Agreement), a treaty that knitted together the economies of the United States, Mexico, and Canada by eliminating all tariffs among them to promote the free flow of goods. Even though U.S. manufacturers of autos, machinery, apparel, electronics, and many other products were sending a steady stream of jobs to Mexico, the United States was selling slightly more goods to Mexico than it bought, so in 1993 the United States had a relatively tiny trade surplus with Mexico of less than $2 billion.

  Supporters seized on this to mount their most grandiose case ever: by lowering tariffs, NAFTA would be a bonanza for American exporters and provide high-paying jobs to U.S. workers. “We will have greater access to a rapidly expanding market that hungers for U.S. consumer products,” contended a bullish Republican representative, Jim Kolbe of Arizona. But with millions of manufacturing jobs already lost and small businesses hurt by imports since the 1970s, many worried that NAFTA would accelerate the slide, and fierce opposition mounted against the trade pact.

  Congress brushed aside concerns about jobs. “NAFTA will provide trade reforms that will lift all boats with a rising tide of prosperity,” proclaimed Senator Orrin Hatch, the Utah Republican. “The United States will enforce its own domestic trade laws to deal with unfair trade practices.” Democratic senator John Breaux of Louisiana predicted that American workers “will prosper and increase in numbers as a result of a free-trade agreement.” In casting his vote for NAFTA on November 20, 1993, Republican senator Phil Gramm of Texas said that America would one day look back fondly on the day NAFTA was approved: “I think as we look back, people a decade from now will have a hard time understanding what was controversial about NAFTA.”

  Dead wrong. As usual, Gramm and the others were speaking for the super-rich ruling class and Wall Street. At the time, Gramm’s wife, Wendy, was chairman of the Commodity Futures Trading Commission (CFTC) and President Reagan’s “favorite economist.” It was during her tenure that the CFTC exempted the trading of energy derivatives from regulation. When she left the CFTC, she took a seat on the Enron board of directors. Thanks in part to the unregulated derivatives, Enron collapsed, taking with it the jobs of thousands of employees and wiping out their retirement accounts. It was the canary in the coal mine for what would prove a few years later to be the largest economic failure since the Great Depression.

  A decade after NAFTA’s passage, the trade agreement was more controversial than ever. The claims of its supporters turned out to have been hollow, and the fears of its opponents came true. The much-vaunted trade surplus with Mexico that backers used to engineer NAFTA’s passage quickly evaporated, replaced by a trade deficit that became the norm. The cumulative deficit with Mexico had ballooned to $698 billion by the end of 2011. Sometime in the next five years the total will approach $1 trillion, and another major milestone for American jobs deliberately terminated by the U.S. Congress will have been reached.

  Rather than stimulate exports to Mexico, NAFTA triggered a rush of American companies to invest south of the border, and Mexican imports to the States surged. In the five years before NAFTA, Mexican imports increased 51 percent. In the five years afterward, they jumped 91 percent. General Motors even built housing there for its new workforce. Indeed, it felt almost as if entire portions of the U.S. economy had, as it were, gone south. As for exports to Mexico, the growth rate actually declined, according to the Washington-based Economic Policy Institute (EPI).

  The numbers provided a warning of what was in store for American workers: In the five years before NAFTA, the United States maintained an average trade surplus of $168 million with Mexico. In the five years after, that number plunged in the other direction, to an average annual trade deficit of $12.5 billion.

  After NAFTA, as companies large and small began shifting work to Mexico, the Labor Department was flooded with thousands of petitions from workers seeking unemployment benefits based on jobs lost through trade. Among them:

  Woodward Governor Company, Stevens Point,

  Wisconsin: 1,330 workers

  Smith Corona Corporation, Cortland, New York:

  874 workers

  Oxford Industries, Dawson, Georgia: 340 workers

  Sara Lee, Martinsville, Virginia: 300 workers

  Key Tronic Corporation, Cheney, Washington:

  277 workers

  Johnson Controls, Bennington, Vermont:

  276 workers

  Emerson Electric Company, Logansport, Indiana:

  200 workers

  Alcatel Data Networks, Mount Laurel, New Jersey:

  120 workers

  Parker Hannifin, Berea, Kentucky:

  114 workers

  By 2011 an estimated 1.5 million American jobs had been eliminated by imports from Mexico, according to Economic Policy Institute calculations. EPI estimated that exports to Mexico supported 791,900 jobs in 2010, meaning a net loss of about 700,000 jobs. In 2004 EPI had estimated that lost wages from NAFTA job losses were costing American workers $7.6 billion a year. That’s the equivalent of all the annual income of 150,000 American families.

  To be fair, the fault lies not just with Congress. Every occupant of the White House, regardless of party, has been equally zealous in selling out workers on trade. For decades, every president has been an ardent advocate of unrestrained free trade and has resisted any significant step that might be interpreted as protectionist, even though our trading partners have been doing the opposite.

  In 1976, when the U.S. shoe industry protested that it was being engulfed by cheap, government-supported imports from Brazil, President Gerald R. Ford refused to provide relief. Even though the U.S. International Trade Commission, itself a bastion of free-trade policies, had concluded that the American shoe industry was being harmed by Brazilian government policies that violated international trade law, Ford refused to side with the U.S. industry.

  To impose tariff
s on Brazilian shoes, he said, “would be contrary to U.S. policy of promoting the development of an open, nondiscriminatory and fair world economic system.” Two years later, Democratic president Jimmy Carter also declined to impose tariffs on Brazilian imports. At the time of Ford’s decision, the American shoe industry employed 172,000 workers. By 2012, fewer than 15,000 worked in the industry, according to the Labor Department.

  In 1985, after thousands of textile industry jobs had been lost to imports, Congress passed legislation to impose higher tariffs on textile imports, but President Ronald Reagan vetoed the bill, calling it protectionist and a violation of free trade. “We want to open markets abroad, not close them at home,” he said in a refrain that had become distressingly familiar to American workers in many industries. Even though he had just killed a bill that would have saved jobs, Reagan sought to assure textile employees that he was on their side and insisted that he would not “stand by and watch American workers lose their jobs because other nations do not play by the rules.” In fact, that’s exactly what he did. There were 746,000 textile industry workers in 1984 when Congress and Reagan took up the issue of textile tariffs. By the time he left office, the number was down to 728,000. In 2011, only an estimated 120,000 workers were left, according to the Labor Department.

  NAFTA was negotiated under President George H. W. Bush, who pledged that the agreement would permit the United States to sell to Mexico “even more of the goods we’re best at producing: computers, manufacturing equipment, high-tech and high-value products.” But NAFTA was sold to Congress and the nation by Bill Clinton. “I believe that NAFTA will create a million jobs in the first five years of its impact,” Clinton proclaimed on September 14, 1993. “NAFTA will generate these jobs by creating an export boom to Mexico.” Clinton could not count any better than his predecessors.

  During the George W. Bush administration, the U.S. International Trade Commission ruled in four cases that Chinese steel imports were unfairly harming U.S. businesses and workers and recommended that the president impose tariffs on Chinese goods. But in every case Bush declined to do so: “I find that the import relief would have an adverse impact on the United States economy clearly greater than the benefits of such action,” Bush wrote in denying relief.

  President Obama has given tentative approval for a plan to open U.S. highways to commercial trucks from Mexico, fulfilling one of NAFTA’s promises. Every president since the first George Bush has supported the idea of allowing trucks from Mexico to deliver goods to the United States, a policy that would throw thousands of U.S. truckers out of business.

  Who says that bipartisanship is dead in Washington? It’s worked to perfection in trade policy—with devastating consequences for working Americans. Despite all the bluster out of Washington demanding fair trade policies by our trading partners, the United States hasn’t had the political will to back up the rhetoric. To do that in all likelihood would require administering a dose of what the ardent free-traders call protectionism. Our trading partners know that’s not going to happen. The pressure from powerful multinational corporations and the uproar from some economists and media personalities would make any move to establish trade restrictions—even temporarily—next to impossible.

  So the charade goes on. While Washington mouths platitudes and gives lip service to trade reform in a never-ending cycle, the trade deficit soars. Thanks to both parties, the cumulative trade deficits since 1976 add up to a staggering $10 trillion. That’s “trillion” with a T, an ocean of red ink that translates into millions of lost jobs. But you never hear about that. The politicians and the news media only talk about jobs created by exports. They never mention the jobs eliminated by imports.

  OUR GREATEST EXPORT

  On any given day, the huge gantry cranes at the port of Long Beach in California are busy hoisting bulk containers onto the decks of freighters bound for China. Inside these twenty-ton boxes the size of railcars are America’s exports.

  Politicians and economists have long hailed exports as America’s economic future. Export jobs pay more than other jobs, they say. Exports help reduce the nation’s trade deficit. And exports are a sign that America is competitive in the global economy.

  So what’s in those colorful containers stacked several stories high on the decks of these gigantic ships bound for China?

  Scrap paper.

  More containers leave U.S. ports loaded with old cardboard boxes, shredded documents, paper bags, and other paper scraps than any other product. “The U.S. has become to waste-paper what Saudi Arabia is to oil,” the Journal of Commerce says. In 2010 an estimated 20 million tons of waste paper was shipped from U.S. ports. That filled a lot of containers, but it isn’t worth much as an export. The total value of scrap-paper exports has recently been as high as $3 billion a year, according to the U.S. Census Bureau—less than 1 percent of the value of the $365 billion in merchandise the Chinese shipped to us in 2010.

  Once they leave our ports, our old boxes and paper bags travel six thousand miles to China, where they are recycled into new boxes. These boxes are used to pack products made in China—toys, electronics, computers, clothing, shoes, furniture, tools, and countless other consumer goods that were once made in the United States. Then they’re loaded into containers and shipped back to the United States, mostly to the ports of Long Beach and Los Angeles.

  All this activity at our ports creates work. But what kind?

  South Alameda Street in Long Beach is a busy four-lane roadway that slices through a district of warehouses, rail yards, and truck depots about ten minutes north of the port of Long Beach. It is the “Recycling Corridor,” so named for its ragtag collection of businesses that recycle paper and scrap metal, another big export to China. At Corridor Recycling, the gates open at 6:00 AM, and pickup trucks piled high with old boxes begin streaming in. Drivers bring scraps scavenged from just about any place that has old cardboard boxes—shopping centers, supermarkets, retailers. They weigh in at a gatehouse, then dump their old boxes and other scrap paper into a mountain of refuse on the grounds. On a good day, drivers say they can earn as much as $90—not the wages some once enjoyed when they held manufacturing jobs, but “for now,” as one told a Wall Street Journal reporter in 2011, “this is a help.”

  The scrap paper is bundled into bales and packed into containers, then trucked to the port and loaded onto freighters. This creates some jobs for the recyclers, the brokers who arrange shipping, and the crane operators who load the containers. But it doesn’t do much to lower the trade deficit or to provide good-paying jobs.

  But there is a big winner. One company has come to dominate the scrap export market. It ships 225,000 containers of scrap paper from American ports, more than any other company. Its revenues have steadily risen as the demand for American scrap in China has soared. Probably only one person in a million would recognize the company’s name—American Chung Nam—but anonymity suits the company just fine. American Chung Nam is the American branch of the global business empire of a wealthy Chinese investor, Cheung Yan, said to be one of the richest women in China.

  Cheung Yan is worth at least $900 million, and before the global recession she was worth several times that, according to Forbes. She made her fortune largely by cornering the market on scrap-paper exports from the United States. She ships old cardboard boxes and other paper debris to her Chinese company, Nine Dragons Paper, which recycles the trash into boxes that Walmart, Target, Home Depot, and other companies use to ship their Chinese-made products to the United States.

  Founded in 1995, Nine Dragons is one of the largest paperboard producers in the world. Even with the downturn in the world economy, Nine Dragons had record revenues of $2 billion in 2011. The company has four modern plants in China, including one of the largest paper mills in the world—with plans for two more factories either under construction or in the works.

  Cheung Yan’s business is all over the world, but the heart of it remains the old boxes and scrap paper that unemploye
d Americans and others gather up and deliver to recycling centers in Long Beach and other U.S. cities.

  But surely we export something of more value than scrap?

  Yes indeed. On the list of our top ten exports compiled by the U.S. Commerce Department each year can be found automobiles, pharmaceutical products, and automotive parts. Those three categories accounted for $103.6 billion in exports in 2009. But imports of those same goods were more than double our exports—$209.6 billion. And that’s been happening since the U.S. trade balance dipped into the red. Exports go up, but imports go up even more.

  Which is why America has the highest trade deficit of any nation in the world.

  As the trade gap widens in each decade, every administration in both parties has promoted the myth that exports will be the answer to job creation in the United States, while refusing to acknowledge the devastating logic of that claim: if exports help employment, then imports must help unemployment. Imports kill good-paying jobs at home, and we have been importing a lot. In 1980 we imported 7 percent more goods and services than we exported. In 1990 we imported 15 percent more. By 2000 the gap had shot up to 35 percent. And in 2008, before the global economy went south, it had risen to 38 percent.

  Instead of admitting this, we talk about the exports:

  Our booming export business . . . is growing four times as fast as the volume of imports. And much of this export surge is in manufacturing exports. Today industry after industry is finding itself in an export boom (Ronald Reagan, 1988).