US Presidential Election 2012

Can US come to terms with the trade-offs of free trade?

As much as Americans seem to resent cheap Chinese imports, they and their economy can't do without them

PUBLISHED : Monday, 05 November, 2012, 12:00am
UPDATED : Monday, 05 November, 2012, 12:59pm

Walking into a Walmart in suburban America is a bit like walking into the past and future at the same time.

Few places give you a better feel for the years of runaway consumerism now being questioned by ordinary Americans as they grapple with the pain of economic restructuring forced on them by the "great recession" and the malaise that followed.

But the acres of stacked aisles in Walmart point to the future, too - one where the US will probably produce even less retail goods than now, regardless of the current politically driven fetish for "Made in America" items.

Just ahead of an election that could lead to tougher US trade policies on China, regardless of who wins, I strolled on Saturday morning into the Walmart branch in Fairfax, a northern suburb in the swing state of Virginia.

Walking underneath the pair of Stars and Stripes flags marking its entrance, I decided to time how long it would take to find an American-made product - outside of the food section, of course.

After 20 minutes examining clothes - made mostly in China but also Cambodia and India - and watches, bicycles, gym equipment, heaters, futons, picture frames, office supplies - mostly made in China, but also places as diverse as Mexico, Canada and England - a stack of US flags appeared.

Sure enough - a point of pride, perhaps - they were emblazoned with "Made in the USA". At US$29 for a nylon flag on a two-metre pole you could buy an awful lot more in Walmart for the money.

In fairness, there were other items. Among the sporting goods - mostly Chinese-made, again - were a bag of pine-wood golf tees made in the US. And among the mountains of Christmas decorations - China - were some cinnamon-scented pine cones.

Rows of household oils, grease and car lubricants - oil derivatives - also featured US products strongly.

"We all talk big and shop small, if you ask me," said Virginia retiree Marsh Baker. "We talk about 'buying American', we despair at the loss of jobs, and all this stuff made in China, but come Saturday morning we're down the malls nickel-and-diming it.

"And you know what? In a bad economy, everybody's nickel-and-diming it all the way."

Talking to shoppers, it was a common theme. "I sometimes think it is like one mass addiction," said homemaker Val Miller. "We love all this cheap stuff. Would we put up with a sudden big hike to get it from elsewhere? No way. It ain't going to change."

Local taxi-driver Muhammad said he bought American when "I need quality, and something that will last". "But for anything else, yeah, I'll buy on price - and I know that means China."

Glancing along the shelves and in shoppers' carts, it was clear a more complex equation was at work, however. Many of the brands - from Brink's heavy locks to Coleman outdoor equipment - were classic American brands, selling at competitive prices utilising components made in China and elsewhere.

Free-traders point to that fact as evidence of the two-way nature of trade and its complex benefits. Cheap imports in many cases, and many different ways, help the efficiency and growth of US firms. Walmart itself, of course, is one of them.

Based in the southern US state of Arkansas, the firm is the world's largest retailer and, as the influential Foreign Affairs magazine recently noted, a major link in the US-China relationship.

Stacked up against nations, it would be China's sixth-largest export market and now able to control an extensive network of exclusive suppliers and sub-contractors on the mainland.

It also has more than 200-stores in China as it starts to seriously eye the mainland's expanding middle class.

Even by the oversized nature of the US suburban malls, Walmarts seem to dominate the surrounding area. As such, there are few more telling symbols of the seismic economic shifts that have occurred in recent decades, driven by a combination of globalisation, debt-fuelled US consumerism and the rise of China.

The "great recession" of 2008-09 has brought these issues to a head in an unprecedented fashion across America. Millions of American workers have lost their jobs, including many in manufacturing. Households are starting to save again. And even as the economy continues to revive in fits and starts, unemployment is still running at 7.9 per cent.

Amid the economic pain, fierce debates - and political manoeuvring by congressmen, unions, business lobbies and the White House - the classic arguments for free trade are seldom heard above the din.

On Tuesday, US voters will elect either incumbent president Barack Obama or his Republican rival Mitt Romney - both of whom have campaigned on tough action against China.

Romney has been particularly strong as he seeks to offer something fresh - vowing to formally declare China a "currency manipulator" on his first day in office. China's deliberate under-valuation of the yuan, Romney warns, is distorting trade and costing Americans jobs.

Such a move could spark formal US duties as punishment and is widely expected to generate a response by China, increasing the prospects of a trade war.

Both Romney and Obama talk in terms of fairness and level playing fields, wanting to force China to meet its obligations to provide market access and better protect US intellectual property.

Some trade analysts fear, however, that in reality the methods used - anti-dumping actions, for example - can too often fall prey to protectionist instincts among both parties.

Just as former president George W.Bush outraged free-traders when he slapped tariffs on Asia steelmakers early in his term, so did Obama when he imposed heavy duties on Chinese tyre imports to protect US jobs in 2009. And it is hard to see a popular backlash if either candidate gets into office and plays protectionist hard-ball - even though US consumers will see prices rise as a result.

One recent popular assessment, for example - disputed by some free-traders - from the pro-labour Economic Policy Institute stated that the ballooning US trade deficit with China had cost 2.7 million American jobs in the decade to last year.

Official government figures show that the Sino-US trade deficit reached a record US$295 billion last year - more than its other major trading partners combined. It was just US$6 million in 1985.

Just a decade ago, free trade was a hotter story - buoyed in part by hopes over progress in a new trade round at the World Trade Organisation. Those liberalisation talks - the so-called Doha round - remain stalled. The Bush-era US trade initiative - the Trans Pacific Partnership - remains a work in progress on Obama's watch.

Dan Ikenson, a scholar at the pro-free trade Cato Institute in Washington, said he had noted a depressing reluctance in politicians of all stripes to attempt a coherent and sustained free-trade argument beyond the China-bashing rhetoric. "It does seem harder to be a free-trader than it was," he said.

"I think it's vital that politicians still make the case that imports and proper free trade can help our own growth and manufacturers … It is about keeping us playing to our strengths and keeping us on top of the global value-added chain.

"We're not going to stay there by punishing our consumers through making them pay for protectionism - and that is not going to help us play to our economic strengths, such as innovative industries, high-end manufacturing and branding. The reality is that low-end retail is not for us anymore."

The US debate, Ikenson said, had to move beyond the "sports metaphor" of the China deficit. "It's like a scoreboard - our exports are our points, and our imports are their points. It's not zero-sum like in sports - history shows our economy just doesn't move in those terms."

That said, diplomatic and trade pressure to ensure proper market access and enforcement under WTO rules were vital - as long as protectionism could be avoided, he added.

A recent paper by Harvard professor Robert Lawrence, a senior fellow at Washington's Peterson Institute for International Economics, called for a renewed US trade policy to help drive on-going economic adjustment and future efficiency.

But while he cautioned that the erection of barriers was misguided and impractical, he also warned about the need to protect US interests.

"Inventing new products is of little use if others feel free to copy them without compensation," he wrote.

"Making goods and services more attractive is of no avail if market access is denied. Efforts to promote investment in the US by either foreign or locally owned firms will be hindered if firms located in the US do not enjoy the access to foreign markets provided to firms based in other countries."

While Walmart shoppers continue to revel in their cheap goods, Sino-US trade relations, it seems, are about to enter a potentially fraught new period - whether it is Barack Obama or Mitt Romney who wins tomorrow's presidential race.