Corporate Big Media and the Myth of Free Trade

April 9, 2008

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As many of you know, the issue of “profits over people and the environment” is a passion of mine that I have followed closely over the past 15 years. Free Trade agreements have historically been used by multinational corporations and the financial industry to exploit labor and the environment to increase profits. Rather than face the costs of meeting U.S. environmental standards, factories and their pollution are moved to places like China and Mexico. Instead of supporting U.S. living standards, pensions, and health care, jobs are offshored to Mexico, India, and China. Rather than selling items at a fair profit, big box retailers like Wal-Mart pressure their vendors to move factories to China so that items can be sold at up to 80 percent profit.

As a consequence of all this, Wall Street has become richer and Main Street has become poorer, the U.S. borrows $2 billion daily to finance free trade (at taxpayer expense), the U.S. trade deficit is now so large that the Federal Reserve Chairman says it’s unsustainable.

It has been said that free trade “is a cover behind which special interests lobby for their profit at the expense of society. That is what in reality free trade means – trade ‘free’ from government intervention to protect the common good.” Although blunt, that statement seems reasonable considering that free trade agreements have resulted in millions of U.S. manufacturing and related jobs being lost, trillions of dollars in trade deficit-related debt being accumulated at taxpayer expense. The beneficiaries of all this: Multinational corporations and investors who use low-wage foreign labor, lax environmental standards/enforcement, and duty-free U.S. market access to generate huge profits.

Corporate America and the Financial Industry have significant influence in our government. This is nothing new in U.S. history, but it is amazing that, even as Corporate America ships millions of jobs to low-wage countries, their influence in U.S. politics is increasingly out of proportion to the number of U.S. employees they hire (no doubt due in part to the enormous and growing corporate lobbying industry). The old saying “what is good for GM is good for America” used to be true. As a consequence of globalism, today I believe it’s more accurate to say “what is good for GM is good for GM".

Although people argue about how many jobs are created and lost as a result of free trade, there is no argument about one of its most serious consequences: A staggering and chronic annual trade deficit that, as I mentioned previously, is unsustainable. In 2006, the U.S. suffered a record-setting $817 billion trade deficit in just one year. People complain about the financial costs of the Iraq war yet ignore the enormous financial costs of free trade (nearly $6 trillion in accumulated trade deficits, $2,000 per U.S. worker per year to service this debt - a sad example of a majority of workers subsidizing profits of the few in the financial industry).

I’ve also been quite disappointed in the editorials and stories corporate Big Media has published on this issue over the years. While they may give lip service to the job losses and environmental damage free trade agreements cause, their story line is usually the same: Free trade is good, globalization is good, and if you disagree you are protectionist and should not be listened to. I wonder if corporate Big Media reaches this conclusion because of their directors who also sit on the boards of Wall Street investment firms and other corporations with who use low-wage foreign labor. Thanks to the internet and independent media, there is quite a bit of unbiased information out there if you have the time to find it, read it, and understand it. I have spent quite a bit of time pulling together information on this issue that I hope you will find helpful.

We can sit back, do nothing, and wait for a major global economic correction to occur and more workers to be exploited for profits or we can insist that our elected leaders change U.S. economic and trade policies to address the trade deficit problem in the interest of all Americans. I hope we can all agree on the latter.

I invite you to read the following related commentaries:

o My Commentary: Government Motors: How GM Became a Giant Mess

o HuffingtonPost: Journalism Becomes Stenography - From NAFTA to Iraq to The Secret Trade Deal

o Fortune-Warren Buffet: America’s Growing Trade Deficit Is Selling the Nation Out From Under Us

o My Commentary: Big Media and the Myth of Free Trade (see below)

All the best.


 

Corporate Big Media and the Myth of Free Trade

April 9, 2008
 

Did you know that the U.S. government borrows nearly two billion dollars every day to finance free trade? It's an incredible fact that receives little attention in the corporate Big Media. In 2006, for example, the U.S. suffered a record annual trade deficit of $817 billion. This means that the U.S. consumed net $817 billion more than it produced for export -- in a single year!

Each dollar spent on imports of goods that are not matched by a dollar of exports, shifts workers into activities in non-trade competing industries like department stores and restaurants. International trade has been an enormous drag on U.S. economic growth in recent years. 

Yet, if you turn to the corporate Big Media for news and insight on U.S. international trade and economic policies, you'd be hard-pressed to find much concern about chronic and massive trade deficits, related job losses and public debt. I can still remember many of the corporate Big Media newspapers printing their editorials in favor of NAFTA fifteen years ago. The language and tone in some of those editorials directed at opponents of NAFTA bordered on belligerent and uncivil. Resorting to name-calling anyone who wasn't for NAFTA, opponents were tagged "protectionist" by the corporate Big Media and business lobbies. The usual talking points NAFTA proponents used in editorials, debates and discussions said NAFTA would create hundreds of thousands of U.S. jobs, turn the slight deficit with Mexico into a $10 billion annual trade surplus, and eliminate illegal immigration. Apparently, there's no accounting for credibility on the editorial pages. The reality is that the claims by NAFTA proponents proved wildly off the mark. Instead, the U.S. trade deficit with Mexico passed $74 billion in 2007 and significant numbers of good paying jobs (many with health care and pension benefits) have moved to Mexico. As Electrolux told Michigan's governor recently: "There is nothing you can do to compensate for the fact that we are able to pay $1.57 an hour in Mexico."

NAFTA's story was repeated later during the WTO/GATT debate and again during debate of the China free trade agreement. Now, many of the same old players who brought you NAFTA and China free trade, are promoting another NAFTA-style free trade agreement with Colombia. President Bush, saying it is urgent, has just given Congress 90 days to vote on the free trade agreement. As in prior debates, corporate lobbyists, corporate economists, and the corporate Big Media, still ignore the failures of past U.S. free trade agreements and peddle the nostrum of more free trade agreements. The latest example that I've read was from the New York Times in their April 6, 2008 editorial Some Truth About Trade. My personal opinion is that it's unrealistic to expect corporate Big Media to be objective about free trade agreements.

William R. Hawkins, a Senior Fellow for National Security Studies at the U.S. Business and Industry Council, wrote an excellent rebuttal to a February 13, 2008 NY Times op-ed written by Robert Reich (economist and Secretary of Labor in the Clinton Administration):

Being told that this success story must be abandoned to conform to the sophistry of academic “free trade” theory is nonsense.  And, in fact, the economic theory underlying free trade is not in itself very convincing.  (I know, having taught it for over a decade at the university level.)  It is a cover behind which special interests lobby for their profit at the expense of society.  That is what in reality free trade means – trade “free” from government intervention to protect the common good.

Mr. Hawkins' statement about free trade seems reasonable considering that free trade agreements have resulted in millions of U.S. manufacturing jobs being lost and trillions of dollars in trade deficit-related debt being accumulated at taxpayer expense. Free trade agreements have resulted in huge profits for multinational corporations and investors who rely on low-wage foreign labor and duty-free U.S. market access. So, why does corporate Big Media continue to gloss over the failures of past free trade agreements and report and editorialize about free trade in such glowing terms? In my opinion, I believe the reasons include the interlocking directorates that govern corporate Big Media.

A Peek At Who Runs The Media

For example, according to FAIR (Fairness and Accuracy In Reporting), the New York Times has directors who also are on the boards of (partial list): Alcoa, Bristol-Meyers Squibb, Carlyle Group, Chase Manhattan, Ford, London-based Hanson PLC, Lehman Bros, Metropolitan Life, PepsiCo, and Texaco. The Washington Post/Newsweek has directors who also are on the boards of (partial list): Bermuda-based White Mountain Holdings, Ashland Oil, and Lexmark. Gannett/USA Today has directors who also are on the boards of (partial list): Goldman Sachs, IBM, Prudential Mutual Funds, Textron, and United Health Group. And, lastly, CNN/Time-Warner has directors who also are on the boards of (partial list): American Express, AMR, Chevron, Citigroup, Dell Computers, FedEx, Morgan Stanley Dean Witter, New York Stock Exchange, and Pfizer. Similar situations exist at other media conglomerates.

The main function of the board of directors is to manage a corporation in the best interests of the shareholders.

When I look at the above list of interlocking directorates, the common thread I see governing corporate Big Media is the financial industry (Wall Street, investment firms, etc) and big multinational corporations who have strong ties to low-wage foreign labor. It's not that corporate Big Media is too cozy with Corporate America - they are Corporate America. I believe it's reasonable to question whether the influence of their interlocking directorates, as well as their advertising customers, affects the content, reporting (or lack thereof), and "spin" of news reported by corporate Big Media - particularly on the issue of free trade agreements. I believe the answer may bring into focus corporate Big Media's obsession with favoring free trade agreements.

Distorted Trade Statistics

Proponents of free trade agreements are facing a difficult time these days peddling their views in the face of unsustainable trade deficits and worsening economic conditions. One of the talking points free trade proponents like to use is to highlight exports. In one example, the Dallas Morning News ran the story Texas May Dodge Economic Slump on January 21, 2008. One excerpt from this story, written by Brendan Case, mentioned a "bright spot" in the nation's economy:

And it's not just oil and gas. Foreign markets continue to thrive, with Texas exports rising more than 11 percent, to $153.8 billion, between January and November 2007. That makes it the largest exporter among the states, contributing 14.5 percent of the nation's $1.06 trillion in exports through November, according to WiserTrade, a research group.

Six weeks later, the Dallas Morning News ran the story (also written by Brendan Case) New Census Bureau data could end Texas' reign as top exporting state on March 3, 2008 and reported that export statistics do not always take into account where goods are manufactured. The statistics report the origin of goods where they begin their journey to their destination. Trouble is, the origin can also be a shipping consolidation center in another state. Consequently, export statistics used by states are distorted.

This well-written story also reports that the U.S. Census Bureau is experimenting with a new system to more accurately report the origin of goods. I believe the statistics from the new system will still be distorted since the origin of goods does not take into account the domestic content of the goods being exported. For example, the total value of a computer assembled in Texas from imported components (processor, disk drive, power supply, memory, etc) is reported as an export when, in fact, what's actually occurring is the re-exportation of foreign merchandise.

In my opinion, to accurately measure the success of U.S. international trade policy,  both imports and exports must be considered to account for re-exportation of imported goods and consumption of imported goods. To only look at exports that include re-exportation of imports is a significant distortion and I believe overstates the employment significance of our exports. When both imports and exports are taken into account, it is clear that U.S. trade policy is fatally flawed and has been for a long time. There have been at least thirty consecutive years of trade deficits (see chart) and nearly every year has been worse than the previous year. Proponents of free trade agreements will say that trade deficits don't matter because of foreign investment. That is simply not true. Prof. Peter Morici, Robert H. Smith School of Business, University of Maryland writes on January 9, 2008:

Trade deficits must be financed by foreigners investing in the U.S. economy or Americans borrowing money abroad. Direct investments in the United States provide only about a tenth of the needed funds, and Americans borrow about $50 billion each month. The total debt is about $6 trillion, and at five percent interest, the debt service comes to about $2000 per U.S. worker each year. High and rising trade deficits tax economic growth. Each dollar spent on imports, not matched by a dollar of exports, shifts workers into activities in non-trade competing industries like department stores and restaurants.

Before I leave the subject of exports, it's interesting to note the ten fastest-growing export sectors in 2006-2007:

o wheat: +97.3%
o soybeans: +44.7%
o waste/scrap: +41.8%
o turbines and turbine generator sets: +40.7%
o vaccines and other biologic products: +40.1%
o corn: +38.2%
o non-ferrous ores: +37.6%
o jewelry parts and materials: +36.1%
o used and second-hand merchandise: +33.8%
o coal tars and related petroleum products: +30.7%

A Crisis Of Confidence

With the exception of turbines, generators, and vaccines, the above list is not very exciting. Prof. Peter Morici writes on April 4, 2008:

In February, manufacturing lost 52,000 jobs, and over the last 91 months manufacturing has shed more than 3.6 million jobs.

The growing trade deficit with China and other Asian exporters is a key factor. Were the trade deficit cut in half, manufacturing would recoup at least 2 million of those jobs, US growth would exceed 3.5 percent a year, household savings performance would improve, and borrowing from foreigners and the federal budget deficit would decline.

The dollar remains too strong against the Chinese yuan, Japanese yen and other Asian currencies. The Chinese government artificially suppresses the value of the yuan to gain competitive advantage, and the yuan sets the pattern for other Asian currencies. These currencies are critical to reducing the non-oil US trade deficit, and instigating a recovery in US employment in manufacturing and technology-intensive services that compete in trade.

To affect this policy, China intervenes in currency markets, selling yuan for dollars and other western currencies at a discount from a market determined price. In 2007, this intervention reached $461 billion or 44 percent of China’s exports. Ben Bernanke has correctly characterized these as an effective subsidy on exports.

Sadly, Treasury Secretary Henry Paulson, in a recent speech to the Economics Club of Chicago, expressed the view that the employment situation in manufacturing is healthy and characterized as protectionist substantive efforts to redress exchange rate problems with China, proposed by Administration critics in Congress. With such apathy from the Administration and contempt expressed by Paulson for those who differ with him on appropriate tactics, it is small wonder that blue collar workers and their unions question the efficacy of US trade policy.

A crisis of confidence has emerged regarding the conduct of US trade policy, and the Republican Administration and Democratic majority in Congress ignore it at peril of the nation.
 

And, to add to Prof. Morici's last sentence above, corporate Big Media and U.S. citizens ignore the reality of U.S. trade policy at the peril of the nation. U.S. trade policies have been negotiated on behalf of corporate interests, not on behalf of citizens. Huge corporate profits, offshoring, factory closings, and chronic and large trade deficits bear this out. The trade deficit is no longer sustainable and if it's not corrected soon, there will be a major economic global correction. Existing trade agreements and future trade agreements must reflect the interests of all Americans, not just Wall Street and multi-national corporations. Indeed, Prof. Morici writes:

As a consequence of decades of trade deficits, our children will be less productive, poorer and saddled with huge interest payments to foreign creditors.

No surprise these costs are overlooked by advocates of the status quo. Many work for private equity firms, hedge funds, and large commercial and investment banks on Wall Street. They champion outsourcing, as it offers the opportunities to finance big deals that move Midwestern factories to Asia and to enter Chinese financial markets. We would do well to remember they are the same bunch that gave us the subprime crisis, the collapse and foreign rescues at Merrill Lynch and Citigroup, the melt-down in the mortgage and housing markets, and the pending recession.

Meanwhile, the Bush Administration lectures China but ignores the corrosive consequences of the trade deficit. Leaders in Congress talk tough but have not acted.

Our children will be poorer, much poorer for this sophistry.

Free Trade With Colombia

I am studying the Colombian free trade agreement that President Bush says is so urgent. By most accounts, it appears to use the NAFTA model. One of the key things I've zeroed in on is that the agreement reduces risks to investors and multinational corporations who locate in Colombia. It does this by protecting investments in the event assets are nationalized. I believe this key provision is being sought after by U.S. multinational corporations as a prerequisite to increasing their presence in Colombia. For the last ten years, Colombia has enjoyed a $1-3 billion annual trade surplus with the U.S. (the U.S. has $1-3 billion trade deficit with Colombia). Colombia already has virtually duty-free access to the U.S. market but the U.S. faces tariffs in the Colombian market. As we've seen with other trade agreements, duty-free access to foreign markets with lower living standards often doesn't translate into trade surpluses for the U.S.

I believe one of the reasons Colombia is pursuing a trade agreement with the U.S. is because it wants to expand its role as an export platform to the U.S. and other consumer markets. Indeed, Colombia has a web site that highlights this role of privileged access to foreign markets. Rather than level the economic playing field back towards American workers, the proposed trade agreement seems to codify the status quo and make it easier for U.S. multinationals to further invest in Colombia.

On the point of Colombia wanting to be an export platform to the United States, Alex Tonelson, a Research Fellow at the U.S. Business & Industry Educational Foundation, writes on March 27, 2008:

Soon after Congress approved last year’s free trade agreement with Peru, following similar claims about that impoverished country’s consuming potential, Peru’s president spilled the beans in a Washington, D.C. speech to the U.S. Chamber of Commerce. “Come and open your factories in my country,” Alan Garcia urged the assembled outsourcers, “so we can sell your products back to the United States.”

In other words, the Peru deal was bound to continue the pattern of most U.S. trade agreements since NAFTA. Its main effects would be trade expansion with a country lacking any meaningful net importing potential but boasting significant exporting potential, a boost in the U.S. trade deficit, a net increase of U.S. consumption, and a consequent net loss of U.S. production. Colombia’s leaders have been more discrete so far, but can anyone seriously doubt that their trade deal will produce similar results?

For most of American history, our prosperity has overwhelmingly depended on the income we have earned by producing competitive goods and services. The current credit crunch is a big-time warning that our national business model now springs from the false promise that U.S. living standards can reliably rest on the borrowing and consuming made possible by state-of-the-art financial gimmickry and foreign loans. The patent bill and the Colombia trade deal can only entrench that dangerous strategy more deeply. Congress should quickly scrap both, and spend its precious time reinvigorating innovation, our manufacturing and technology base, and the genuine wealth creation they engender.

I invite you to check out the supporting articles and video clips below. They are excellent and contain perspectives you won't find from corporate Big Media. I hope you found this information informative and useful.

All the best.

Supporting and Related Stories

o Commentary: Losing Our Independence
o Commentary: Corporate Lobbyists
o Jon Stewart Slams Media for Blacking Out Iraq War Lies Report
o AP/Yahoo (Jun 10, 2008): Trade deficit jumps to highest level in 13 months
o Bob Hebert-NYTimes: Overkill and Short Shrift
o Jon Stewart slams media for obsessive Wright coverage
o Cadillac To Assemble Cars In China for China Market [So much for trade with China benefiting American workers. As is typical, trade with China benefits China and the American Financial Industry]
o Dallas Morning News: Editorial - Mr. Leppert goes to China [Chinese imports by Wal-Mart and other big-box retailers are responsible for a significant amount of the China trade cited in the editorial but you'd never know from its careful wording. If we're going to have unsustainable trade deficits with China, this editorial says North Texas should get a piece of the action. Good example of stenography passing as media commentary from the Status Quo.]
o WashingtonPost: In Pa. Debate, The Clear Loser Is ABC [corporate Big Media trying to help The Establishment?]
o Fortune-Warren Buffet: America's Growing Trade Deficit Is Selling the Nation Out From Under Us. Here's a Way to Fix the Problem -- And We Need to Do It Now.
o Youtube: Bill Moyers - What's Wrong with Big Media
o AFP: US balance of payments gap can't go on indefinitely - Bernanke
o HuffingtonPost: Journalism Becomes Stenography - From NAFTA to Iraq to The Secret Trade Deal
o The Trade Deficit and the Fallacy of Composition
o Dr. Peter Morici: Why the US Trade Deficit matters?
o Dr. Peter Morici: Why the US Dollar is so cheap and Euro and Gold are so dear
o Dr. Peter Morici: US Labor Department releases Key March Jobs Data Friday
o International Herald Tribune: For bargain-basement America, foreign investment no panacea
o Dr. Peter Morici: Investments by Sovereign Wealth Funds in the United States
o US Business Industry Council: Half-Right Reich - Real Problems, Nitwit Solutions
o Maine Today: Free Trade Deals Badly Flawed
o Reuters: IRS says rich getting richer
o WashingtonPost: The Generals Are Losing the War at American Axle
o US Business Industry Council: U.S. Oblivious to Day of Reckoning
o Contra Costa Times: Ying and yang of declining dollar
o BBC: Record US trade deficit in 2006 (US borrows $2 billion/day to finance trade)
o AP/Toronto Star: U.S. trade deficit a record 6.5% of economy (For the first time, country also fails to record surplus in investment income)
o NYTimes: Stocks Plunge Worldwide on Fears of a U.S. Recession
o US Trade Deficits 1987-2006 With Trend Line
o Public Citizen: The Politics of Offshoring
o The Market Oracle: Unsustainable Trade Deficit Means Doomsday for the Greenback
o Youtube: Greenspan Slammed On Trade Policies
o PBS FrontLine: Is Wal-Mart Good For America (see how Wal-Mart uses China for 80% profit margins on products)
o Commentary: That Giant Sucking Sound
o WashingtonPost: The Road to Riches Is Called K Street
o USAToday: Does tax code send U.S. jobs offshore?
o Bill Moyers: FCC Media Consolidation
o NY Times: Double Bubble Trouble

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Country   2006 Deficit

          (billions) 

China     -$233
Japan     -$88
Canada    -$73
Mexico    -$64
Germany   -$48
Venezuela -$28
Nigeria   -$26
Malaysia  -$24
Ireland   -$20
Italy     -$20

USA Trade Surplus: Top Ten Countries
(Note: In 2006, U.S. didn't have ten countries with trade surpluses!)
 

Country              2006 Surplus