Free Trade Is a Job Killer for the US

Free trade is now and has been a US jobs killer. The reason is simple: company profit motivation. As a company makes more profit, its owners obtain higher dividends and/or increased value of their stock. The managers receive higher salaries and bonuses.

How does the company gain a higher profit? The most obvious way is to reduce its costs, which will then allow some reduction in selling prices and increase sales volume compared to competition. There are three primary costs in any manufacturing operation: equipment, raw materials and labor. Of these three, labor is usually the highest cost, although it varies depending upon the industry. For example, the textile industry is highly labor-intensive, whereas the petrochemical industry is low in labor intensiveness.

Many years ago, a few alert textile companies recognized that rather than continuing production in locations such as Rhode Island, Massachusetts, Connecticut, and the Northeast in general, it would be more efficient for them to manufacture their products in foreign countries, such as the Far East and Latin America, where labor costs were significantly lower. Freight costs and subsequent import duty costs to the US were still significantly less than if the product had been manufactured in the US. Other US textile companies followed suit leading to the eventual demise of the textile industry in the US. It no longer exists, although one can see the desolation of these huge buildings, which once hummed with activity.

The upside of this transformation was that the public could generally receive products at lower prices than previously. The downside was that US textile workers were then out of jobs, but that was a local situation, generally not considered by the US consumers.

Other companies having noticed the effectiveness of overseas production on increasing profits, slowly followed suit. The less labor-intensive a manufacturing industry was, the less incentive there was to move the operation overseas. However, the new business technique slowly increased manufacturing unemployment in the US.

Factors other than labor cost started to enter the picture. These included tax benefits, regulations, and the general investment climate of local governments compared to the US. Restrictive regulations on manufacturing have continued to develop in the US, corporate taxes remain high, and the US government, since the Obama administration, has clearly shown its antibusiness attitude. Even the petrochemical industry, which is noted for not being labor-intensive, has moved most of its investment activity outside of the US. This total combination leaves little opportunity for manufacturing jobs, which is why we presently have a high rate of unemployment and which the Obama administration uses as an excuse to soak the rich in order to keep paying unemployment benefits to those displaced workers.

While these latter factors of corporate tax, regulations, and government attitude are significant and should be changed, the largest factor contributing to present high US unemployment is free trade. The US government must use customs duties to equalize product costs between low labor cost countries and the high labor cost of the US.