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UNREGULATED TRADE AND THE PRICE WE PAY FOR LOW BIDS

September 9, 2014

UNREGULATED TRADE AND THE PRICE WE PAY FOR LOW BIDS

California created jobs for thousands of families in spending more than $7 billion to build the new San Francisco-Oakland Bay Bridge, an architectural marvel. Unfortunately, those jobs were in China. Presumably imported steel from China was cheaper than American-made steel for this massive construction job, hence the Chinese bid won out. Or was it cheaper? That may depend upon all of the entities affected, and to what degree. Let’s take a closer look at the overall result.

The United Steel Workers of America, of which I am an honorary member, has provided us with a breakdown of what happens when you myopically go with the “lowest” bid when, all things considered, it becomes the “highest” bid. It turns out that those in charge of this particular project accepted the “lowest” bid for the imported steel from China from the narrow point of view of those immediately charged with rebuilding the bridge, but that such “savings” evaporate quickly when all is considered. Let’s start with cost overruns of $300 million on the eastern span of the controversial bridge alone, which instantly raises the issue of just how much tax money was saved by this outsourcing by the State of California per se without regard to losses of other entities necessarily involved in the reconstruction of this bridge.

That is just the beginning. Let’s look at some other enhanced costs of such an outsourcing choice. American manufacturing workers lost some 3.5 million man hours of work on the bridge, which meant a corresponding loss of state and federal tax revenues, to which we must add the expenses of unemployment benefits, food stamps and other safety net programs for the jobless. (Shades of our tax money payout for healthcare and food stamps to employees of Wal-Mart, McDonalds and others, WHO ARE EMPLOYED, but at such starvation wages that the rest of us must subsidize the maintenance of their employers’ profit margins!)

Let’s also consider ancillary unemployment (restaurants, car dealers et al.) caused by lack of demand from unemployed steel workers who would otherwise have had the wherewithal to buy cars and/or take their families to restaurants and generally contribute to aggregate demand and increased employment in our domestic economy. Such lost opportunities to stimulate the economy when we are in the economic doldrums are particularly troubling, and demand a closer look at trade policies that allow such trade travesties to become routine, especially with the Chinese, who are past masters at contravening WTO trade rules with subsidizing of export industries, currency manipulation and the like.

1.8 million construction workers have lost their jobs since Bush’s Great Recession. Thousands of steelworkers have lost their jobs as well. As Steelworkers District 12 Director Bob LaVenture correctly puts it: “When that man or woman who is working in the shops loses their job, they’re not putting into the system. They’re taking out of the system by having to collect unemployment compensation, food stamps, or whatever. For the life of me, I don’t understand it and I don’t understand the politicians who were behind it.” Bob has company; I don’t understand it, either.

To make things worse, there are two things Bob did not address. One, Chinese fudging of the rules, to which I have alluded earlier, and Two, the lack of regulation in buying foreign products with tax money for public projects. This tax and trade travesty does not come about where ABC American Corporation is, for instance, buying Chinese steel girders to build a new factory for Volkswagen in Chattanooga, Tennesseee, in what is a purely private buy and sell arrangement.

We are talking TAX MONEY for a PUBLIC PROJECT.  If ABC Corporation wants to borrow money from JP Morgan Chase to build a factory for Volkswagen and uses some of such funding to import Chinese steel, that’s one thing; but if an American governmental unit (federal through county) wants to send its taxpayers’ tax money overseas to purchase goods and services for a domestic (public) project, that is quite another. The president of the Steelworkers Union, Leo W. Gerard (in his commentary on the use of Chinese steel on the Bay Bridge) said it best: “It is appalling, offensive and downright wrong to send our taxpayer dollars overseas when they should be invested in U.S. companies here at home rebuilding America.” He is right. We need changes in existing trade agreements that take note of this and enabling legislation ushering in Buy America requirements which would, among other things, make certain that where public money and purpose are involved there must be notice of and opportunity to be heard on any proposed waiver before such a waiver can take effect.

Corporate America involved in the waning (and increasingly robotized) production of steel in this country agrees with the union. The Alliance for American Manufacturing called the landmark construction of the Bay Bridge an “icon of embarrassment” and put up billboards illustrated with a Chinese flag in 2012 to alert motorists of the foreign-made content of the bridge, so what is left of steelmaking in this country and the right to provide steel for public purposes paid for by taxpayers’ money enjoys the endorsement of both management and labor in this connection.

This is just one brouhaha where tax money for public domestic purposes is sent overseas, thus further draining the wealth of this country and adding to the wealth of our dumping and subsidizing trade partners under, variously, such loosely enforced trade pacts as NAFTA, WTO and (in waiting) the TPP. Can anyone reading this even imagine a winning bid for American steel for a bridge in Shanghai? It’s a one-way street; they sell, we buy, and even pay with taxpayer money. What could be more wrong?

All the foregoing involves just one such travesty. “Trade” and its rules of enforcement enjoy little transparency and there is a reason why; the reason is that such travesties are legion and if people really knew what was going on and how we are handling it, there would be people in the streets. As I have constantly blogged, we need to do something dramatic with all of our trade relationships, including the potential for “going it alone” on a state-to-state level of exchange. I think we have imported enough recession to our economy and enough downward wage spiral to our workforce with regional trade pacts that have as much to do with Machiavellian politics as comparative advantage interchanges.

I think, finally, that it is time to stand up for America and all of her people and not just a narrow slice of Wall Street capitalists in trade matters, unregulated capital movements and other such incursions of private interests into matters of public interest without regard to overall consequence, of which this essay is an example. As I have often stated, this is our economy, so let’s start acting like it.   GERALD   E

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