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FEB 2017

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24 ISE Magazine | www.iise.org/ISEmagazine E manufacturing Why free trade isn't By Paul Templin Elections come and go but this one was a humdinger. At the risk of violating the edict from Miss Manners, I thought I would dedicate this column to the topic of free trade – or to put it another way: why free trade isn't. Those of us who have spent our lives in manufacturing know this reality. Ev- ery day, the value of what we do on the factory floor whipsaws back and forth as exchange rates, tariffs and other export controls adjust. Today, my engineering team is overpaid compared to col- leagues in Singapore or Israel; to- morrow not so much. Likewise, the global supply chains we manage are efficient one day and subject to restructuring the next. These effects are magnified in a global economy where capital and technology freely flow from one coun- try to the next to optimize the allocation of labor between nations. Multinationals, contract manufactur- ers and their suppliers hopscotch across the globe seeking the total best cost of direct labor and material costs, export controls and incentives. Economists tell us that equilibrium is never reached, but because each national economy focuses on what it does best, the world econo- my is more efficient. But is it really, and what does that mean? Like most economic theories, the as- sumption set behind this thinking is violated routinely. Export controls and exchange rates are manipulated by na- tions, and special interest groups get subsidies and tax loopholes. Individual markets rarely meet the basic require- ments of a free and open marketplace. Collusion and market concentration are the status quo. So "free trade" is at best a euphemism for a world economy that is freer than in years past. Supposedly, this economic system benefits more people than it hurts. This assertion is subject to debate. Any economic system has winners and losers, but identifying them is conten- tious and confusing. But freer trade makes it easier to move manufacturing offshore. Reviewing competitive labor rates and tax struc- tures is a fundamental element of most corporate supply chain strategies. The result is a chase after the most competi- tive environment, prompt abandonment of noncompetitive environments and a Darwinian race to the bottom. China is no longer as competitive as Vietnam or Thailand, and so the chase continues. Thirty years ago, factories closed in Dayton, Ohio. Today, they are closing in Shenzhen, China. The ensuing dislocation and impact on com- munities is the same. These operators, technicians, machinists and warehouse workers don't migrate to software de- velopment or web design. Retraining means, at best, moving from high-pay- ing manufacturing jobs to low-wage service jobs. These "losers" are sum- marily forgotten, with little fanfare or angst – grist in the smooth operation of our world economic system. Perhaps it is not surprising that some losers are not going quietly into the night. Across the industrialized world, we see expressions of dismay and anger over a transnational free trade policy that affects individuals unevenly and unfairly. To paraphrase Warren Buffett, free trade means T-shirts and un- derwear 50 cents cheaper for most of us, but for some it means a job (or lack of one), food on the table and a future for their children. Are my inexpensive undergar- ments worth another person's live- lihood? The answer to this question is complex and nuanced for the economist. For the factory worker, the answer is more direct. Is there a substitute for "freer trade" and what will it bring? Many argue that a world economy constricted by tariffs and barriers to entry will have dire con- sequences more severe than the disloca- tion we see today. If this is true, then the challenge is to construct a "freer and gentler econ- omy" because the current world of "free trade" has too many losers and not enough winners. Paul Templi s a materials e gi eer a d supply chai rofessio al with a multi- atio al co sumer electro ics compa y. He ca e reached at dstempli 2@ju o.com. The challenge is to construct a "freer and gentler economy."

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