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Cuts like a knife

9 June 2016 By Rob Cox

Emptying out the basement of my grandparents’ home in New Canaan, Connecticut a few years ago, I found an electric carving knife. From the still-unopened box, I learned that my grandfather had bought the General Electric appliance, which features two alternating serrated edges that slice through an overcooked turkey like butter, for around $19.99 in 1970.

The knife still cuts beautifully. But the chain store where it was purchased, Caldor, liquidated in the 1990s, trampled in Wal-Mart Stores’ march toward retail domination. The GE factory in Bridgeport where it was manufactured, along with toasters and coffee percolators, was torn down brick by brick a few years ago. It once employed 20,000 workers and housed a bowling alley and pool hall for employees.

Nostalgia for such places, and the era in which they thrived, is one factor behind the popularity of both Republican Donald Trump and Democrat Bernie Sanders in the U.S. presidential race. Both rail against free trade and globalization. Similar rhetoric plays into Britain’s upcoming vote on whether to remain in the European Union or leave. Homegrown workers, the narrative goes, have been displaced. Good jobs have vanished. Ordinary people’s wages have been stagnant, or nearly so, for years. So blame cheap foreign labor or, in the Brexit debate, immigrants.

Even the latest chapter in the carving-knife story doesn’t obviously change that picture. Just this week, GE completed the $5.6 billion sale of its white-goods business, which began producing heating and cooking devices in 1907, to Haier, a company based in Qingdao, China. Haier would have been the Red Star Electric Appliance Factory back when my grandpa, the son of an Italian immigrant who made hats in Danbury, Connecticut, went shopping at Caldor.

What’s lost in the telling of this and countless other wistful anecdotes in the United States and elsewhere, however, is the other side of the story. Developed economies have gained hugely from freer trade, something which – as economists think about such things – expands the available pool of labor beyond national borders.

The trouble in making the case for globalization is that it simply doesn’t tug at anyone’s heartstrings. As Johan Van Overtveldt, the finance minister of Belgium, which has seen its fair share of industrial hollowing-out, said this week in an interview: “The advantages of trade are divided and shared among the entire population, so the per-capita impact seems relatively small. But the disadvantages can be huge, highly concentrated and visible. That’s why it is essential for policymakers to explain the benefits clearly.”

With so few political leaders speaking up for the free movement of goods and people, my humble electric knife may perhaps do its part. GE Appliances, which on Monday became a division of Haier, no longer makes carving knives. But Stanley Black & Decker offers a comparable device, made overseas, for $15.99. That’s $4 cheaper than its 46-year-old antecedent. But adjust the $19.99 my grandfather spent in 1970 for inflation, and in today’s terms he paid around $120, enough to buy seven Black & Decker models. That, in a nutshell, is a quantified benefit of globalization.

For further evidence, trawl through the spring-through-summer 1971 edition of the Sears, Roebuck catalogue, which back then would have landed in the mailbox for free but cost me $21.99 on eBay. Nearly everything in its pages was made in the United States. There’s a 5,000 Btu, three-speed air conditioner advertised for $139.95, which would come to more than $820 adjusted for inflation. Frigidaire offers a model with the same features today for $139.99.

But wait, there’s more. A Ted Williams two-man tent available in 1971 from Sears would have cost $350 in current terms, while a new Poco Divo two-person backpacking tent goes for $19.99. The comparisons go on, from appliances to clothing, from toolkits to babies’ toys. While there are other reasons some consumer goods have become so much cheaper relative to purchasing power, it’s clear that a big driver has been reduced friction in the flow of manufactured goods, services, raw materials and, ultimately, labor across borders.

Nobody would argue that saving a theoretical $100 here or there is an acceptable tradeoff for the loss of thousands of decent jobs. But in the context of what U.S. consumers spend every year – some $11 trillion, or around two-thirds of GDP – the benefits are massive and widely shared. Telling Americans that the quid pro quo for bringing jobs back home, as Trump likes to put it, would be a sevenfold increase in the price of lots of goods makes the sound bite a lot less appealing.

Displaced workers, though, have voices. They have families to feed and experience genuine suffering. “Open trade creates dislocation and that has to be dealt with,” Lance Fritz, chief executive of railroad operator Union Pacific, told me last week. “But equally clearly, the many benefits of trade need to be articulated, and that’s not happening in the current political climate. As a result, global trade is not getting its fair shake in the dialogue, and that can have serious consequences.”

That certainly was the case with the Tariff Act of 1930, sponsored by Congressman Willis Hawley and Senator Reed Smoot. In the five years following the passage of the Smoot-Hawley legislation, world trade fell by two-thirds. The act, which raised import duties on 890 products, is touted by economists as a catalyst for the Great Depression and the associated catastrophic loss of employment.

Closing borders to “protect” good jobs isn’t, therefore, the answer. Explaining how free trade benefits everyone requires a nuanced approach, and the losers deserve a fair hearing, too – and potentially some help. Such precision is missing in the arguments on both sides of the Atlantic. Maybe my venerable GE electric slicing knife can help provide some.


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