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Renegotiating NAFTA: The Role of Global Supply Chains

Yves here. I anticipate a lot of readers will react strongly, as in negatively, to this post, but it’s important that you read it carefully through to the end. Note that the author is not a NAFTA tout; she says clearly that the economic benefits to the US overall were marginal and that it created a lot of losses to US workers. However, she is arguing, as they say in Maine, “You can’t get there from here.” Elimination of NAFTA will not restore status quo ante. NAFTA has created 20 years of supply-chain integration across the US, Canada, and Mexico, and undoing that is about as easy as unscrambling an omelet. While in a different world, a dissolution of NAFTA might benefit workers after an initial shock period, give the degree of global trade integration, European and Asian producers would take market share from North American players that were scrambling to reorganize how they operate.

Mind you, the author is discussing only the simple “get rid of NAFTA” plan to illustrate the general problem. And Trump appears to have retreated from that position already. However, there are presumably more targeted ways to rework NAFTA so that more of the benefits of supply chain integration accrue to workers than do now. One of the most glaring features of the US economy since the early 2000s is that the corporate profits as a percent of GDP has nearly doubled, and that level is also nearly double a level Warren Buffett once deemed to be unsustainably high. So I hope readers will pipe up in comments with some ideas as to how to address the conundrum posed by integrated supply chains.

By Emily Blanchard, Associate Professor at the Tuck School of Business, Dartmouth College. Originally published at VoxEU

Editor’s note: This column first appeared as a chapter in the Vox eBook, Economics and policy in the Age of Trump, available to download here.​

The Trump administration has been outspoken in its criticism of NAFTA, which the president has called “the worst deal ever made”. This column, taken from a recent Vox eBook, argues that reversing the current NAFTA policy environment would not simply wind back the clock to the pre-agreement economy from 20-plus years ago. Instead, it would throw spanners and blockages into today’s very different and deeply integrated North American economy.

The Trump administration has been outspoken in its criticism of the North American Free Trade Agreement (NAFTA), which the president has called “the worst deal ever made”. This disparagement is not just campaign season hyperbole. Closing in on his hundredth day in office, Trump reportedly drafted – though ultimately nixed – an Executive Order withdrawing the US from the agreement (Financial Times 2017). He has also repeatedly issued public promises to renegotiate or withdraw from the pact: “If they don’t treat [us] fairly, I am terminating NAFTA.”1 At the same time, supporters of the deal predict calamitous effects of raising barriers between the US and its two closest trading partners, Mexico and Canada.

Here’s the thing: while NAFTA may have done little to boost or harm overall growth and prosperity on the continent, it has had a powerful role in redefining how and where products are made.2 And so even if NAFTA had been a raw deal, abandoning the agreement could have devastating consequences, especially in the near term.

Like it or not, the fortunes of North American firms, workers and consumers are now deeply intertwined through a dense network of regional and global supply chains. This interconnectedness makes the North American economy more competitive with the rest of the world, but also leaves it vulnerable to policy changes.

Pulling out of NAFTA would send widespread and long-lasting shock waves throughout the North American economy. To understand why, it helps to first appreciate the extent to which the deal has shaped the current economic landscape of the US, Canada, and Mexico

Ask not How Much a Country Makes, But How It Makes It

In aggregate terms, NAFTA has had a decidedly modest impact on the size and growth of the North American economy. According to one study (Caliendo and Parro 2015), the overall welfare gains from the tariff reductions under the agreement have been largest for Mexico, at roughly 1.3%, while the US has seen much smaller welfare gains of roughly 0.08%; Canada’s welfare is estimated to have fallen by 0.06% as the US shifted commercial attention toward its southern border (see also Hufbauer and Schott 2005, among others).

In contrast, the evolution in the composition and pattern of economic activity since NAFTA has been profound. Over the past 20 years, the North American economy has grown up and around and through the policy scaffolding afforded by the provisions of the agreement (Hanson 2001, Bair and Gereffi 2002). According to Caliendo and Parro (2015), the tariff reductions alone under NAFTA caused the volume of intra-North American trade to rise by 41% for the US, 11% for Canada, and more than 118% for Mexico.

While NAFTA was neither great nor terrible for the size of the overall economy, it was a game-changer for how the North American economy works.

To be clear, not all of the increase in North American trade is due to NAFTA alone. Since (especially) the 1990s, the world has seen a revolution in the nature of global commerce. Technological and logistical innovations (together with increased economic openness) have spurred on the phenomenon known as production fragmentation: the ability to design, source, assemble, and refine products through increasingly complex domestic and global supply networks (Johnson and Noguera 2017, Fort 2017, Bernard et al. 2017). NAFTA did not create these global supply chains, but its rules governing commerce at and behind North American borders allowed them to flourish.

The products that Americans consume – everything from a toaster to an iPhone or Audi Q5 – are produced by combining and recombining constituent parts through often- complex supply networks. These stretch from design to mining and farming of raw materials to construction and marketing of the final goods that ultimately shape our lives. Supply networks weave together the economic fortunes of firms and workers from the headquarters of multinationals and refineries of heavy industry to independent assembly plants, cottage industries, and small farmers.

This is especially true in North America, where NAFTA’s tariff reductions and ‘deep provisions’ – like regulatory reforms and investment protections – have created one of the world’s most integrated regional economies. In turn, greater specialisation and fluidity within the production process has helped to keep North American products competitive with the rest of the world (Hufbauer and Schott 2005).

At the same time, production fragmentation has afforded firms and workers the chance to specialise in increasingly narrow slivers of the global production process, carving out a competitive niche in the global marketplace. As a result, more workers and more firms now take part in regional and global trade than ever before.3

Production Fragmentation Rewrites the Book on How to Think About Trade Policy

Most importantly from a trade policy perspective, production fragmentation knits together the economic interests of firms (and workers) up and down the supply chain. This 21st century trade also redefines the ‘winners’ and ‘losers’ from increased trade: in the era before foreign direct investment and global supply chains, trade liberalisation often benefitted local consumers at the expense of local producers. But with these linkages, the producer-side gains from trade that used to accrue only to foreign exporters are shared – and often divided differently – on both sides of the border (Blanchard 2010).

Consider two scenarios to illustrate the point. In scenario A, a traditional producer in Mexico makes a product (say, camping tents), from start to finish, in its local manufacturing facility, which it then exports to consumers in the US. If the US lowers its tariffs on tents imported from Mexico, more tents are sold and at a lower price, and the gains are split between US consumers and the Mexican producer: end of story. Contrast this with Scenario B, in which the Mexican producer conducts the final assembly of camping tents, using parts (fabric, thread, plastic coatings, metal fittings, etc.) imported from the US and design services developed in Canada. Now, if the US lowers its tariff against tents from Mexico, the producer-side gains will be shared among the downstream Mexican assembly plant, the US suppliers of intermediate inputs and the Canadian design firm.4

These supply chain linkages mean that some – potentially even all, depending on the nature of supplier contracts – of the production-side gains from trade liberalisation are passed back up the supply chain to upstream firms and workers, including those in the country that is lowering its tariffs. This changes the fundamental calculus of trade protection.

By lowering US tariffs on goods imported from Mexico and Canada, the NAFTA directly benefits US-based suppliers of inputs used to produce its neighbours’ exports.5 The more interwoven are North American supply chains, the more broadly shared are the gains from NAFTA’s open borders.

The Vulnerability of Interdependence

The flip side of the new opportunities afforded by open borders and production fragmentation is that some workers (often in the US) have suffered job losses as firms have moved in-house operations abroad (often to Mexico) and away from more expensive existing factories. In the US, these job losses have been highly concentrated in a handful of regions and worker-groups, to devastating local and personal effect (Hakobyan and McLaren 2016).

The subsequent populist reaction against globalisation in general, and NAFTA in particular, should not be surprising. And indeed, in 2016, President Trump was elected in part based on his sharp opposition to existing free trade deals.

While the deep integration of North American supply chains has increased overall efficiency, it has also sharpened political and economic divisions, and left the economic system more vulnerable to potential disruptions in the freedom to move goods and services across borders. The sitting president has vowed to disrupt the existing NAFTA structure: what is at stake if he does?

What Will Happen if NAFTA is Reversed?

It cannot be emphasised enough: reversing the current NAFTA policy environment will not simply wind back the clock to the pre-agreement economy from 20-plus years ago. Instead, it would throw spanners and blockages into today’s very different and deeply integrated North American economy.

Today, much of every of dollar that the US spends on imports from Mexico consists of US ‘value added’, the benchmark measure of upstream, supply chain inputs. Due to NAFTA’s supply chains, a considerable share of Mexican production consists of Canadian value-added as well. And vice versa.

If NAFTA were abandoned, the short-run consequences for firms and consumers could be devastating until – or unless – global supply chains adjust to a new (or no) NAFTA world (and we do not know how long that would take).

Abandoning the key tenets of NAFTA – especially vis-à-vis trade with Mexico – could have a profound negative impact on the economies of all three signatory nations. According to recent research on the auto industry (Head and Mayer 2016), withdrawing from NAFTA would reduce the US’s share of world auto production, not least because it would force an expensive reversal of North American automotive supply chains. One economic simulation predicts that all three NAFTA signatories would suffer losses from a return to MFN tariffs, with the most acute consequences predicted for Canada and Mexico; in contrast, the same simulation predicts that the rest of the world would see a relative gain in market share as North American car makers become less competitive.

Under a separate worst-case ‘Trumpit’ scenario (in which NAFTA is replaced with Trump’s threatened 35% tariff against Mexico), the same study predicts that Mexico’s share of world auto output would decline by a startling 41%.

There is, thus, not only an enormous potential internal cost of withdrawing from NAFTA, but also a potential external cost: retreating from open borders would almost certainly damage North America’s ability to compete with the rest of the world, perhaps dramatically. This relative disadvantage would be compounded by the potential efficiency gains in ‘Factory Asia’, already a fierce competitor of the North American economy, if Asia Pacific nations implement RCEP (China’s proposed regional free trade agreement). Initially an answer to the proposed Trans Pacific Partnership, RCEP is now the only game in town and possibly all the more potent, as a result.

Uncertainty isn’t Helping

Even without renegotiation, uncertainty around even the potential for a NAFTA withdrawal is likely to damage the North American economy. Tough talk on trade has a chilling effect on firms’ willingness to make new investments or supply contracts on either side of the borders in question. Research demonstrates that even in the absence of actual changes in trade policy, this induced uncertainty can be every bit as costly as tariffs themselves (Handley and Limão 2017).

Given the Stakes, What Can We Expect?

It is hard to know how the NAFTA shake up will play out. Is the President’s tough talk just a high-stakes gambit calculated to improve US bargaining positions on the Mexican border wall or the long-standing dispute over Canadian softwood lumber? Or is it possible that core tenets of NAFTA – tariffs and other ‘deep’ provisions (e.g. rules of origin, bilateral safeguard provisions, etc.) are truly on the table?

The outcome presumably will hinge on domestic politics, where the competing influences of Trump’s populist supporters are pitted against powerful multinational firms who vie for the president’s attention. For much of the 20th century, US trade policy has seemed a better reflection of the latter (e.g. Gawande and Bandyopadhyay 2000, Blanchard and Matschke 2015), but this has proven to be a year of surprises.

That said, rhetoric aside, recently leaked documents suggest not an across-the-board increase in tariffs against our trading partners, but a reopening and renegotiating of deep agreement provisions on labour and environmental standards, intellectual property and digital trade protections, state owned enterprises, and rules of origin (Wall Street Journal 2017).

Notably, these provisions appear to be close parallels to the proposed building blocks of the now-abandoned Trans-Pacific Partnership. Updating NAFTA’s outdated rules would be to everyone’s benefit.

Trade is not a zero-sum game, and if we play our cards right on NAFTA, everyone could gain. But a negotiating misstep could trigger a wholesale collapse of the agreement. Given the extent of deep supply chain connections, there is every reason to expect that severing ties would cause hardship on all sides.

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27 comments

  1. DH

    A couple of thoughts:

    1. Having economically and politically stable neighbors is vital to peace and prosperity of the US. In some ways, I viewed NAFTA as a mini-Marshall plan for Mexico. A neighboring country that is doing well is less likely to send us illegal immigrants and drugs.

    2. Supply chains with Mexico and Canada make far more sense than overseas from a reliability standpoint. Trucks, trains, and short-haul boats are easier to maintain and protect than many thousand mile ocean voyages. It is faster as well and instantly integrated into the surface transportation system without needing expensive deep-water port infrastructures.

    3. So I think NAFTA is a completely different animal than China etc. I would much prefer to see extensive trade with Central America than the Far East.

    1. Vatch

      In regard to your point number 1, I don’t think that NAFTA is a Marshall Plan for Mexico. Maybe it’s a Marshall Plan for the richest Mexicans, but it does not help the average Mexican, just as it does not help the average American. NAFTA is especially harsh on Mexican corn and bean farmers, many of whom were driven out of business by cheaper agricultural products from the north. Illegal immigration preceded NAFTA, but NAFTA did not solve this problem at all. Our of work Mexican farmers had to go somewhere for jobs, and many of them entered the U.S. illegally.

  2. washunate

    I anticipate a lot of readers will react strongly, as in negatively, to this post, but it’s important that you read it carefully through to the end.

    Yep. These posts from authors taking an authoritative stance that it can’t be done are rather past their sell by date. Of course there are difficulties. Of course there are nuances and complexities to address. Of course there are no magic solutions. Of course it’s possible to cause a bad outcome if that is what is desired.

    But come on. NAFTA is a terrible corporate trade pact, and extreme protectionism is not the only alternative to it. This doesn’t appear to be an author honestly addressing the issue. It appears to be an author fear-mongering against renegotiation, setting up a careful centrist window between crazy Trump on the one hand and crazy leftists who oppose corporate trade pacts on the other. For example, this beauty is (not so) cleverly casually inserted into the post:

    This interconnectedness makes the North American economy more competitive with the rest of the world, but also leaves it vulnerable to policy changes.

    Gotta love the econospeak.

    1. Ranger Rick

      Right. All these points to be made and still no benefits for the American worker. Sure, the “interconnected, globally competitive industries” will lose money, but we’re not seeing any downsides for the American worker. (Remind me what the US trade deficit has been since NAFTA was signed?)

        1. JTMcPhee

          The machine that creates those deficits is a global web of “interests” that are inimical to the interests of ordinary people and the persistence of a livable biosphere. Kicking sideways and attributing agency and power to “you folks over there” ignores the commonality of interests that cross borders in a way that ought to be transparent but which is obscured by thick layers of Bernays sauce, applied by the Few to advance their ownership and hegemony.

          Of course ordinary people aren’t very good at organizing and demanding and getting “policies” that defeat and lower the Elites off the pinnacles… Are there any remedies for that weakness in the formation of political economies? Other than the rare spasms of violence that result in a new crop of Elites (or survivors of the immediate rage) running things for their own benefit once again…

    2. Left in Wisconsin

      The complete refusal to acknowledge the main vehicles by which NAFTA actually works – complete domination of Mexican food production by US ag multinationals and and complete domination of cross-border manufacturing supply chains by global (many US but also Asian) multinationals – substituting instead a made-up, just-so story about stupid tents is a tell. Why is there never a just-so story about a US car company that outsources production to its own facilities in Mexico purely for the low wages? You wouldn’t even need to make it up!

      Perhaps what the author is trying to say is that, if one did away with NAFTA but made no other changes to the global trade regime, then the loss of Mexico as a low-wage nexus of NA supply chains would be a real problem for NA manufacturing. I think that is probably true. But the whole premise is faulty. Given the complete support of NAFTA by the global corporate class, there is no way to undue it without a complete change in the political balance of power, which would change more than just NAFTA.

      But Trump was just blowing smoke. He is a complete bullsh1tter. No more, no less.

      1. washunate

        That fictitious tent scenario was pretty hilarious. NAFTA isn’t about producing tents more efficiently. It’s about letting large organizations challenge regulations outside of the normal political and legal channels. It’s why of course the author focuses all the attention on the faux issue of tariffs rather than the real issues about Investor State Dispute Settlement mechanisms and intellectual property and so forth.

        I’m not even sure I buy your generosity toward the author. North America isn’t separate from Asia, Europe, South America, and Africa in a supply chain sense. That’s why it’s called a global supply chain, not a continental one. Meanwhile, from a trade sense, we are actually far less integrated into the international economy than other major nations like Germany and Japan. Most US trade is domestic. Even in very narrow niches, like auto manufacturing, North America doesn’t really make sense as a distinct unit of analysis. Japanese and Korean companies make cars in the US. US companies own Asian companies. Etc.

        That’s actually what I find most embarrassing from an economist standpoint of what the author is advocating (to the extent the author even makes what could generously be called an argument). She confuses bilateral tariff levels with the operations of global supply chains, as if, in the scheme of things, it even matters. We already have so many extra cars government is having to shove subprime loans down people’s throats to support vehicle sales.

    3. philbq

      Hear,hear! When I hear an economic writer use the term ” competitive”‘ it means U.S. workers should work for less pay, which means a race to the bottom. Before NAFTA, the U.S. had a trade surplus with Mexico. Since, a large trade deficit. Even now, factories are closing here and moving there. NAFTA has been a disaster for American labor.

  3. Clive

    Rather clunkily, perhaps, but aligning this (NAFTA roll back or, ugh, that horrible word again, reform) to Brexit, having observed a country grappling with a similar issue first hand I have an observation.

    Which is this: How much, dear transatlantic cousins, do you really want it? It was a question which in my view was the most important one that we (UK residents) should have been asked (some hope, given our dismal political class) but failing that, we should all have, collectively, asked ourselves.

    Because, as correctly noted in the intro, you can’t just put on your ruby slippers and click your heels together three times and end up back in Kansas. There’ll be consequences and those consequences won’t be all good, all at once. If the answer is something along the lines of “we’d like it, but only if it’s easy”, then fine, but you have to ascertain how easy — or not — repealing NAFTA is. If the answer is, conversely, it’s a bit tricky then you have to review again if you still want to go through with it.

    If, after following that process to analyse what you’re letting yourselves in for, you still think it is A Good Thing, then you have to — as a society — step up. And that includes the elites doing their share of the heavy lifting. I’m of the opinion that, if the UK really wants to go through with Brexit, it has to be prepared to put itself onto something akin to a war footing. The country’s entire resources, if only perhaps for a while, must be devoted to the task.

    Assuming that there simply isn’t the collective and equally shared will to do the deed, you’re better off forgetting the whole idea. Doing it in half-measures will result in, said as we say here, a balls up. My worked example is the UK’s comical Brexit execution so far.

    1. JTMcPhee

      Which I guess leads to the conclusion, then, QED, that us mopes are stuck with the poopy end of the stick. Because of course, of course, of course, the “elites” will never, ever, lift their end of the log. They have ZERO “national allegiance,” and won’t deny their pleasure centers an iota of titillation. And in the morality of the present, most of us or way too many of us mopes will also ask, as “temporarily embarrassed millionaires” or schlubs who have taken the “elites'” shilling to prolong their deplorable lives, “why should they? The’ve EARNED all their wealth and power, eh?”

      The Jaganath crushes many beneath its wheels… and the faithful still happily, cheerfully, singing hymns to their Deity On Casters, pull on the ropes and push at the axles, even as many of them are ground to bloody pulp…

    2. Left in Wisconsin

      The way I see it, the central issue is that we only have two conceptions of a modern economy: complete neoliberal globalization or return to the (imaginary) halcyon days of the post-WW2 “30 glorious years.” There simply is no forward-looking conception of an economy (national or global) that works for all. (Not surprising since the corporate class seems quite unified, and appropriation is not at this time a serious option.) So people choose between bad and impossible but nostalgia-inducing.

    3. flora

      One can imagine both the EU and NAFTA being implemented (or course-corrected) in a way that is not neoliberal in focus and intent. One can imagine the desired outcome is geared toward increasing national productivity, but not by mostly lowering working class wages and creating a class of un-persons (undocumented workers) in the work force. One can imagine the outcome does not depend on near elimination of democratic national sovereignty.
      Those are neoliberal dreams. They may be essential to neoliberal trade deals, but I don’t see them as essential to good trade deals.

      Well, I can dream.

      1. flora

        adding:
        “These supply chain linkages mean that some – potentially even all, depending on the nature of supplier contracts – of the production-side gains from trade liberalisation are passed back up the supply chain to upstream firms and workers, including those in the country that is lowering its tariffs. This changes the fundamental calculus of trade protection.”

        Sounds good on the surface. However, US wages have been flat or falling for 20 years. Hard to square the “everyone benefits” promise with the “owners take all” reality.

      2. Livius Drusus

        Trade between countries with strong unions and workers’ rights, social safety nets, strong environmental laws and other progressive policies can be a good thing if it promotes competition based on better design, better educating your workforce, more productivity and other “race to the top” policies. If NAFTA had been the North Atlantic Free Trade Agreement between the USA, Canada and the nations of Western Europe it might not have been a bad agreement.

        But trade with developing countries with weak labor rights, no or weak unions, no social safety net, and weak or nonexistent environmental laws just encourages “race to the bottom” competition based on slashing wages and benefits, cutting social welfare and weakening environmental and other pro-public regulations.

        One way to fix this problem might be to try to write stronger labor and environmental protections into the agreements in order to standardize these protections at a high level across nations but I am not sure that I trust corrupt governments in places like China and Mexico to properly enforce these regulations especially if there is a big financial incentive to turn a blind eye in order to attract foreign capital.

        Somebody can correct me if I am wrong but even in the EU, which is theoretically supposed to promote high standards across member states, there is an internal race to the bottom where capital is moving production from the high-wage welfare states of Western Europe to Eastern Europe where labor is cheaper and weaker politically. This is reminiscent of our own internal race to the bottom between the Rust Belt and the Sun Belt.

        1. hemeantwell

          Good points, LD. We need to try to address the absence of flows of international solidarity among workers that must occur alongside trade if destructively competitive relations are to be escaped. Counting on governments dominated by capital to limit that competition is absurd.

          I dunno for sure, but it seems that international labor organizations, to the extent there are any, have trouble getting this into proper focus. For example
          http://www.labourstart.org/news/
          is very good at updates on national labor conditions around the world, but this form of solidarity isn’t coupled with a bid to build bridging organizations.

  4. JEHR

    As a Canadian, I view negotiating a treaty with a country that is ten times our population size with great trepidation. Those corporate-based trade deals are for the benefit of large global corporations who want to be able to change pollution standards, control price levels and get rid of regulations that keep them from gaining the greatest profit possible; besides which they want to be able to sue if they think profits have been affected by government regulations, even those that protect the local population. These corporate ideas are so retrograde that it makes the mind boggle. Unfortunately, many of those corporations are often minted in the US of A and live in Canada.

    The final tally will be that there are some losers in Canada, some losers in the US and most losers in Mexico AND there will be some winners in Canada, some winners in the US and the least winners in Mexico.

    I am happy that Canada is searching world-wide for trading partners who really want to trade without changing regulations that protect the consumers in Canada (at least I hope that is what is happening).

    1. JTMcPhee

      Of course, it’s a rhetorical convention that “countries” negotiate or cram down these “treaties.” It’s corporations and Very Special Individual Owners, claiming the mantle of “national interests,” that set the agendas and finalize the terms, and then use the putative machinery of “representative government” to apply the lipstick of “electoral legitimacy” to the giant pig that we mopes eventually get to read (and weep about) and suffer the predations and walk about in the excremental externalities of.

      And then mirabile dictu, we find ourselves subject to whole hosts of laws and alien tribunals and procedures in which we are just the grist to be milled and sold out… because “we voted for it…”

      Like the bumper sticker says, “Stuff Happens.” To those who ain’t in the club.

      1. Left in Wisconsin

        Right. And the willingness of economists to “analyze” these agreements solely in terms of which countries win or lose rather than which classes is simply part of the PR strategy to keep working classes in all countries distracted.

  5. Jeff N

    The author neglects to see this fact:
    A tent made in Mexico for $20 cost is sold to us for $80.
    A tent made in US for $60 cost would be sold to us for $80.

    1. Yves Smith Post author

      No, the argument is implicitly that makers of tents in China, India, and Vietnam and maybe even Europe would take share in the tent market and you would have no tents made in the US at $60 cost. I even underscored that point in the intro. A standard retail markeup is 2.5x, so no one would buy a tent at $60 to sell to someone else at $80. Not enough margin for the middleman to cover his costs and risks.

  6. Synoia

    One of the most glaring features of the US economy since the early 2000s is that the corporate profits as a percent of GDP has nearly doubled, and that level is also nearly double a level Warren Buffett once deemed to be unsustainably high.

    That’s the inevitable consequence of asset stripping the US. The Customers who can afford the good by more at reduce costs, but the number of customers slowly dries up (a death “S” curve).

    It cannot be sustainable, recuse there is a growing number of impoverished in the US. Eventually we end up with a small group of very rich and large group of very poor.

    That’s the trajectory. We are only part of the way to that equilibrium point.

    Classic chaos, the system adapts to changes and settles to a new temporary equilibrium, but another push can change it again.

    Industrialization and the Enclosures Act in the UK were similar as people were pushed off the land into the factories.

    Even the “rich group” is not constant, the “rich group” looses members and families and gains new members and families.

  7. Barry Disch

    Any negotiations should consider the rapid expansion of mechanisation like added manufacturing, AI, robotisation. These will not only effect supply chains but retail, wharehousing, brick and mortar retail, Amazonation of our economy. The discussion for a UBI should be done in earneast and pronto.

  8. manymusings

    Interesting juxtaposition — this author describes with seeming approval the “efficiency” and “competitive gains” enjoyed by “industries (and workers)” when supply chains are “integrated” and production “fragmented.” She notes in almost breezy fashion that “and workers” is actually only hypothetical, but doesn’t let this fact unsettle the conclusion that all’s basically good, we just need a few fixes (commenters have rightfully pounced — and I would add that describing TPP as a NAFTA “update” that generally benefits everyone, with utterly no discussion or evidence, is seriously naive and credibility-blowing).

    An author in another recent post quite helpfully traces consolidated market power in the US, the links to inequality and the decline in antitrust enforcement. The juxtaposition is interesting because market consolidation and “supply chain integration” are often explained and justified along the same logic — making it more profitable to move stuff around (read: “efficiency” and “consumer prices” and “streamlining”), and the neoliberal mindset that this is ever and always a good thing goes a long way in explaining both, and authors such as this one who uncritically adopt that mindset don’t help.

    But unwinding the mindset is just as much a task of unscrambling an omelet. The real alternatives don’t wear as well. At bottom, it probably means valuing production processes that are inconsistent or take a long time, and products that’ll do (as opposed to maximizing choice or quality or “cutting edge”) — losing the obsession with innovation and “unlocking potential”, the fetishization of “consumer choice” and the false sense that “growth” any longer correlates with gains in the real economy, that we only need to get the distributional part right (as opposed to “growth” correlating with profits for a few at the expense of the real economy, so to talk about fixing distribution is like thinking a boat might be fixed by making a few holes). In short, a lot of culturally embedded notions about what we think we’re striving for …. and that industry fundamentally is about human striving and progress. (The irony is we’ve built a system that chases unicorns and delivers crappification). It’s a conundrum of economics, but the solution is one of values and accepting limitations, which is harder to map out and even harder to agree upon. It may not inevitably have come to this, but given where we are now, that seems the way from here to there.

  9. philbq

    Corporate-written trade deals have profoundly damaged the economy and way of life for the United States. That is beyond question. The only benefits, other than cheap Walmart goods, has been profits for corporations. The destruction of manufacturing continues today. Even now, U.S. companies are closing their U.S. factories and opening plants in Mexico. Just read the news. This country became strong with manufacturing and protectionism. Read history. The corporate media and corporate-funded universities promote the religion of “free trade”. It is an effort to preclude any attempt to reinstall tariffs on foreign products. I would propose a small tariff on products from similar wage countries like Canada and Germany, and a larger tariff on products from low-wage countries like China and Mexico. U.S. workers should not compete for who can work cheapest. (Economists call that “competitive.”) That is a suicidal race to the bottom that has nearly destroyed the economy of this country. 70% of our economy is consumer spending. But most people cannot afford to spend. They have a job that pays very little. This is the result of the loss of manufacturing jobs. We need to change direction.

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