The myth of free trade

Maryland politicians are dismayed by the latest closing of the Sparrows Point steel mill and the loss of its remaining jobs, but on a broader national scale the die was cast in the 1970s, when extreme hubris in the U.S. steel and fabricating industries failed to recognize the competition from Asian countries that practice mercantilism while we live under the illusion of free trade.

Several owners have proven that the plant is not a viable manufacturing facility. The mill is an anachronism and part of the Rust Belt that developed from the East Coast through the Midwest in the 1970s.


Japanese steel manufacturers modernized in the 1960s and — coupled with low-cost labor — Toyota and Nissan began to mass produce automobiles for export. The U.S. auto industry looked with disdain at the small, efficient Japanese models in the early 1970s; and even after the Japanese gained a foothold during the 1974 oil embargo and ensuing tenfold increase in crude oil prices, Detroit continued to produce low-mpg muscle cars with higher profit margins.

Over the next 40 years, Japanese cars became larger and more sophisticated, with much higher quality standards than U.S. cars. American auto companies lost market share year after year to the Japanese and were only given a reprieve by the 2011 tsunami, which shut down the Japanese auto industry.


Meanwhile, in South Korea, Hyundai built the world's most modern steel plant in the mid-1970s; with its low labor costs, South Korea by the 1990s began successfully exporting Hyundai and Kia automobiles to the U.S.

The Chinese are following the same pattern. Through April of this year, China produced 234 million metric tons of crude steel, while the U.S. produced 31 million. Manufacturing labor costs in China are about $2 per hour, while U.S. costs are $20 per hour. Chinese company Geely bought Swedish Volvo in 2010; we will soon see low-cost Volvo automobiles entering the U.S. built with Chinese steel and $2-per-hour manufacturing labor.

Government economists of the 1970s believed, wrongly, that the nation could abandon dirty, heavy manufacturing industries to concentrate on high-technology products and services. Today, Indian companies — Tata, Wipro and Infosys — employ 400,000 software engineers and call center employees at $10,000 per year and $3,000 per year respectively, working for U.S. companies. Those jobs were moved from the U.S. over the last 10 years.

HP has announced that it will lay off 30,000 employees over the next year. Foxconn, in China, is the world's largest manufacturer of consumer electronics as a subcontractor to Apple, Dell and HP, with 900,000 employees at $2 per hour. (Those 900,000 manufacturing jobs were taken from the U.S. in the last 10 years, and the HP layoffs will ultimately lead to increased employment in China.)

As the U.S. presidential electioncycle moves into its final phase, neither candidate will address the real problem for the economy: our trade policy and the low cost of foreign goods and services. President Barack Obama has proven that he cannot walk on water. Regardless of Mitt Romney's success in venture capital, he will not magically discover any companies capable of competing with Asian labor rates and mercantile trade practices.

There have been a few voices in the wilderness. Ross Perot, the founder of EDS — the U.S.' most successful systems software company — vigorously opposed NAFTA in the 1990s. It has been a disaster, pushing jobs from Detroit to Hershey, Pa., south of the border. Andy Grove, the founder of Intel and godfather of the IT industry has railed against the loss of high-tech manufacturing jobs to Asia. Warren Buffett warned against the massive, unsustainable foreign exchange drain and proposed a rational solution that would have used certificates to achieve balanced trade by capping the total value of imports at the value of exports. David Walker spent 10 years as head of the Government Accountability Office, concerned with unfunded liabilities for Social Security and Medicare. All were ignored.

Ron Paul has warned about our massive debt and unwinnable foreign wars for 10 years but is considered a befuddled old man. Islamic fundamentalists are taking over the Middle East, and with it the world's major oil supplies, while the administration is betting on the sun, wind, switch grass and seaweed to replace oil and coal. We face an added $1 trillion in debt every year as political gridlock prevents any attempt to solve our problems.

It took four years after World War I for the German Weimar Republic to destroy itself with fiscal policies that match ours; the end result was World War II. The late Ron Smith suggested that Representative Paul should be considered as the political equivalent of John the Baptist, preparing the way for a new leader to show himself and lead us out of the wilderness. Our political messiah has to rise in the next four years to convince the voting public that as both parties are pandering to their base to gain votes, the nation is rapidly foundering in a sea of economic ruin. Sparrows Point is the tip of the iceberg.


Charles Campbell, a retired senior vice president of Gulf Oil Corp., lives in Woodstock. His email is