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Originally published Sunday, March 15, 2009 at 12:00 AM

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On the Economy

Deepening recession threatens new world trading order

With exports contributing more to Washington's gross domestic product than they do in any other state, we are arguably the most trade-dependent state. If Washington were a country, it would be the world's 35th-largest exporter.

Special to The Seattle Times

Trade State

Exports accounted for about half the state's new jobs over the past 30 years.

In 2006, Washington exported $8,300 per person vs. the national average of $3,300.

Top trading partners: China, Japan, Canada, India, South Korea. Washington exported to foreign 208 destinations in 2007.

Top export-related products: Aircraft and aircraft parts; cereals; oil seeds, grain and fruit; industrial machinery/computers; electrical machinery, sound and TV equipment.

Sources: Washington Council on International Trade; State of Washington.

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A specter is haunting the world economy — the specter of protectionism. It was on display with a controversial effort in Congress to insert a "buy American" provision in the stimulus bill.

Less noticed is a turning inward, with new tariffs in a number of countries.

The "buy American" effort stalled but it represents changing attitudes toward trade.

Most Americans were baffled by anti-globalization protests that shut down the World Trade Organization (WTO) meeting in Seattle in 1999 (I know, the really nasty rioters were "from out of town").

Now the Heartland is adamantly anti-globalization. A coalition of 350 environmental, labor, religious and farm groups recently asked Congress to impose a "do no further harm" test on any new trade agreements.

What a difference a decade makes. The president insists there is no red America or blue America, but there surely is an America that has benefited from the new world trading order and another, growing, America that has been a net loser.

A deep, job-killing recession will only increase this tension. And Washington state, a winner, has much at stake.

With $67 billion in exports last year, Washington is the fourth-largest exporter among the states. Trade is one thing that unites the state, from aerospace workers at Boeing to farmers in Eastern Washington.

The Washington Council for International Trade estimates one of three jobs in the state is directly or indirectly tied to trade.

With exports contributing more to Washington's gross domestic product than they do in any other state, we are arguably the most trade-dependent state. If Washington were a country, it would be the world's 35th-largest exporter.

Meanwhile, Michigan has lost 315,000 manufacturing jobs over the past eight years, largely because of production moving to countries with lower labor costs and competition from imported automobiles.

This pattern has been repeated throughout the industrial Midwest, even though the region retooled itself in the 1980s to be highly productive. Yet it was no match for cheaper competitors, especially China.

The same pattern has eliminated hundreds of thousands of jobs in the Southeast, in textiles, apparel and furniture-making.

Most of these were well-paid jobs with benefits. The victims have usually ended up in lower-paying jobs, and research indicates retraining has often failed to replace the livelihood lost.

The change in trade winners and losers has arguably played a role in the stagnation of American wages over the past eight years.

No wonder candidates Barack Obama and Hillary Rodham Clinton scored well with blue-collar audiences last year in calling for a renegotiation of the North American Free Trade Agreement (NAFTA), or that new trade agreements have been bottled up in Congress.

(Facing the potential demise of the U.S. steel industry and populist pressure, in 2002 even free-trader George W. Bush imposed tariffs, which were declared illegal by the WTO).

Whatever the misgivings about globalization and rhetoric of economic nationalism, the world is not on the brink of repeating the Smoot-Hawley tariff of 1930 and the retaliations that followed. Most economists agree those missteps turned a bad recession into the Great Depression.

Yet world trade is already contracting under the weight of the recession.

"I have been following the rising concerns about protectionism," Desmond O'Rourke, a professor in the School of Economic Sciences at Washington State University, told me.

"However, so far, the sentiments have been coming from the usual quarters, such as steel and agriculture. Most governments around the world have been careful to stress the importance of free trade," O'Rourke said.

"One of the biggest dangers of increased protectionist sentiment is coming from within the U.S., where Congress, especially the Democrats, and the unions have become anti-free trade," he said. "President Obama has to abandon his anti-free-trade campaign rhetoric if we are to give a good example to the rest of the world."

Obama's choice to be U.S. trade representative, former Dallas Mayor Ron Kirk, has said his priorities will be to enforce existing trade laws and work to ensure all trading partners play by the rules.

Yet this is a complicated, highly charged issue. Even the words are freighted: one person's "free trade" can result in another's pink slip. One's "protectionism" is seen by another as a legitimate demand that emerging markets offer labor and environmental protections that are common and add costs in advanced economies.

Even free-trading nations engage in managed trade and subsidies, as the war of words between Boeing and Airbus attests.

For decades, most Americans were net beneficiaries of lower trade barriers and increased trade flows. They got a world of inexpensive products as consumers, and better-paying jobs as America was the world's largest trading nation, especially in exporting high value-added products.

No wonder NAFTA and the WTO were relatively easy sells politically.

That's changed over the past decade, as China, India and other developing nations have become major players, not just at the low end but also in the race to lure research-and-development and technology jobs.

American companies have built global supply chains and established research centers in China and India.

And there's no question that net-winner Washington is in a global competitive race.

For example, DigiPen Institute of Technology, the Redmond-based leader in game-development education, has opened a campus in Singapore. It's a safe bet those graduates will soon be competing against their American counterparts.

In theory, this is no problem as long as the global pie keeps expanding — something that won't happen in this recession. Yet even in the expansion of the mid-2000s, millions of Americans were becoming trade losers.

Plenty of blame can go around. Americans didn't keep up on education, reinvention and investment in research and infrastructure. Other nations arguably gamed export-based economies with currency tricks and selective barriers against American goods.

Still, there's no going back for one at least one simple reason: China owns $2 trillion in American debt.

The trick for policymakers will be to find ways to make more globalization winners (and the losers are not just in the Heartland, but in emerging markets as the economy is collapsing).

As for Washington, get a sticky note and write: "Don't get cocky."

You may reach Jon Talton at jtalton@seattletimes.com

Copyright © 2009 The Seattle Times Company

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Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
jtalton@yahoo.com

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