WHERE HE RINGS TRUE: FREE TRADE ISN'T ALWAYS FAIR

By GEORGE J. CHURCH

ECONOMISTS AND CORPORATE EXECUTIVES ARE NOT USUALLY thought of as disciples of Dr. Victor Frankenstein. But they too have created a monster, and it has suddenly found a voice--not Boris Karloff's this time, but Pat Buchanan's. In his strident demands for trade protection can be heard the long-mute anger of workers who feel both injured and insulted by free traders in the academy, business and politics: injured by the loss of jobs and income to foreign competition; insulted because too many free traders have airily dismissed their pain as either illusory or inconsequential.

Which does not make Buchanan's arguments right. The wage stagnation and job insecurity he decries result much more from low growth in domestic R. and D. spending, productivity and investment than from trade. Moreover, his proposals to raise tariffs sharply and pull the U.S. out of international trade agreements would cause much more economic pain than they would ease. Liberal trade policies have created more--and better--jobs in export industries than they have wiped out in those businesses hurt by imports. Even the much despised movement of American factories to Mexico and other low-wage countries has been offset--in job creation, though not in hoopla-by the opening of foreign--owned plants in the U.S. It would take a string of Mexican maquiladoras to match the Honda plants in Ohio that employ 11,200 workers.

Buchanan and his admirers, however, focus on a dark underside of the picture that is often neglected. The number of jobs lost to foreign competition is hard to pin down; Buchanan's estimate of 300,000 wiped out as a result of the NAFTA treaty with Mexico and Canada seems plucked out of thin air. To the losers, though, it is a statistical abstraction to argue that the losses have been more than offset by job gains in export industries. Honda's success in Ohio does nothing to help Watsonville, California (pop. 33,798), where the unemployment rate has jumped to close to 20%. A number of vegetable-freezing plants there have shut down, and the owners of some have moved operations to Mexico.

Free trade has spurred some class resentment too-an effect foreseen by Karl Marx, who predicted in 1848 that it would intensify strains between bourgeoisie and proletariat and thus speed a revolution. In a TIME/CNN poll last week, 58% of those surveyed thought free-trade agreements were "mostly good" for U.S. corporations, but 51% thought the effects for workers were "mostly bad."

Not so, say most economists. C. Fred Bergsten, director of the Institute for International Economics, figures that export jobs pay about 15% to 20% more than nonexport jobs. He adds, "Whatever Buchanan saves for Roger Milliken [a major textile employer] in South Carolina, he loses for Boeing," which is heavily dependent on aircraft exports. "And Boeing jobs pay so much more than textile jobs that this would be a net loss for the U.S."

That, however, is a tough argument to sell to textile workers. The overall economic gains also come at the price of a modest but significant increase in wage inequality, since most of the competitive pressure is on pay for unskilled workers. George Borjas, an economist at Harvard's John F. Kennedy School of Government, figures foreign competition has accounted for one-fourth of the widening gap between the wages of high school dropouts and those paid to college graduates over the past 20 years.

On trade, as on other points, of course, Buchanan often appeals less to economic logic than to nationalistic nostalgia. Last week he apostrophized the faces on Mount Rushmore as those of fellow protectionists, and he was right. George Washington was a Buy American booster who boasted that he drank only U.S.-brewed ale, and Thomas Jefferson came over to that side as President. Both Abraham Lincoln and Theodore Roosevelt assailed free trade. T.R.'s view: "Pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber."

Reviewing this background, historian Alfred E. Eckes Jr. has lately come up with one of the few intellectual arguments Buchanan has been able to cite. In a 1995 book, Opening America's Market, Eckes argues that the protectionist U.S. grew much faster than free-trade Britain between 1871 and 1913, and that the post-World War II competitive position of the American economy weakened greatly after the 1968-72 period, when a U.S.-led round of sharp tariff cuts went into effect. Some students, though, think Eckes is reading into the statistics a cause-and-effect relationship that isn't there.

Whatever the case in the past, protectionism in today's heavily interdependent global economy would be disastrous for the U.S. Foreign retaliation, and inability to earn dollars by selling to the U.S., would throttle the rise in U.S. exports, which has accounted for one-third of all American economic growth in the past three years. Rather than helping the low-wage people it is supposed to aid, protectionism would make the purchase of inexpensive imports that many rely on to stretch their meager earnings more difficult.

The U.S. footwear industry has almost been wiped out in the past decade; imports now account for about 90% of shoes sold here. But John Stollenwerk, owner of Allen-Edmonds, one of the few American shoe manufacturers left, says protectionism would not have saved others. Says he: "This isn't a shoemaking country. It's a high-tech one. There aren't a lot of Americans interested in sewing shoes together." Stollenwerk has survived by paying his 450 employees in Port Washington, Wisconsin, high wages of $12 to $15 an hour and turning out premium-quality shoes.

Free traders need an equally imaginative political strategy to ward off protectionism. Their policy has claimed some real victims, who can no longer be kept quiet by sermons about the greater good of the overall economy. Unfortunately, the sermonizers have been less than prolific with ideas about how to help the losers. The lead idea is retraining, but it would have to be conducted on a scale difficult to finance at a time of pinched federal budgets. The alternative, however, might be a protectionist spirit that keeps reviving, just as Frankenstein's monster kept coming back in movie sequel after sequel.

--Reported by Tom Curry/New York, James L. Graff/Chicago and J.F.O. McAllister/Washington

With reporting by TOM CURRY/NEW YORK, JAMES L. GRAFF/ CHICAGO AND J.F.O. MCALLISTER/WASHINGTON