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SUNDAY, NOVEMBER 11, 2007
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Free trade plays role in closing of Wolverine

Five hundred Wolverine Tube workers are paying the price for the national policy embracing free trade.

Certainly other factors were significant in the plan to close Wolverine — most notably copper prices and competition from non-copper products — but globalization had a major role.

The theory behind free trade is grounded in the concept of comparative advantage. Let’s say the U.S. produces both socks and software, as does Mexico. The U.S. doesn’t produce socks as efficiently as Mexico, and Mexico doesn’t produce software as efficiently as the U.S. By importing socks from Mexico, the U.S. economy can devote more resources to the product in which it has a comparative advantage, software. Likewise, Mexico can devote more resources to producing socks.

Both countries are better off, the theory goes. Tariffs and other trade barriers hurt both countries because they hinder the market forces that allocate production resources most efficiently.

Wolverine Tube’s announcement that it will close the Decatur plant, which produces smooth industrial tube and tube for plumbing pipe, in many respects fits perfectly into the free-trade scenario. In a memo explaining the closure to employees, Wolverine President Harold Karp said, “The smooth tube industrial market is rapidly transitioning to a commodity market and is under intense price pressure from an ever-increasing array of global competitors.”

In other words, customers placed little or no value on a Decatur-made smooth tube over one made in China or Mexico. Those countries have a comparative advantage in the products the Decatur plant produces.

That should not surprise Wolverine management, which in recent years has opened plants in Mexico and China.

So, from a free trade perspective, Wolverine’s exit from the smooth-tube and plumbing markets was as it should be. It is reallocating its resources in response to the dictates of the market.

What free trade proponents don’t talk much about is the human pain embodied in the sterile economic term “reallocation.”

I talked to a 55-year-old employee who, unless the statistics prove wrong on the likelihood of getting another comparable job at his age, has decided he must put on hold the plan to send his son to The University of Alabama. The spouse of another is applying for a part-time job, on top of her full-time job, meaning she will see her daughter only on weekends.

Painless reallocation is sometimes possible, but only with good management. Wolverine repeatedly dropped production of value-added products — those in which it had a comparative advantage over manufacturers in developing countries — from Decatur production. When new owners came in this year, they had an antiquated plant that made nothing but products that could be made more cheaply in developing countries.

Whether the long-term benefits of free trade will be worth the short-term costs is an open question, especially given the uncertain duration of the “short-term” costs. For a 55-year-old worker, those short-term costs likely will last a lifetime.

Without question, as 500 of our neighbors can attest, the short-term costs of free trade are brutal.

Contact Eric Fleischauer at eric@decaturdaily.com.

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Eric Fleischauer
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