Sunday, February 5, 2017

Free Trade And Fair Trade Are Distinctly Different

Walmart Container Ship Example Of Bad Policy
Make no doubt about the fact that trade policy has massive long-term ramifications on the strength of a nation's economy. Why an event occurs or how it takes shape is generally the result of many factors coming together and not always a well planned and perfectly orchestrated plan coming together. Americans should expect the politically heated debate over trade agreements to continue. Many articles supporting and praising the way trade has grown over the years sight how it has raised many people out of poverty and misery, they tout free trade as the answer to many economic woes. I contend many people fail to note the difference between free and fair trade.

This article is in response to a slew of comments from my recent article titled, "Higher Prices On Import Goods A Fair Cost For Jobs" because many of those supporting past trade agreements use low consumer prices as a battle flag around which to rally. Critics of existing policy say these trade deals over the years have added to environmental problems across the world and exacerbated economic inequality within many economies as manufacturing jobs have been outsourced to low-wage countries. Internet activists also weigh in with claims these deals can curb freedom of speech and other detractors even charge it adds to the forces that enshrine currency manipulation. As we view the global economy we must ponder how much of this is about individual governments giving up control and becoming subservient to corporate “efficiency” and the desire of companies to both develop and control future rules

In many ways, the global economy has become an ill-regulated business model tilted to favor big business and giant conglomerates. The controversial TPP created as a new U.S. led Pacific trade pact pointedly excluded China, however, that was not just about trade but a tool designed to cause China to lose influence and key export markets. While signatories championing the benefits TPP claimed it would kick-start sluggish global growth, much of America's political motivation revolved around the idea it provided a strategic bulwark to China’s growing economic and military power. In truth, many people view the Trans-Pacific Partnership (TPP) that was pushed by the Obama administration and a slew of corporate allies as a blatant attack on labor, farmers, food safety, public health and even national sovereignty.

Details of the agreement had broad implications that were kept largely secret so most of us have little knowledge of its contents. While being negotiated even members of Congress didn't know much of its details because it is mostly the product of corporate lawyers. Making the agreement even more controversial was the belief held by many Americans that bad trade deals with low-wage countries have contributed to our current economic woes. When Massachusetts Senator Elizabeth Warren, came out strongly against these agreements Obama said the Massachusetts senator was “absolutely wrong” and accused her of speculating about the contents of the emerging 12-nation trade deal for personal gain. Obama's statement did little to quell the controversy, instead, it seemed to throw fuel on the fire.

Trade can be used as a stealth weapon resulting is massive shifts in wealth and that makes it a problem. Ironically, it is a Republican controlled Senate that was most inclined to give the Obama administration the approval it wanted for TPP while job protecting Democrats backed by unions railed at the deal. Senator Warren and those concerned that a trade agreement with low wage nations will not be a great job creator for America have history on their side. Economist Dean Baker said of the TPP, “This really is a deal that’s being negotiated by corporations for corporations, and any benefit it provides to the bulk of the population of this country will be purely incidental.” It is worth noting that in 2008, as a presidential candidate, Obama boasted, “I voted against CAFTA, never supported NAFTA, and will not support NAFTA-style trade agreements in the future.”

This Is Why Mexico Has Become An Issue
Historically, trade laws are geared to enrich the “mother” country and was often used to build a nation. Following World War II free trade arguably benefited the economies of the countries involved. This changed starting with 1994’s North American Free Trade Agreement (NAFTA), which recognized that capital is now mobile, it moves about the world and owes allegiance to shareholders rather than loyalty to any one country. At least it can be argued that NAFTA was intended to improve our own neighborhood and that as Mexico and Canada benefited, America would gain some degree of "safer borders" and a mutual interest would be served. NAFTA is the paradigm of what are most accurately called deregulation deals. It promised better jobs in both the United States and Mexico.

Instead, as well-paid workers in the United States were losing jobs to low-paid workers in Mexico, badly paid Mexican workers were losing jobs to those in China who would work for even less. This, in turn, places more pressure on workers in the United States. We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Developing a long-term sustainable economic system that is balanced would contribute to both global cohesion and the world economy. Nationalistic exploitation of trade agreements has occurred throughout history and it is naive to think such schemes will suddenly end. The changes brought about by the development of the global economy have been hard for many. Promises of widespread prosperity have fallen short and we have seen the benefits flow to only a few.

This means a reason for grave concern over our current course does exist and at some point, the damage from continuous massive trade deficits may become irreversible. The trend of businesses and businessmen to cast away the nation's best interest for a place at the table of the global elite has come at a great cost. Considering this, it is little wonder trade has become such a heated issue. I see no quick fix nor can I be optimistic about another system and legal framework for long drawn out arbitration that dispenses solutions that neither thrill or satisfy. The promises made that increased trade will create new jobs has turned out to be largely a myth and politicians playing the "fear card" with statements such as "We can’t let countries like China write the rules of the global economy” imply we are powerless to control our own fate and are about to be devoured, I reject this premise.


  1. The US has a lot of problems being globally competitive. The tax structure, cost of health care, over regulation, etc. I think that addressing our internal problems is probably easier than addressing the external problems.

    I think that the external problems have evolved with the underlying assumption (both here and abroad) that the US economy would always be rich enough to buy whatever the world produced without any concern to the unfairness of the trade relationship.

    I don't think that the US can take much more abuse.

  2. There should be a 20% blanket tariff on all imported goods, no matter the source, with maybe a 45% tariff on China because of their mercantilist trade policy and enabling of North Korea.

    The revenue raised from the tariff could be used to eliminate the corporate income tax, which in effect is an internal tariff on domestic production. Such a tariff would boost GDP growth by at least a pp.

  3. And you can tell that a 10% tariff will not be enough. GM and Ford need 50% tariffs to start building cars here again.