More trade, less free trade: debating free trade solutions

Electronics factory assembly line, Shenzhen.
Electronics factory assembly line, Shenzhen, People's Republic of China. (Via Wikipedia)

WASHINGTON, September 21, 2014 − Every US election, including this fall’s midterms, must inevitably focus on economic issues, especially when Americans are struggling to find decent paying jobs.

This era has been defined by an economic disparity that continually diminishes the spending power of the dollar. For over two decades, policymakers have focused heavily on so-called “free trade agreements” as a means to boost consumer demand and economic growth. From NAFTA to TPP, free trade seems to be the answer.

But twenty years of NAFTA clearly demonstrate there is far more to debate.

Opponents of free trade always point to accumulated data on outsourcing, shrinking earnings, growing economic disparity, and other economic indicators that demonstrate the average American is losing ground to NAFTA. In turn, proponents point to accumulated data on increased GDP, capital gains, and other macroeconomic gains while they argue that on balance, average Americans would have done worse if NAFTA had not been implemented.

Given both sides boast significant bodies of evidence supporting their positions, it is important to interpret the facts under a broader framework. In short, numbers lack wisdom.

For example: Lowering trade barriers means foreign goods are no longer taxed. When domestic goods are taxed, unless those business taxes are displaced onto individual taxpayers, free trade ultimately translates into domestic goods that are less competitive than imported goods.

If a foreign country has an established, efficient industry, which does not cater to vital national interests and can deliver an equivalent and/or superior product to consumers; and if there is a weak or nonexistent domestic industry in this industrial category, free trade can be beneficial as it can unambiguously benefit American industries and consumers. This can translate into lower priced goods with few economic disruptions to domestic industries. In short, such free trade is in the national interest.

Absent this scenario, which is defined by a clear, coequal exchange of economic benefits, free trade becomes an industry killer, because it disadvantages already mature, more expensive domestic industries and favors investments in cheaper options, particularly when it comes to goods that are price advantaged by cheap foreign labor.

Additionally, national interests change with time. For this reason, treaties and treaty law must be recalibrated to serve the shifting interests of economic partners on a continual basis.

Obviously, economic interests shift can occur quite rapidly. One result is that trade agreements must be recalibrated regularly to reflect shifting economic interests. Unfortunately, broad policies like NAFTA do not include strong maintenance provisions. Thus, they do not shift along with national interests.

America’s status as the world’s wealthiest nation dictates that labor and other operating costs will almost certainly be higher than those in poorer countries. After all, simply surviving in a developed country, let alone thriving, requires higher incomes and access to modern amenities.

But America’s continued economic supremacy is dependent upon the ability of workers to maintain a higher standard of living, engage in higher cost consumption, invest for the future, and advance their financial standing.

Clearly, in an economy like this, both rich in both skilled labor and financial capital, America needs financial capital to generate jobs that help support a massive workforce possessing a broad range of skills and technical knowledge.

But this country’s continuing epidemic of outsourcing threatens this or any nation’s ability to regulate its industrial support. This is part of the overall loss of economic sovereignty that free trade can encourage. Given this context, those who support NAFTA and TPP have a less compelling argument than those who oppose purportedly unfettered free trade.

Free trade in the current international context must be limited to situations where there is a demonstrated benefit to the United States. The same holds true for all others nations.

The world does need more trade. But not necessarily more “free trade,” at least in terms of current policies and laws.

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  • RGZ_50

    Bravo! nicely articulated.