Trade Wars averted: Responding to rising anti-free trade sentiments

Free Trade purists are provoking a dramatic embrace of renewed trade wars.

Image collage by the author.

NEW CASTLE, Pa., Mar. 14, 2016 – Self-proclaimed “Democratic Socialist” Bernie Sanders and his enduring challenge to Democratic frontrunner Hillary Clinton are a clear affront to the capitalist philosophy that has long dominated U.S. political and economic thinking.

Bernie’s success thus far represents the frustrations many voters feel over the failure of current economic policies to deliver them a better life. For the wealthy and political elites who have benefited from their blind faith in any policy framed “capitalistic” and the adoption of policies that concentrated wealth at the top of the socioeconomic pyramid, Sanders is a challenge to their eroding political influence.

Bernie Sanders’ Rise and the Internet’s New Socialism

Meanwhile, establishment favorite Hillary Clinton has helped push the Democratic Party away from key free market policies that her husband introduced into the that party during his Presidency. In positioning herself against TPP and leaning toward anti-free trade movements in general, she aligns herself with the views of many Democratic voters, yet snubs her Wall Street backers and risks undercutting business support for the Democratic Party.

CNN Screenshot
Hillary and Bernie

Under normal circumstances, free trade advocates would simply shift all of their political support to the Right. Business developer Donald Trump, however, is also against TPP, espousing a political philosophy that is almost anti-free trade. His rise, in part, represents the backlash from Republicans whose livelihoods are threatened by outsourcing, domestic businesses that are being “competed out of business,” and domestic industries that are under pressure to move production overseas against their interests.

Although Trump’s lack of civility is often used to frame the billionaire as unqualified and unfit to be President, tucked away in almost all Right-wing criticism is their true fear that Trump will reserve policies that have benefited the wealthy and the political elite.

Trump’s keenness to trumpet his savvy use of bankruptcy laws and tax loopholes, for example, makes this political outsider an insider of the financial elite who is a true threat to the undue legal privileges enjoyed by his peers. In their eyes, he is, of course, a traitor to his own socioeconomic class, not a champion of the common man as his supporters see him.

Furthermore, Trump’s positions against policies like free trade threaten to upset the very economic mechanisms the affluent use to amass more and more wealth. Donald Trump has clearly struck a nerve among his Right-wing critics who hope to stoke fears of economic ruin in advent of trade wars in an effort to crush anti-free trade sentiments.

The Good of Donald Trump’s Rise and the Never-Trump Movement

In theory, a trade war is devastating to an economy because it creates barriers to trade, thus starving the nation’s economy of increasing investments and entrepreneurial activity. Not only do increases in tariffs raise import and export prices; they undermine the sustainability of global production by raising the cost of outsourcing too quickly. Sharp increases in tariffs also create a lack of certainty for businesses and individuals. This serves to inhibit consumer spending and capital investment, thus helping stall and ultimately destabilize the economy.

On the other hand, free trade is also problematic. The biggest issue with unfettered free trade is that it deleverages workers and localized businesses by forcing them to compete as part of a global workforce struggling to provide for global demand. Based on “supply and demand,” a massive global workforce without enough work means workers face downward pressure on their wages.

Conversely, the need to enhance global supply to meet global demand puts upward pressure on the cost of natural resources and goods. Ultimately, workers and their families face lower incomes and greater costs.

More Trade, Less Free Trade: Debating Free Trade Solutions

As the U.S. is both rich in labor and financial capital, America needs additional financial capital to generate jobs that support a massive workforce with a broad range of skills and technical knowledge. The fact that America is the world’s wealthiest nation dictates labor costs and other operating costs will certainly be higher than those in poorer countries. After all, simply surviving in a developed country, let alone thriving, requires a higher income and access to modern amenities

That said, more than just Americans are hurt by free trade. Free trade essentially turns the global economy into a lowest bidder economy where market forces pressure consumers and businesses to continually seek out lower costs. Because free trade costs workers in poor countries the leverage needed to negotiate improved wages and living standards, these countries and their citizens will stay poor, even if they see a modest, temporary increase in their living standards.

Furthermore, the economic interests of trade partners shift very rapidly with the changing nature of the economy. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests. Unfortunately, NAFTA and TPP do not include maintenance provisions. Because these trade agreements do not shift with national economic interests, they can do great harm to economies by locking in the undermining effects of free trade.

Because the U.S., as the world’s largest economy, engages in free trade, it is far more difficult for poorer countries to say no to lower taxes and less regulation. Adding the most populous region, i.e. Asia, into the mix will only make it that much more difficult to reduce the negative impact of free trade. Fortunately, this also means the United States has the power to set the terms of TPP, so the trade agreement provides the greatest benefits with the smallest costs.

Globalization during the Clinton era, when NAFTA was crafted, meant economies should be built to service global demand with each country offering a selection of specialized goods. Because this model creates a fragile global market built on the global pricing of overly relied upon goods and price suppression as well, it can only sustain poverty with marginal improvements in living standards until the system finally collapses.

National economies must be built on industries that serve the local needs of their citizens with plentiful resources that are as local as possible and with excess production being used to participate in the global economy. After all, a stable global economy depends on healthy national economies.

If a foreign country has an established, efficient industry that does not cater to vital national interests but can deliver an equivalent and/or superior product to a weak or nonexistent domestic industry, free trade can be beneficial as it can be used to remove trade barriers to established industries in exchange for the same benefit. This can translates into lower priced goods with few economic disruptions to domestic industries.

Absent this scenario, a clear coequal exchange of economic benefits, free trade becomes an industry killer, because it disadvantages already mature, often more expensive, domestic industries while favoring investments in cheaper options, especially when it comes to cheap foreign labor.

Free trade also deprives governments of revenue, undermines their ability to collect domestic taxes, and distorts the global economy.

Since the only way to limit these effects is to end widespread tariff-free trade, fear of a negative economic outcome has always sidelined much needed changes to trade agreements. Today, however, the voter-driven political environment is increasingly anti-free trade, while the failure by Washington to recalibrate the economic mechanisms of the U.S. economy to the benefit of the American people is shifting this country toward socialism.

Instead of feeding opposition to capitalism and provoking a dramatic embrace of trade wars, which American s generally do not seem to fear, the best course with regard to the current international trading system is to turn to diplomacy to seek a more robust and dynamic solution. In terms of economic conflict, this means negotiating trade agreements that maximize the benefits and minimize the cost of free trade by tailoring bilateral free trade agreements between specific industries.

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