Friday, August 6, 2010

Free Trade Is A Bust

The free traders told us that free trade would usher in a new level of prosperity, as we eliminated the costs of tariffs and quotas from our international economy. And they were right about that China.

Now, I'm all for free peoples being able to enter into agreements across borders. But as NAFTA and Chinese trade have shown us, these agreements don't always work as planned.

Free traders will tell you that reducing trade barriers produces a net increase in prosperity. They are right. What they didn't tell you was that net prosperity wont happen in America.

China, Mexico, and other nations with which we have easy trade all share advantages not available to us in America. They do not have the strict (and monetarily expensive) environmental protection policies that we have here in the US. They also have much lower minimum wages. These advantages allow them to produce the same products for much lower costs than US manufacturers. Hence why so many US companies produce their goods overseas, only to sell them in American markets.

The result of this regulatory imbalance is apparent. American manufacturing is dead. Huge portions of the products we consume are made outside the US. We suffer an enormous trade deficit, which in any other country would destroy currency value, though for us the affects are blunted by the US dollar's global reserve currency status.

Our labor and environment policies have applied costs to American industry that industry in other countries can avoid, setting our industry up for failure. We simply cannot compete in these markets without efficient, large scale automation, but even if we do succeed with automation, we have still shed jobs from our economy.

Free traders might reply that this means Americans must advance, and work in higher skill businesses that China and others aren't able to do yet. They are right, but leave out the fact that retraining and building new high tech businesses takes a lot of work, time, and money, adding more costs to our already (relatively) expensive labor/business environment.

We have to change our trade policies. Low or no tariffs simply don't work when trading with nations who are not on the same playing field. And I don't want to eliminate environmental or labor standards. So we have to apply costs to imports through tariffs. We have to apply them broadly, but also slowly. We don't want to shock the global market with sudden new costs. We also must be cautious of making tariffs to high, thus stifling trade too much.

Our economy is dying. We have to do something. Some will call this policy "protectionist." I call it common sense.

No comments:

Post a Comment