Which is better for us: 1) free-trade which takes jobs overseas now but may lead to bigger markets later (long term goals with short term pain); 2) protectionism with tariffs and quotas which cause other countries to not buy our goods and make what we purchase more expensive, but helps our people now (long term pain with short term relief); or 3) the bizarre, sorta schizophrenic, half and half we seem to be in (pain for all now and in the future with no real goal except to help get politicians elected)?
Hey, it’s not just Democrats who are killing free trade
Since the elections, concerned internationalists have fretted that the newly Democratic Congress will curtail the nation’s free-trade policies. In Slate, Jacob Weisberg identified the new breed of protectionist Lou Dobbs Democrats. “So is America headed for a bout of protectionist class warfare?” worried the Economist. Washington Post columnist Sebastian Mallaby, reflecting the consensus, concluded that, “The two parties have opposing attitudes on the subject of trade: Republicans see it as a source of growth, Democrats as a source of inequality.”
But these arguments overlook or misunderstand the new politics of trade. It’s not a left-right split. Since 2000, Bush Republicans have done as much as Democrats to throw up trade barriers and tariffs. President Bush has generally spoken a good game about free trade, and his administration has concluded bilateral free-trade agreements with Morocco, Australia, Colombia, and several other countries. But just as free trade was a bipartisan project in the 1990s, the backlash to free trade has been bipartisan in this decade. Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., share little in common except their desire to slap huge protective tariffs on Chinese goods. And, all by themselves, the Republicans have done a great deal to damage the cause of free trade in the last several years.
I’ve written about this before…
The validity of the free market and free trade are so entrenched in our culture as to be beyond dispute. To argue against these concepts would be like arguing against the notion that the earth is round.
But, I’ve been thinking and I think I found the flaw in the argument…
I have no doubt that eliminating barriers to business makes business more efficient. In fact, it’s circular, so not only is it true, it doesn’t really tell us anything meaningful or useful.
What no one bothers to ask is whether it is always to our advantage to make business more efficient. The advantage used to be the clarion call of the free market brigade. Certainly back when the US was the world’s largest exporter, removing barriers to sell our crap to the rest of the world helped us. But now that we’re the world’s largest importer, every one agrees that free trade is killing us. At best they’ll say, “We’ve got to compete, learn to work smarter and harder or we’ll fail.” They’re admitting now that free trade is hurting us! They’re admitting that the free market necessitates that some will win and some will lose.
Now, as usual, I have to come up with an analogy, and here it is…
As I already stated, defenders of the free market claim that removing impediments makes the system more efficient. But what if we apply the same argument to something else, like say, criminal activity. Certainly removing impediments to crime would increase the efficiency of criminals. And like capitalism, there would be some winners and some losers, but the fact that there are losers would not be a bad thing. It’s a necessary part of the system.
But no one argues in favor of that because we don’t like the affects of crime. And here’s my point: We no longer like the affects of the free market. We hate what Walmart does to our towns. We hate that jobs are being sent over seas. We hate that nothing is made in the US anymore. We hate that our workforce has to compete with the third world for jobs. A competition we can never really win. If we hate all of this, why do we and our politicians allow it?!
The flip side to your argument is that by helping grow their economies, they will become on par with us, and we will all be equally competitive again and we all will benefit. In the case of countries like China, while they certainly have a huge benefit in the availability of vast amounts of cheap labor, they are also heavily aided by government subsidies to industry as well. This only reinforces our own need to maintain subsidies, to help compete against theirs.
2. “they will become on par with us, and we will all be equally competitive again and we all will benefit.”
That’s a lot of “wills” that you’re assuming will occur. Assuming that corporations would always want to remain as profitable as possible, once China or India started becoming prosperous and demanded higher wages, they would simply move the jobs to an area on earth that did not demand such wages. Multi national corporations would continue exploiting the poor areas and leaving the well to do areas to rot.
And because of international WTO laws in place, it would be illegal for any nation to do anything about it!
Compare East Germany with West Germany at the time the wall fell to see the long-term effect of competition vs. protectionism.
4. Cheese, wouldn’t a better comparison be the long term affect of capitalism vs. communism?! To present a contrast between the capitalist west to the communist east as being solely related to protectionism is ludicrous.
#3: well, until it actually happens, everything is theoretical. But that’s never stopped anybody from positing an argument. 😉
The elephant in the room is that we are steadily becoming less competetive. Many countries deal with trade imbalances by targeting high-ticket goods and services, like Britain and banking, Germans and cars, and the Finns and cell phones. Those countries recognize that unless one invests in the infrastructures that enable a superior product to be created they will rapidly lose market share and disappear. Our corporations are so fixated on short-term goals they’ve sold our workforce out.
A good recent example is the settlement between IG Metall and Volkswagon where the Union gave significant ground in return for guarantees in capital investment to ensure that the factories would remain competitive with the latest technologies. Ford and GM can’t wait for their plants to become obsolete so they can site the new fabs overseas.
#7, as long as you are going in that direction, you might as well throw in the government’s failure at providing education, and beyond that, what appears to be our society’s emphasis on liberal arts studies over science and mathematics pursuits.
Milton Friedman had it right. Search out the best product at the best price from the best company.
#1 SN,
“The validity of the free market and free trade are so entrenched in our culture as to be beyond dispute. To argue against these concepts would be like arguing against the notion that the earth is round.
The earth is neither round or spherical. It’s closest to an oblate spheroid. I would bet you already knew that, but it illustrates that simplistic models rarely define the complexity of fact. The solution to a viable US economy will be an extremely complex series of steps per product sector, that can only be determined as the strategies of trading partners unfold, react and adjust. The end result of those dynamics should eventually result in a leveling out of world economic power…. a fairer playing field.
Lets see.
Walmart has a good idea..
In a market place where most companies are matching prices, and there was No competition, they decided to go to the root of the problem.
To get a product to store, you had to go through distributors.
Makers sell to distributors, which sell to major buyers and Other distributors, that sell to minor purchasers and Other distributors that sell to those companies that buy in Small amounts.
Walmart became the distributor, and went Direct to the maker. Why not. It makes their products cheaper so more persons can buy. and the profit margin is Better also. If you like paying Sears prices, Go ahead, I’d rather a better price, then a Fix’d one.
As to tariff.
Tariffs are not that High on most products. there isnt alot of protectionism. What most of the problem comes from is Profits. Companies that have products made over Seas markup the products AS IF they were made in the USA. The Gov isnt getting the money. The Corps are.
Want a solution. Imported all goods, to have a MAX resale price. Forget the tariff, its taken from OUR pocket.
This would make the products almost a Pain to market and make MAJOR profit from, and buying/Made from the USA would be a better alternative.
1 thing you should know. that Manufacturing costs in the USA havent gone up in price in the last 20+ years. with advancements in TECH, the cost has stay’d the same. they use less workers and more computers. what Hurts most, including citizens, is the cost of power. Power costs have gone up, and not for the reason of wages or anything else. its become a bidders market. Its traded like Food and the highest bidder gets the Highest prices. This is from deregulation. something most of you may not know, is that MOST of the power in this country Isnt made by private companies, and the electric company does not own 80-90% of the Power generation facilities. Its all profit for them.
We don’t want unbridled free trade, we want thoughtful fair trade that best serves the interest of all the stakeholders in the United States. Unfortunately we are constantly getting the short end of the stick because the government representatives who negotiate these trade deals, do a lousy job, then quit and go to work for the international conglomerates or foreign competitors who pay them handsomely for their lax work. This issue is a big winner for the Democrats. They need polices that encourage companies to invest in the US and help workers make the transition to new skills and technologies. Under the banner of free trade today these companies just pull up stakes to myopically pursue lower labor costs, leaving behind devastated families and communities. The government has to use tariff dollars to help with the transition and protect vital industries.
Lets see, the idea is that free trade will eventually allow everywhere to become economically equal, more or less at some unspecified date. That every country on the planet will be equivalent in terms of GNP, wages, benefits, capital, etc. etc. Right? You realize that if that is actually TRUE, we can close the borders completely (here in the USA) and things will be great. Because in terms of BIG, the US economy is a pretty large part of the planetary Gross Economic Product. Or just look at it from a population perspective, the US has about 1/24th or so of the whole world’s people. In terms of big, for scaling purposes, that may as well be the same thing. I mean, if it’s gonna work that way for 6 billion, it should work the same for 300 million, right?
So, either we can make various arrangements over the next couple of years here in the USA, shut out the rest of the world as unnecessary, and go it totally isolated and self sufficient and everything will be groovy, or globalisation is an utter crock.
Which is it?
#13, Since no country is capable of domestically producing everything it consumes, nations and people will always have to trade with each other.
The open vs. closed local economic argument is invalid in any context of global business. All that matters is whether it works.
The idea that Republicans are for free markets is a joke. Their philosophy is based in mercantilism and they essentially believed that there is a fixed amount of wealth in the world and we should do our best to own as much of that amount as possible.
#1- what is all this “we” stuff? The idea that you have a right to tell me what to buy, how much to pay, and who must make it is anti-freedom. You may have the force of law on your side, but that does not make your position any diffferent than that of a master against a slave.
#1, SN
I was starting to question your sanity until I got to the finish. That is a masterful piece, one of the best I have read on this blog. Fantastic.
#5,
I would also add the difference to the economy between a dictatorial police state and a free, democratic state. East Germany was not a protectionist state, it traded freely with the other Iron Curtain countries. Also while West Germany was being rebuilt through the Marshal Plan, the USSR was dismantling what was left of the industrial infrastructure in East Germany and shipping it back to the USSR.
WHAT! What about the billions stolen from Canadian lumber producers via punitive tariffs ruled unlawful by every court on the planet. No wonder you have trade problems when a deal is a deal only when it suits your interests.
Karma is a cruel bitch, get used to it!
#14 and #15, You missed the point entirely. My point is that globalisation will not deliver on it’s promoter’s promises of eventually raising the worldwide standard of living to a roughly equal level everywhere. #16 has the true purpose behind the “globalisation” movement pretty well pegged. The pie is only so large, hog as much of it as you can get away with.
#1, SN, I totally agree with you. Makes sense what you’ve said.
I find it funny.
I went to buy more underware..
I look on the shelf, and I could get Fruit of the loom(USA) cheaper then a French named/made in malasia, and get 2 pair more for the price.
The main problem with US sales and distribution, comes from 1 idea… I can sell this at a HIGHER price and make more money…Then selling a USA made product at the SAME price, and only make 1/4th the profit.
Even with tarriffs, we see some products as BETTER, and will pay more for that product, for some stupid reason, but the seller/distributours are STILL making ALOT of profit.
I would like a Max resale price on imports. that would make products NOT worth selling in the US, becasue they cant make the PROFIT that the corps wish to make off of the sale.
#22, “I would like a Max resale price on imports. that would make products NOT worth selling in the US, because they cant make the PROFIT that the corps wish to make off of the sale.”
That makes no sense at all. Even if the per-item profit might be equalized under your idea, the total revenue earned from the higher sales volume of the cheaper imports will still make the domestically produced items unattractive in comparison.
Just a few countries? What about CAFTA? Also Bahrain, Singapore, Chile, Australia and India. Lou Dobbs can’t even make up his mind. He complains about losing tech jobs then he complained that in the India deal the US was trading high-tech for mangoes.