The Persistent Myth of “Free Trade”
Theoretically, free trade sounds like a great idea. Consumers get the benefit of increased competition for their buying dollars, manufacturers get to locate or source from the lowest cost labor pool and exporters have the opportunity to sell into new markets with no tariffs. Unfortunately, there are fundamental real-world flaws that exist with free trade that have led to the most massive wealth transfer in the history of the world. The United States has not witnessed a trade surplus since 1975. Between 2000 and 2011, $7.4 Trillion has been lost through trade deficits caused by elimination of tariffs.
The most significant flaw with free trade agreements is that they are impossible to enforce, making competition impossible. Free trade depends on the premise that all countries will play by the same rules. However, in the real world assuring that this occurs is incredibly expensive, time consuming, and inefficient to contest. The reality is, tariffs are not the only barrier to fair trade. Trade is impacted by much more intangible state-sponsored “trade weapons” such as currency manipulation, technology transfer requirements, joint-venture policies, other methods of taxation, selective customs policies, underhanded government subsidies and countless other tools. Under free trade agreements, the U.S. essentially relies on faith-based economic policy with other countries.
Without the presence of tariffs, a free trade agreement places our country with lower overall wage rates in a superior position. When two countries with huge differences in labor costs engage in “free trade” eventually all the production that benefits the country with higher wage rates will be transferred to the country with lower wage rates. The transfer is supposed to be offset with lower prices being enjoyed by the outsourcing country, but in the long run it leads to the destruction of the manufacturing capabilities of the more developed country and a wider spread in income among its citizens. This is exactly what has happened to the United States.
A logical question is why the lack of attention to this issue. There has actually been a great deal of attention paid to this issue despite persistent free-trade mantras. In the 1980s there was tremendous concern among Reagan administration officials that the U.S. was losing its competitive position in the world. Reagan enacted numerous protectionist policies in an effort to stem the hemorrhaging trade deficit. Media attention was centered on a doomsday scenario whereby Japanese and Arab interests would come to own and control everything in this country. Now, a frightening amount of formerly owned U.S. companies are in the hands of foreign companies and interests.
Seventy percent of the American population sees free trade as harmful to the U.S. economy. So given all this insurmountable evidence to the contrary, why is it that free-traders continue to sell out the country at the expense of national security and our future generations? The answer is that every person, corporation, and politician tends to do what is in its own short-term best interest, be they motivated by pure profit or reelection.
Countries like Japan, Germany and China take great pride in protecting their industries from foreign purchasers. They have government agencies devoted entirely to doing just that. In the U.S., we seemingly do everything to encourage foreign takeovers. Of course, no politician likes being the bearer of bad news. Most politicians are not willing to risk their political careers by saying we must take drastic action to the short-term detriment of many Americans, even though that is precisely what they are charged with doing.
No rational argument exists to continue policy that leads to free trade agreements. FTAs are damaging America’s ability as a country to compete, even as the results of free trade continue to provide cheap goods to American consumers. If we do not reverse this path of selling our assets and borrowing from foreign sources to finance our lifestyle of imports, we will eventually receive a call on our debt and will find our cheap goods cost much more than we had ever imagined.