"Free Trade" - Destroyer of Wealth?

[WhiskeyGirl]

The Administration must give a stronger message domestically and to America's allies that it knows trade barriers destroy wealth and will impede recovery.

http://www.timesonline.co.uk/tol/comment/leading_article/article5741121.ece

What have been the benefits of "Free Trade" for the U.S. over the past thirty years?  Job loss?  Imbalance of trade?  Rising national debt?  Any benefit for the U.S. as a nation?

Another look at "free trade" -

Moreover, rapid growth in international trade, coinciding with increasing wealth and an extended period of general peace in Europe, at first appeared to confirm these theories. Ricardo had argued in his theory of comparative advantage that free trade between nations would bring gains to both parties to an exchange, even when one was the more efficient producer of every good they traded. This was because trade encouraged even an unproductive national economy to devote resources to those branches of production in which they would be least inefficiently employed.

But Ricardo never promised that the gains from trade would be evenly distributed, and a nationalist critique of free trade pioneered by Alexander Hamilton in the United States and Friedrich List in Germany gathered strength towards the end of the century. It even gained ground among traditionally liberal British businessmen, now buffeted by the trade cycle and threatened by new centres of manufacturing industry in continental Europe and North America.

...But although this contributed to a sharp increase in levels of trade and prosperity during the 1950s and 1960s, it steadily became more and more evident that many non-tariff barriers, including complex administrative procedures, ingeniously drafted health and safety regulations, and nationalistic public procurement policies, still impeded free exchange of goods and services. Moreover the GATT had permitted a number of exceptions to its general principles from the outset. Trade in temperate-zone agricultural goods was not covered, nor in textiles and clothing, and both became subject to extremely restrictive regimes devised by the United States, Japan, and the European Community to protect their own producers. The GATT also allowed discrimination in favour of each other by groups of countries pledged to the formation of a free trade area or customs union, such as the European Union.

It seems like complex requirements lilke income taxes, mandated healthcare coverage/insurance, umemployment taxes, and the like may create barriers to trade.  How good would like be in the U.S. if employers could pay less than the Chinese?  No benefits?  No business or employement taxes?

Who benefits?  Americans?  Large multinational companies?

Add to this the extent to which goods such as automotive components, oil, or aluminium are traded internationally within large multinational corporations at administered rather than market prices, together with the renewed prevalence of smuggling (especially of precious metals and illegal drugs), and it becomes hard to discern clearly any causal relation between prosperity and the imperfect contemporary implementation of liberal free trade theory. Be this as it may, the most impressive rates of economic growth achieved in recent years have without exception been achieved by export-oriented countries like Japan, Taiwan, or South Korea, that have relied very heavily on market access provided by this system of managed liberalism; and this has confirmed free trade once again as the effectively unchallenged ideal type of international commerce.

And those that are not exporters, but importers, what is their fate?  I've read for years that cash is king in a depression...the U.S. has nothing but debt.  What hope for our recovery?

Big multinational companies - do they hinder or help free trade?  Lower competition?

Free trade seems to be a real good deal those those that are great exporters...a raw deal for those that are importers.

http://www.answers.com/topic/free-trade

[WhiskeyGirl]

The fledgling Republican Party led by Abraham Lincoln, who called himself a "Henry Clay tariff Whig," strongly opposed free trade and implemented at 44 percent tariff during the Civil War in part to pay for railroad subsidies, the war effort, and to protect favored industries.[5] President William McKinley stated the United States' stance under the Republican Party (which won every election for President until 1912, except the two non-consecutive terms of Grover Cleveland) as thus:

"Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest'…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards."[6]

Look where easy credit and low prices got us - no jobs, no credit, high debt, and poor prospects for the future.  mo

Nonetheless, quoting Prof. Peter Soderbaum of Malardalen University, Sweden, "This neoclassical trade theory focuses on one dimension, i.e., the price at which a commodity can be delivered and is extremely narrow in cutting off a large number of other considerations about impacts on employment in different parts of the world, about environmental impacts and on culture." [12] Most free traders would agree that there are winners and losers from free trade, but argue that this is not a reason to argue against free trade, because free trade is supposed to bring overall gain due to idea that the winners have gained enough to make up for the losses of the losers and then some. Chang argues otherwise. The winners do not always make enough to compensate for the losers, as is the case when the economy gets smaller and even if the winners do make enough to compensate for the losers, this compensation is not always from the workings of the market meaning some people are worse off. Adding to his argument is the idea that in order for the losers of free trade competition to be fully compensated, some sort of compensation vehicle such as a welfare program is needed to sustain them until they are able to find a job that is equal to or better than their previous job. If they do not find a job that is equal to or better than the one they had, they are worse off and America is worse off because if this trend continued, trading a better job for a worse job, then America would really be in trouble.

Socialists frequently oppose free trade on the ground that it allows maximum exploitation of workers by capital. For example, Karl Marx wrote in The Communist Manifesto, "The bourgeoisie... has set up that single, unconscionable freedom -- Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation."

We have the best of all possible worlds, socialism, communism, high taxes and free trade.  What a lucky people.  Welfare and high taxes, debt.  A tough road ahead.

Some free trade economists have recently begun to express their own doubts concerning the concept and practice of free trade. Alan S. Blinder, for example, a professor of economics at Princeton University, and former Federal Reserve Board vice chairman and advisor to Democratic presidential candidates, had previously argued, along with most economists, that free trade enriches the U.S. and its trading partners. Good jobs may be lost here in the short run, they say, but the total U.S. net national product must, by the economic laws of comparative advantage, be raised in the long run. The gains of the winners exceed the losses of the losers. This has been called "creative capitalist destruction."

However, some believe that new communication technology will put 30-40 million American jobs at risk in 10-20 years. The proponenets have not completely rejected free trade or ideas about comparative advantage, but they advocate greater protection for displaced workers and an improved education system, since trade changes types of jobs, not the number. For example, technology has allowed Indians in call centers to do the work of Americans at lower wages. Which may cause tens of millions of additional American workers start to experience an element of job insecurity that has heretofore been reserved for manufacturing workers. The debate is, "Should government encourage forces of globalization or try to restrain them?" Latin America performed poorly since tariff cuts in 1980s and 1990s, compared to protectionist China and Southeast Asia.

Any upside for the older displaced worker?  Starting and ending like with a McJob?

Why not promote free trade?  Support business that has the same tax and benefit way of life for citizens?

http://en.wikipedia.org/wiki/Free_trade

America is in trouble.  Fewer jobs, jobs for just the elite - those highly educated that can be expected to compete with low paid folks in other countries...workers that have employers that do not have to provide the same level of wages or benefits mandated by the state or federal governments of the U.S.

If free trade is the way, why not limit it to those with similar wage, tax, and benefit structures?  The fifty United States, Canada, Mexico and SA?   

Free Trade isn't the same as Fair Trade.  mo

jmho

[WhiskeyGirl]

Information about "Fair Trade" -

http://www.fairtradefederation.org/

http://en.wikipedia.org/wiki/Fair_trade

http://www.transfairusa.org/

Fair, not free, trade
RICK ARNOLD

February 13, 2009

Roseneath, Ont. -- Lawrence Martin laments that Canada's overdependence on exports to the U.S. means that our neighbour's tanking economy is taking us down (Canada Has No Choice But To Go Global - Feb. 12). His solution is to pursue more "free trade" deals on a global scale, with no mention of NAFTA's painful legacy.

The fact that alternative trade models are successfully operating in our hemisphere appears to have escaped his notice. Since 2005, most South American countries have turned their back on NAFTA-style deals and have created the Union of South American Nations (UNASUR), with a larger population base (read market) than the U.S.

International Trade Minister Stockwell Day has been dismissive of the growing number of Latin American countries promoting fair trade. In going global, Canada must deal with new realities like UNASUR - on their own terms.

http://www.theglobeandmail.com/servlet/story/LAC.20090213.COLETTS13-10/TPStory/Comment

"Fair Trade" is a newer model, "Free Trade" appears to be an old model, maybe one that hasn't worked so well.  Why aren't Americans jumping on the Fair Trade bandwagon? 

Americans need jobs too.  China has done a good job of providing jobs, iron rice bowl jobs included.  A job gives people a reason to get up in the morning, and provides a purpose in life - self support for the able bodied and those with challenges.  Having a job and purpose is important in life.   

How many lives are being wasted bacause there are no jobs in cities across America that once had vibrant manufacturing neighborhoods?   Sometimes a small town had just one manufacturer, and it provided a living for many.  Not jobs that would make you millions, but jobs that would support a family and give hope for a better future.

How many communities have problem youths that have nothing to do all day long but stand on the street corner?   

Welfare, as attractive as it sounds, does not give people 'purpose' in life.  A hundred dollars more in the pocket might help make ends meet, or provide a few more drug dollars. 

Does welfare provide purpose in life?  Does  welfare instill pride in a job well done, or pride in a family life supported by hard work and good values?  Does welfare build safe and secure neighborhoods?  How does welfare give anyone purpose in life?

jmho

[WhiskeyGirl]

Posted to the web on: 16 February 2009

China blocks subsidy challenge from SA  
Mathabo le Roux

SA’s first legal bid to protect itself against unfairly subsidised imports from China has been thwarted, under what appears to have been undue pressure from the Chinese government.

South African manufacturing firms are already squeezed by heavily subsidised imports from China. The situation is set to get worse as the Chinese government increases payments to its manufacturers to keep exports competitive in the global economic downturn.

Franke’s initial bid was to bring an antidumping application after an import surge saw China’s market share climb to 60% from zero three years before .

However, fearing that its dumping complaint would fail, the company also applied for countervailing measures, alleging that the margin of subsidisation for Chinese kitchen sinks was as high as 47,7% of the value of the product.

Franke’s consultant, Jan Heukelman, told Business Day the company had a strong case. Franke listed 36 subsidies in 10 subsidy programmes from which Chinese manufacturers benefited, claiming kitchen sinks from China entered SA at below the cost of stainless steel, the raw material from which the sinks are made.

But Business Day has learnt that the Chinese government pressed Franke in Switzerland to withdraw the application to ensure the future of its substantial business interests in China.

http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A940365

[WhiskeyGirl]

As with other formerly dominant industries, such as light manufacturing, IT, textiles, etc, a recession was used as the knife to finally do in the workers. IT is a prime example. While outsourcing was a force that was picking up steam throughout the 1990s, it was not until 2003, the year after the tech bubble bust of 2002 (and a short recession) that IT outsourcing finally took off. The companies involved, used the bust to lay off hundreds of thousands of tech workers around the US and Britain, sighting low profits or debt. The public as a whole accepted this, as part of the economic landscape and protest were few, especially with a prospect of the situation turning around. However, shortly after the turn around in the economy, it became very clear that there would be no turn around in the IT employment industry. Not only were companies outsourcing everything they could, under the cover of the recession, they had shipped in tens of thousands of work visaed workers who were paid on the cheap.

A similar process had already begun in the oil/gas services and oil/gas industries and has now begun it's initial acceleration into a full removal of the American worker from those positions. Regardless of the layoffs, work still has to be done, so new hires will be done in cheaper countries, where much of the manufacturing is already located. Once a subsection of a team or a new office is set up, it will become much easier to rationalize the movement of whole departments.

So what is in store for America's energy industry future? For the owners, higher profits, when demand goes back up. For the workers? The same hell of unemployment that the rest of the US/UK now enjoys.

http://english.pravda.ru/world/americas/107104-america_dominant_industry-0

And, there will be a Miracle in America to create highly educated Americans to compete with folks in India and China for jobs.  What about price?  $5 or $6 a day a good starting wage?  Amazing.

imho

[WhiskeyGirl]

To finance the deficit of recent years, Americans have borrowed more than $6.5 trillion from foreign sources, including foreign governments, and the debt service comes to more than $1500 for each working American. In addition, foreign investors have at least $3.6 billion acquiring equities in U.S. businesses.

The flood of dollars into foreign government hands has bloated sovereign wealth funds that are now buying significant shares of U.S. businesses and other property, and threaten to compromise the loyalties of U.S. businesses.

The Chinese government alone holds about $2 trillion in U.S. and other securities, and these could be used to purchase about 20 percent of the value of publicly-traded U.S. companies. Add to that the holding of Middle East sovereigns and royal families, the potential purchases of U.S. businesses by foreign governments with interests unfriendly to the United States is alarming.

This should give Americans real pause for concern about Chinese and other foreign government intentions to diversify their foreign exchange holdings into U.S. stocks and other real assets.

The deficit on petroleum products was $386.3 billion, up from $293.2 billion in 2007. The average price for imported crude oil rose to $95.23 from $64.28 percent from 2007, while the volume of petroleum imports fell 4.0 percent.

Also, the American appetite for inexpensive imported consumer goods and cars is a huge factor driving up the trade deficit. The trade deficit with China was $266.3 billion, a new record and up from $256.2 billion in 2007.

Were the trade deficit cut in half, GDP would increase by at least $400 billion, or about $2750 for every working American. Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.

Manufacturers are particularly hard hit by this subsidized competition. Through the recent economic expansion and recession, the manufacturing sector has lost 4.6 million jobs since 2000. Following the patterns of past economic expansions, the manufacturing sector should have kept at least 2 million of those jobs, especially given the very strong productivity growth accomplished in durable goods and throughout manufacturing.

read more here -
http://globalpolitician.com/25467-economics

I think all these stimulus packages are going to make things worse for Americans.  It might stimulate other economies around the globe, but its a loss for Americans today and for future generations.  my opinions