Trade-in value

trade-in valueContinuing with “Controversy Week” on the JMD blog, prompted by the head-scratching presidential nomination process this year…

It appears there’s one thing every candidate agrees on this year:  free trade deals are the root of all evil.

To properly examine this belief and expose its flaws would require a much longer post to explain in great detail. Fortunately, no one campaigning seems interested in details, so this blog will follow their example.

Let’s start with a general truism: When running a campaign, free trade is bad. When running a country, free trade is good.

The easiest thing to do in politics is to pander to people’s real needs with simple platitudes. Lost your job? Must have been because of China and Mexico. Wages not going up? Must be because of foreign currency manipulation. Companies not expanding or investing in your area? Must be because of foreign tax policies.

Let’s do some easy math first:

U.S. Population:  324 million (including everyone from babies to homeless)

Rest of the World:  7.1 billion

Right off the bat, that sure looks like we need to have open trade for our companies to grow.

The next refrain is that the trade is unfair. Why else would we have trade deficits (buy more than we sell) to other countries like China ($365 billion), Germany ($75 billion), Japan ($68 billion) and Mexico ($58 billion).

The campaigns say it’s because labor is so cheap in other countries and that their currency is manipulated to make their products even cheaper and U.S. products more expensive.

A flip to that argument is that U.S. labor is too expensive, forcing companies to either outsource to compete or prevent wages from growing domestically.

At the same time, the candidates all say workers should make more money (either through minimum wage increases or “natural” growth). This would seem to suggest U.S. products would cost even more.

Now, since the U.S. cannot enforce our labor laws on the other 7.1 billion people in the world, that leaves some candidates suggesting tariffs (penalties) on imported goods.

Here’s the problem with tariffs: they don’t help you sell a single other product to those 7.1 billion people. In fact, all it will do is raise the cost of goods for everyone in America, while not guaranteeing a single additional job will be gained.

Think about it. How does raising the cost of goods coming into America create new jobs? And even if jobs are created, how many new jobs would be needed to offset the increased expense to 324 million Americans (including those newly employed)?

Plus, the U.S. doesn’t exist in a vacuum. Does anyone truly think that America can place tariffs on other countries’ goods and they’ll just meekly take it? What reciprocal economic moves will they make in response to such a selfish and protectionist doctrine?

As for currency manipulation, that’s undisputed. In fact, we do it here, too. In the United States we call it “monetary policy”; everywhere else it’s manipulation. There are some real examples of individual countries devaluing their currency (making the U.S. dollar more expensive) to gain trade advantage, but most currency “manipulations” are a response to bad economic conditions in those countries.

Another refrain heard on the campaign trail is that the trade agreements are “bad deals”. Were most people to walk around their homes and check out where their TV, refrigerator, clothes and aluminum foil are made, it’s doubtful they are all from America.

The reason they chose the products they did is because they offered reasonable quality at a better price. That doesn’t sound like a bad deal for Americans.

Of course, they could go out and buy only U.S. made products. Most people choose otherwise and that keeps the amount of goods imported higher than those exported (remember, those other countries often have a lower standard of living than the U.S., making it even more vital they purchase cheaper, non-U.S. goods).

The real bad deal is that there is no process in place to re-engage people who lose their jobs in any economic downturn, be it from international competition or economic recession. The United States already struggles with it homeless and it shows equal confusion on what to with its jobless.

A moral argument could be made that America’s values should preclude the country from doing business with foreign countries who don’t properly pay their workers and provide safe working conditions. Considering our checkered moral compass with other types of international dealings, that might come off as hypocritical.

However, adding some of those requirements as part of a trade deal makes excellent sense and during an appropriate time of leverage.

By the way, it should be noted that a good amount of “imported” goods are materials that are produced or manufactured in America and shipped elsewhere for assembly. Thus, even though the product may be substantially American, it is considered an import because of the final assembly location.

One final thought. Creating barriers to free trade is a dangerous and ultimately self-defeating concept. Only by continually exposing more countries and more consumers to the wide variety of products available will the U.S. eventually be able to take advantage of the opportunity when those countries economic levels allow them to buy the (hypothetically) more desirable American made goods.

Begin shutting those doors and spurning trade partners and there won’t be a need to worry about building a wall between the U.S. and Mexico; there will be a wall between the U.S. and the entire world.

 

Tune in tomorrow for: Divided we stand

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