Tag Archive | "free trade"

Trade rules must change


The following letter to the editor was published on the Herald Journal site here.

To the editor:

In a recent Reuters article, “Does corporate America kowtow to China?” (4/27/2011), a startling number was revealed: Since 2001, and concurrent with China’s entry into the World Trade Organization, 40 percent of U.S. manufacturing plants with 250 or more employees have been closed.

It’s a truly amazing number - a number that is made all the more extraordinary by the fact that very few in positions of leadership in America today seem to care about the fact that since 2001, 40 percent of U.S. manufacturing plants with 250 or more employees have been closed.

Since 1994 and the passage of NAFTA, and in conjunction with the remainder of our wildly moronic trade concessions - including our entry into the World Trade Organization and our granting Permanent Most Favored Nation Status to the People’s Republic of China - America has racked up $7 trillion in goods and services trade deficits. We’ve lost millions of jobs. We’ve closed more than 46,000 manufacturing facilities. And we’ve dealt a crushing blow to innovation and to our leadership in key industries.

Additionally, we are actually moving down in the sector of high-value-added industries. And most importantly, we have imperiled our national security, as communist China’s industrial capacity, research capabilities, technology transfers and outright thefts, and her spending efficiencies will soon leave us at a decided disadvantage.

America is being wonderfully played by ideologues who continue to embrace that which for us is proving to be a bankrupting philosophy - “Free Trade” as it is currently practiced and codified under U.S. law and international agreements. These agreements have always been written as to disadvantage American production and send it abroad. That we continue blind adherence to these one-sided treaties is imperiling our nation - as a nation that does not produce more than it consumes will eventually lose its economy and thus its power. To say otherwise is pure nonsense. Look around you.

At this point in our history, America needs to begin a serious debate as to the course of our future. Those leaders who continue to champion the decline of production in America and its concentration in the far East should be forced to show, empirically, how this has benefited the United States. If no true benefit can be shown - then we need to change the rules, take back our production and rebuild our capacity.

Doing so would bring about an expansion, the likes of which would be unprecedented in our history. To stay our current course will lead only to more contraction, more dissention and more hollowing out of our already weakened economy.

Arthur Taylor
Hyde Park

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Why Libertarians are wrong on trade


I recently gave a podcast interview to Vox Day, a prominent Christian libertarian, explaining why free trade is bad for America.

He followed it up with an article making many of the same points.

Finally, a libertarian gets it.

This did not go over well with some of his followers.

I’m not qualified to speak to the “Christian” aspects of free trade – whatever those are – beyond observing that globalism, of which free trade is a part, certainly looks like the Tower of Babel. But as one prominent libertarian has now seen through the free trade delusion that generally grips his fellow libertarians, this is probably a good time to explain what he got and they didn’t.

The libertarian defense of free trade can get as complicated as anything in technical economics, but at bottom it comes down to ideas like this, which one can read all over the place in the comments posted after my articles – and now Vox Day’s:

“What right do you have to tell me who I may and may not buy things from?”

At first blush, that’s quite a challenge. Many libertarians certainly seem to think it’s decisive. It’s certainly a snappy quote.

But it’s wrong.

Let’s start by noting that I am not claiming any right at all. Protectionism, if implemented, wouldn’t be implemented by me. It would be implemented by the U.S. government, and would be legitimate – if it is legitimate – for the same reasons all our other legitimate laws are legitimate:

We have Constitution and a democratic process, and that’s where laws come from.

Some libertarians prefer to call themselves constitutionalists, so it is worth pointing out that Article I, Section 8 of the Constitution explicitly gives Congress the right “to regulate commerce with foreign nations.”

The second point in answer to the libertarian challenge stated above is this:

This isn’t just about you.

Like it or not, even a capitalist economy is a system, in which your actions affect other people. Your freedom to swing your fist ends, famously, at the tip of my nose, and what you buy and don’t buy affects other people.

Even more importantly, your own economic actions don’t mean anything except in the context of a system that you didn’t create. You don’t enjoy the income you enjoy – which is what gives you the very ability to buy things disputed above – solely because of your own efforts. You enjoy that income because, among other things, you were born into a society which had a per-capita GDP of $47,000 during your working lifetime.

If you’d been born in medieval Afghanistan, it would be a very different matter. And not because of anything you personally can claim credit (or deserve blame) for.

So you can’t claim that what you’ve got derives solely from your own efforts and that you are therefore entitled to do what you like with it. Robinson Crusoe can claim absolute economic freedom; you can’t.

None of this is to deny that a reasonable amount of economic freedom is a good thing. But you get into trouble when you elevate it, like any other good, into an absolute.

Try absolutizing national security, traditional values, law enforcement, self expression, religious piety, intellectual sophistication, social order … Get my point?

Here the plot thickens, because the nature of this economic system we are all a part of is the real key to why free trade doesn’t work even within libertarian assumptions.

The libertarian economic model is a model based on free markets. That is, it is based on the idea that free market economics describes both the way the economy is (insofar as it works well) and the way it should be.

The key idea of this free market economics is equilibrium. That is to say, free market economics holds that if market forces are allowed free play, then the prices and production of things will reach natural equilibria that are the most efficient outcome that could exist.

To a huge (but not total) extent, this is true. (I studied economics at the University of Chicago; trust me, I know this story.)

But there’s a catch. Equilibria only balance properly if nobody puts a “thumb on the scale” anywhere in the economic system and distorts it. If that happens, then all bets are off about the outcome being efficient at the level of the system as a whole.

All bets are also off – this is the key – about any individual “free” market decision being valid. Why? Because the market isn’t free anymore. You can’t play by free market rules when you’re not in a free market.

Try playing fair when the game is rigged. That’s not fairness, it’s suicide.

Unfortunately, there are a million “thumbs on the scale” in international trade right now. All of these distort market forces, so even if pure-free-market economics is right (it isn’t, but that’s another story), libertarian economic conclusions don’t follow.

How are markets distorted in trade? Don’t get me started. To name just a few ways:
China manipulates its currency. So does Japan, Germany, and a few others.

China keeps American goods out of its markets. So does Japan, yadda yadda yadda, albeit more politely.

China subsidizes (contravening its own WTO treaties) its industries in ways ranging from cheap credit to free land.

China steals American intellectual property. (Germany and Japan mostly quit doing this long ago, largely because they now have a lot of intellectual property of their own to protect.)

China uses slave labor. Even its non-slave labor is regimented in ways unimaginable in the U.S.
As a result, someone who buys cheap foreign goods isn’t exercising a free choice, they’re just taking advantage of someone else’s utterly coercive subsidy. The price system can’t tell the difference – cheap is cheap – and that’s why people make this choice thinking they’re practicing freedom. But the slaves keep on sweating. And the money changers keep cheating. And all the rest of it.

Whenever libertarians buy foreign goods that are cheaper because of all these practices, they encourage them.

And that actually diminishes, rather than increases, freedom.

So even from a libertarian point of view, free trade is a losing move.

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Worker Aid Challenges Trade Pact Supporters


The following article by Joseph J. Schatz appeared on May 24, 2011 in CQ Today Online News.

Trade Adjustment Assistance, a popular worker retraining program, has long been a staple of free-trade debates on Capitol Hill — a sweetener for lawmakers wary of the effect of trade deals on their constituents and a way to deal with a changing global economy.

But in a twist, the program has become the latest bump in the march to final action on the George W. Bush-era trade deals with South Korea, Colombia and Panama.

In a letter to President Obama earlier this week, 41 Senate Democrats supported the Obama administration’s demand that Republicans agree to a deal on renewing expired benefits for workers before it sends the three trade agreements to Congress for approval. But anti-spending conservatives, who also have some ideological qualms about targeting certain workers for assistance, do not appear ready to back off from their opposition to the program, which they have marked as part of their larger attack on the size of the federal budget.

The dynamic is particularly acute in the House. Top Republicans who have long supported the program, such as Ways and Means Chairman Dave Camp of Michigan, now face the challenge of writing a new bill that would win the support of lawmakers affiliated with the tea party movement.

The Trade Adjustment Assistance (TAA) program provides benefits to workers who are laid off or see their hours reduced because of foreign competition, and it has received bipartisan support for decades. It is a priority for organized labor, which generally opposes trade deals. Reauthorizing the program — including a 2009 expansion — over 10 years would cost $7.2 billion, according to the White House.

Challenge for Camp

The White House’s line in the sand, announced May 16, may have made Camp’s job a bit harder because it issues a challenge to House Republican conservatives already suspicious about the sincerity of the administration’s commitment to getting the trade deals done. Republicans are expected to provide the majority of the votes to get the trade deals through the House; support for free trade is more bipartisan in the Senate.

Camp — who represents a district that continues to report unemployment in the double digits — supported the 2009 expansion of the TAA program, enacted as part of the economic stimulus law (PL 111-5). Even so, he ended up joining all of his Republican colleagues in voting against the stimulus.

But when he tried to move legislation in February renewing the benefits added in 2009, Camp’s effort ran aground before a vote even occurred. It was quashed by concerns from conservatives, mainly those on the Republican Study Committee.

Camp is taking a diplomatic stance for now, listing the assistance among several other trade policy priorities.

“Chairman Camp wants to see all three trade agreements readied for congressional consideration by July 1 to increase U.S. exports, create much-needed jobs, and prevent the U.S. from losing more market share to our competitors abroad,” said a Ways and Means spokesman. “Chairman Camp looks forward to continuing to work to find a bipartisan path forward in the House and Senate to advance the other elements of the U.S. trade agenda, among them our preferences programs, Trade Adjustment Assistance, WTO accessions and ongoing and new trade negotiations.”

Camp and other trade advocates may seek to modify the 2009 benefits to find a deal.

The biggest problem for conservatives appears to be how the stimulus package significantly expanded the size of a health care tax credit for displaced workers, originally created in a 2002 trade law (PL 107-210), despite concerns from some Republicans such as Sen. Orrin G. Hatch of Utah, now the ranking member on the Finance Committee.
“In many respects, some of it is just a boondoggle to the unions,” Hatch said in an interview. “The question is how much: If it’s a legitimate thing that is backed up by good economics . . . that’s another matter.”

Less controversially, the stimulus also expanded the overall program to cover workers in the service sector.

Democratic Pressure

House Democrats, many of whom oppose President Obama’s efforts to advance the trade agreements with South Korea, Panama and Colombia, are applauding his firmer line on the TAA program. Democrats are under concerted pressure from labor unions to oppose the Colombia pact, but unions are splintered on the Korea deal. The Panama agreement is considered less controversial.

Democrats point out that the health credit, coverage of service workers and other expanded benefits were enacted with the support of key Republicans. And they are highlighting that service workers seeking TAA benefits are now being denied them, since the program expired in February.

Hatch said that the dispute is politically tricky for Rust Belt Republicans, including Camp and House Speaker John A. Boehner, whose constituents include many laid-off manufacturing workers. “Camp comes from Michigan, Boehner is from Ohio — those are big union states,” he said, adding that Camp’s job “has been made quite difficult.”
In the Senate, the 41 Democrats who wrote to Obama said that although they had differing views on the trade deals, they agreed on the need to insist on a long-term reauthorization of the TAA benefits.

Approval of the three trade pacts “will be challenging to secure because it requires significant bipartisan commitments in both chambers of Congress to vote in favor of a TAA extension. The challenge is worth it,” the senators wrote. “We agree with you that strengthening the safety net for the middle class by extending TAA should be a prerequisite for the consideration of new trade agreements.”

Business groups want the 2009 benefits renewed, and view the TAA disagreement as another round of posturing in the effort to get the three trade agreements to the finish line.

They are working to get the dispute resolved and are pointing to strong support from governors.

On May 23, the governors of 23 states, plus Puerto Rico and Guam, wrote a letter to Obama and congressional leaders in which they pushed for action on the three trade pacts and Trade Adjustment Assistance, and for a renewal of fast-track trade negotiation authority.

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The Crumbling of Free Trade — And Why It’s a Good Thing


One thing is for certain already: the present international trading order will not be here in ten years, and quite likely not in five. The unsustainable American trade deficit alone makes this a certainty.

Since the end of the Cold War, and accelerating after NAFTA in 1994, that order has consisted in ever-expanding “free” trade worldwide — which in reality is a curious mixture of genuinely free trade practiced by the United States and a few others with the technocratic mercantilism of surging East Asia and Germanic-Scandinavian Europe.

From America’s point of view, this order is free trade, at least on the import side of the equation, so it is as free trade that we must criticize it, prepare to celebrate its passing, and investigate what should replace it.

Our free trade policy is the answer to a question that currently has most mainstream economists scratching their heads: what killed the great American job machine? This policy has been partly responsible for increasing inequality in the United States and the gradual repudiation of our 200-year tradition of broadly shared middle-class prosperity. It is a major player in our rising indebtedness, community abandonment, and a weakening of the industrial sinews of our national security.

America’s economy today continues to struggle to emerge from recession because our trade deficit — fluctuating around $500 billion a year for a decade now — acts as a giant “reverse stimulus” to our economy. It causes a huge slice of domestic demand to flow not into domestic jobs, thus domestic wages and thus more demand, but into imports, therefore foreign wages, and therefore a boom in Guangdong, China; Seoul, South Korea; Yokohama, Japan; and even Munich — not Gary, Indiana; Fontana, California; and the other badlands of America’s industrial decline. Our response? Yet more stimulus, leading to an ever-increasing overhang of debt, both foreign and domestic, the cost of whose servicing then exerts its own drag on recovery.

The American economy has, in fact, entirely lost the ability to create jobs in tradable sectors. This cheery fact comes straight from the Commerce Department. All our net new jobs are in nontradeable services: a few heart surgeons and a legion of bus boys and security guards, most of them without health insurance or retirement benefits. These are dead-end jobs, and our economy as a whole is also being similarly squeezed into dead-end industries. The green jobs of the future? Gone to places like China where governments bid sweeter subsidies than Massachusetts can afford. Nanotechnology? Perhaps the first major technology in a century where America is not the leading innovator. Foreign subsidies are illegal under WTO rules, but no matter: who’s going to enforce them when corporate America is happily lapping at their very trough?

All the complaints just mentioned are familiar to the public, but they fly in the face of a sanctified myth that the superiority of free trade is a known truth of social science. Supposedly, it was proved long ago that protectionism is just a racket for the benefit of special interests at the expense of consumers.

Never mind that every developed nation, from England to South Korea, and including the United States, became a developed nation by means of this policy. That little piece of economic history is airbrushed out of the picture in favor of the Cold War myth of the absolute superiority of perfectly free markets. America never embraced this myth on its merits, merely as a tactical device to prop up the non-communist economies of the world and make them dependent upon us.

The cycle repeats: China today is reenacting this 400-year-old mercantilist playbook, which was born among the city-states of Renaissance Italy and never quite forgotten.

Economic theory will be sorted out eventually. Thanks to the work of a small, brave group of dissident economists — scholars like Ralph Gomory, William Baumol, Erik Reinert, and Ha-Joon Chang — the credibility of free trade as a theoretical doctrine is crumbling, and the discipline will eventually change its mind. But it will almost certainly be a lagging indicator, ready to vindicate policy forged in crisis well after the dust has settled. Academia is a superb rationalizer, and will doubtless find a way to avoid embarrassing questions about its own past positions when it teaches undergraduates twenty years from now that free trade is a delusion and a mistake.

What’s wrong with free trade? A whole host of problems, many of them long known to economists but assumed in recent decades to be unimportant.

The technical plot thickens here fast, but we can begin by noting that any serious discussion of free trade must confront David Ricardo’s celebrated 1817 theory of comparative advantage, whose tale of English cloth and Portuguese wine is familiar to generations of economics students. According to a myth accepted by both laypeople and far too many professional economists, this theory proves that free trade is best, always and everywhere, regardless of whether a nation’s trading partners reciprocate.

Unfortunately for free traders, this theory is riddled with dubious assumptions, some of which even Ricardo acknowledged. If they held true, the hypothesis would hold water. But because they often don’t, it is largely inapplicable in the real world. Here’s why:

Ricardo’s first dubious assumption is that trade is sustainable. But when a nation imports so much that it runs a trade deficit, this means it is either selling assets to foreign nations or going into debt to them. These processes, while elastic, aren’t infinitely so. This is precisely the situation the United States is in today: not only does it risk an eventual crash, but in the meantime, every dollar of assets it sells and every dollar of debt it assumes reduces the nation’s net worth.

Ricardo’s second dubious assumption is that the productive assets used to generate goods and services can easily be shifted from declining to rising industries. But laid-off autoworkers and abandoned automobile plants don’t generally transition easily to making helicopters. Assistance payments can blunt the pain, but these costs must be counted against the purported benefits of free trade, and they make free trade an enlarger of big government.

The third dubious assumption is that free trade doesn’t worsen income inequality. But, in reality, it squeezes the wages of ordinary Americans because it expands the world’s effective supply of labor, which can move from rice paddy to factory overnight, faster than its supply of capital, which takes decades to accumulate at prevailing savings rates. As a result, free trade strengthens the bargaining position of capital relative to labor. And there is no guarantee that ordinary people’s gains from cheaper imports will outweigh their losses from lowered wages.

The fourth dubious assumption is that capital isn’t internationally mobile. If it can’t move between nations, then free trade will (if the other assumptions hold true) steer it to the most productive use in our own economy. But if capital can move between nations, then free trade may reveal that it can be used better somewhere else. This will benefit the nation that the capital migrates to, and the world economy as a whole, but it won’t always benefit us.

The fifth dubious assumption is that free trade won’t turn benign trading partners into dangerous trading rivals. But free trade often does do this, as we see today in China, whose growth is massively dependent upon exports. This is especially likely when trading partners practice mercantilism, the 400-year-old strategy of deliberately gaming the world trading system by methods like currency manipulation and hidden tariffs.

The sixth dubious assumption is that short-term efficiency leads to long-term growth. But such growth has more to do with creative destruction, innovation, and capital accumulation than it does with short-term efficiency. All developed nations, including the United States, industrialized by means of protectionist policies that were inefficient in the short run.

What is the implication of all these loopholes in Ricardo’s theory? That trade is good for America, but free trade, which is not the same thing at all, is a very dicey proposition.

Beyond the holes in Ricardo, there is an entire new way of looking at trade growing up around the theoretical insights of Ralph Gomory and William Baumol of New York University. The details are technical, but the upshot is they have managed to bridge the gap between the Pollyannaish “international trade is always win-win” Ricardian view and the overly pessimistic “international trade is war” view. The former view is naive; the latter ignores the fact that economics precisely isn’t war because it is a positive-sum game in which goods are produced, not just divided, making mutual gains possible.

So at long last, someone has given us a theoretical framework that can accommodate economic reality as we actually experience it, not just lecture us on what “must” happen as Ricardianism does. It’s both a dog-eat-dog and a scratch-my-back-and-I’ll-scratch-yours world. Economics has finally given common sense permission to be true. Ironically, their sophisticated mathematical models are actually closer to the thinking of the man on the street than those they replaced.

There is an appropriate policy response. For starters, the United States should apply compensatory tariffs against imports subsidized by currency manipulation, an idea that originated with Kevin Kearns of the U.S. Business and Industry Council and was passed by the House of Representatives in the previous Congress. Also essential is a border tax to counter foreign export rebates implemented by means of foreign value-added taxes.

Perhaps even more important than the pure economics of free trade is its political economy (an older and more accurate term). For the fundamental reality of free trade is that it relieves corporate America from any substantial economic tie to the economic well-being of ordinary Americans. If corporate America can produce its products anywhere, and sell them anywhere, then it has no incentive to care about the capacity of Americans to produce or consume. Conversely, if it is tied to making a profit by selling goods made by Americans to Americans, then it has a natural incentive to care about American productivity and consumption.

Productivity and consumption are prosperity. The rest is details.

Right now, America is confronting any number of long- and short-term economic problems with one hand tied behind its back: corporate America is, increasingly, quietly indifferent to America’s economic success. This must change. While any proposals to end the K Street dictatorship in America’s public life are welcome, the reality is that mechanical reforms are less likely to touch on true fundamentals than realigning the economic incentives they reflect.

This is not a utopian project. In fact, it has already been accomplished, during the long 1790-1945 era of American protectionism. America wandered away from Founding Father Alexander Hamilton’s vision of a relatively self-contained American economy in order to win the Cold War. We threw our markets open to the world as a bribe not to go communist. If we fail to return to a policy of strategic, not unconditional, economic openness, we may lose the next Cold War — to a Confucian authoritarianism no less opposed to the idea of a free society than Marxism, and considerably more efficient.

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Trade Deal With Panama Clears Hurdle Over Taxes


The following article by Jackie Calmes appeared in The New York Times here.

WASHINGTON — The White House announced on Tuesday that Panama had satisfied a final condition for a free-trade pact with the United States, smoothing the way for President Obama to seek Congressional approval for three trade agreements inherited from the Bush administration and now central to his own job-creation agenda.

“We view this agreement as creating a more level playing field for U.S. exporters and also for U.S. investors,” Miriam Sapiro, the deputy United States trade representative, said in a conference call with reporters.

Michael Froman, Mr. Obama’s deputy national security adviser for international economics, said the White House had begun discussions with Congressional leaders to schedule action soon on the agreement with Panama and those with Colombia and South Korea. While Republicans were receptive and business groups applauded the development, Mr. Obama faces opposition from his Democratic Party and its union allies.

The last hurdle for the Panama deal was cleared on Monday when the two countries agreed to exchange tax information; the United States has complained in the past that Panama was a haven for income-tax evasion.

The end to the Panama negotiations followed the administration’s tentative agreement earlier this month with Colombia, after that country made concessions on labor rights and protections, and its deal late last year with South Korea after it made concessions on trade in beef and autos.

Republican leaders had said the Obama administration needed to propose legislation adopting all three trade agreements before they would consider any of them. Senate Republicans are also blocking confirmation of nominees for commerce secretary or trade-related posts until then.

Representative Dave Camp, a Republican of Michigan who is chairman of the House Ways and Means Committee, which handles trade legislation, said in a statement that the Obama administration should send Congress the paperwork for legislation on the trade agreements in time for action by July 1.

“U.S. job creators and workers are every day put at a disadvantage to foreign competitors from countries that have already concluded trade agreements without us,” Mr. Camp said. “The more we delay, the more we lose.”

As on most trade legislation, the Republicans enjoy maximum leverage because Mr. Obama will not be able to rely on Democrats’ support in Congress. This week the head of the A.F.L.-C.I.O., Richard Trumka, warned that the union would include the three trade votes on its influential “scorecard” of members of Congress, subtracting points for free-trade votes.

Mr. Obama, as a candidate for president, opposed all three Bush-era trade accords and Congress, then controlled by Democrats, refused to approve them. Since then, however, his administration has negotiated side agreements with all three countries to satisfy Mr. Obama’s criticisms, especially on labor rights. He also has made the trade pacts a priority as he seeks to improve relations with business and to reach his goal of doubling exports by 2014 to create jobs in export industries like agriculture, manufacturing and financial services.

But the Colombia deal holds a final wrinkle for pushing ahead on the three trade agreements, administration officials acknowledged. Colombia agreed to an “action plan” for protecting labor unionists from the violence and abuse many have suffered. The action plan sets a timetable for compliance, though Mr. Froman said the administration would not insist that Colombia reach every goal before it sends legislation to Congress.

According to the White House, the deal with Panama, whose economy is one of the fastest growing in Latin America, will eliminate many tariffs on American agricultural, consumer and industrial goods at a time when trade rivals like Canada and the European Union nations are making inroads in the region.

It also would open opportunities for heavy equipment manufacturers on $15 billion in Panamanian infrastructure projects, including an expansion of the Panama Canal. A representative of Caterpillar joined the White House call with reporters, taking the chance to thank the administration officials and tell them the news was “playing well in Peoria” — where Caterpillar is based.

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How the U.S. Economy is a Victim of Comparative Advantage


The following article by Taras Berezowsky appeared on the Metal Miner site here.

“Why don’t pro football players mow their own lawns?”

Ian Fletcher puts this provocative question forth in an article for the Coalition for a Prosperous America (CPA), for which he serves as senior economist, as the centerpiece for his argument on why comparative advantage, in practice, doesn’t really work. In the first part of his argument, he lays out the difference between absolute and comparative advantage; obviously, in answering the above question, the football player has more power and ability to mow his lawn faster than a run-of-the-mill, suburban landscaping contractor – but he’s got better things to do with his time.

It seems the US has had “better things to do with its time” for several decades now – and arguably, this has not improved our long-term growth prospects. Following our coverage of what the World Trade Organization thinks international trade will look like in 2011, Fletcher’s arguments against free trade (or, rephrased, why it is fundamentally flawed in the world we live in today) seem rather poignant; if only to draw attention to inherent problems, so that we can begin seriously considering potential solutions. “This is why we must analyze trade in terms of not absolute but comparative advantage,” Fletcher writes. “If we don’t, we will never obtain a theory that accurately describes what does happen in international trade, which is a prerequisite for our arguing about what should happen—or how to make it happen.”

In the second part of his argument, Fletcher lists a number of “dubious assumptions” about comparative advantage working properly, poking holes in the “free trade is best” argument – enough holes, as he says, “to sink a container ship.” He lists seven –

“Trade is sustainable”
“There are no externalities”
“Productive resources move easily between industries”
“Trade does not raise income inequality”
“Capital is not internationally mobile”
“Short-term efficiency causes long-term growth”
“Trade does not induce adverse productivity growth abroad”

– and although he gives a treatment for each, two stand out: trade is sustainable (it really isn’t) and “short-term efficiency causes long-term growth” (comparative advantage is not built to even consider the long term). As far as the first point, let’s look no further than the trade deficit. Potential solutions to balance out the US trade deficit, which didn’t drop in February as much as analysts predicted/hoped, must stem from reducing consumption – which seems paradoxical, as consuming imports is what this country has been, for better or worse, built on. (In fact, Bloomberg reported that a government report showed the cost of imported goods rose in March to a two-year high.) The percent change in the deficit that the mainstream media monitors, whether increases or decreases, all stem from ‘small-potatoes’ changes (an increase in oil demand here, a decrease in the value of the dollar there, etc.), rather than systemic implementation of sustainable policy.

This is inevitably where government comes in. In a theoretical world, nations can simply trade as people would, with their own mores and assumptions and prerogatives. But inevitably, there are losers. In playing the free trade game with other nations – some with governments that are involved in subsidizing elements related to trade – there will surely be inequalities. But for the US to play with cheaters, it will need more than the WTO to play the referee. In addition to the pro-active government policies (across the board 33-percent tariffs on all imports, anyone?), we’ve got to look at our own consumption, break addictions not just to ‘foreign oil’ but also to all sorts of cheaply made goods, and brace ourselves for the point in time when foreign societies will attain higher-earning, more specialized workforces – much like ours.

At that point, what will the US be able to offer? Even in manufacturing, are there goods made domestically that other countries can’t make themselves – or can’t buy from someone else more cheaply? How can US citizens envision a sustainable future from selling our goods, instead of buying others’? Of course, to stop short of advocating pure protectionism, there is a global trade landscape that is already in place that cannot easily be broken. But adding independent WTO-style mediation as a stopgap for unfair trade practices sometimes seem a nominal, not a real, fix.

As Fletcher mentions in yet another article, we can’t keep treating real trade problems – such as the deficit – as though they’re abstract. We’ve done that before with the financial securities markets, and we all saw how nebulous abstractions got the global economy into some real, real trouble.

Feel free to leave any comments/additional suggestions on how both business and government can better work together to improve the trade landscape.

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Obama’s New Boss of Jobs


The following is another article from The Phyllis Schlafly Report of March 2011.

President Obama recently appointed as chairman of his Presidents Council on Jobs and Competitiveness General Electric’s CEO, Jeffrey R. Immelt. He is gung-ho for trade with China. In 2002 he hold G.E. managers: “I talk China, China, China, China, China. You need to be there. I am a nut on China.” He has closed G.E.’s light bulb factories in Kentucky, Ohio and Virginia that employed hundreds of people, so G.E. can make new light bulbs in China.

A few years ago, G.E. caved into the Chinese government’s demand that G.E. build a large wind turbine factory in China. Since G.E. owns a crucial patent for wind turbines, this demand was based on the Chinese anti-free trade policy called indigenous innovation (of which China expert James McGregor calls “a blueprint for technology theft on a scale the world has never seen before”). China then developed its own wind turbine manufacturers, and is now directing purchasers to buy from those Chinese firms instead of from G.E.

China treats U.S. companies like suckers, cheating them coming and going. China wants to be the wold’s biggest exporter based on stealing U.S. know-how and subsidizing local manufacturers. China blatantly violates international trade laws and doesn’t plan to be a market for U.S. exports. China’s principal imports are and will continue to be U.S. jobs.

When asked bout China’s cheating of G.E. on wind turbines, Immelt responded by saying thatt G.E will fine-tune its competitive tactics to adapt to Beijing policy. The New York Times quoted a California lawyer specializing in Asia deals, Judy Lam, as explaining that his reaction translates as “I understand my place” and big American corporations are “willing to suck it up-that will win them points.”

Although the Obama Administration filed a wind-turbine complaint with the World Trade Organizaton, no U.S. company joined to defend itself. WTO disputes take up to three years to come to a decision, which usually turns out to be against U.S. interests.

The Chinese government passes short laws on complex industrial and financial subjects while leaving unlimited discretion to bureaucratic regulators (like the Obama Administration). In authentic socialist practice, the regulators can use their discretion to reward their friends and punish their enemies.

China has a long record of disciplining companies that fail to conform to Chinese regulatory demands. Chinese regulations preseume to dictate ordinary managerial decisions of non-Chinese companies such as what equipment may be bought and from whom.

“Free trade” is the mantra of many politicians of both political parties. But it isn’t free or fair; it  is a trade war between an aggressively protectionist Communist government engaged in a vast military buildup and a U.S. that is shackled by out-of-date assumptions about trade.


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Free Trade with Protectionists Cheats U.S.


The following article appeared in The Phyllis Schlafly Report for March 2011.

It looks like the Russians fooled us again in nuclear treaty negotiations. After President Obama bamboozled the Senate into a hurry-up ratification of his New START Treaty, Russia impudently rejected the McCain “understanding” that we dont have to abide by the Preamble’s language limiting the U.S. from building anti-missile defenses. Russia then ratified New START wit its own understanding that the points about anti-missile defense are “indisputable” and must not be ignored. Shame on the Republican Senators who voted to ratify Obama’s dangerous treaty.

We no longer worry about a nuclear attack from Russia, but we should start worrying about China, North Korea and Iran. It’s time Americans wake up to the fact that China is not merely a friendly trading partner who manufactures cheap goods we can buy at WalMart. China is spending the billions of dollars it gets from its tremendous sales to Americans to build the most formidable military force in the world. China is building strategic nuclear weapons with delivery capabilities, submarines and ships, fighter planes and bombers, and a new anti-ship ballistic missile to sink U.S. aircraft carriers.

Communist China recently conducted a space test involving two satellites that rendezvoused several hundred miles above Earth in a maneuver that boosts Beijing’s anti-satellite weapons program. That’s a key capability for space warfare, intelligence gathering, and destroying enemy satellites.

Some people foolishly call our relationship with China “free trade”. But there is nothing free or fair about it; we are in a trade war between a militantly protectionist Communist government and a U.S. shackled by obsolete illusions about trade. The whole notion of free trade with China is dishonest. China is pumping public funds into its government-run companies, such as the airlines and steel mills and the proportion of industrial production controlled and subsidized by the government is increasing rapidly.

With the Communist Party in the driver’s seat, China violates international law and trade agreements, slaps taxes and regulations on U.S. plants in China, and forces U.S. corporations to give away their trade secrets and manufacturing know-how to Chinese competitors. Chinese regulators have unlimited discretion to reward China’s friends and punish enemies.

Communist China is the world’s top producer of illegal copies of music, movies, software, designer apparel, medicines, and other U.S. products. Chinese agents stole or illegally bought high-tech, electronic, military, and communications systems.

China’s strategy for economic development specifically includes stealing foreign innovations in order to develop domestic technology and manufacuring. China’s goal is to be the world’s biggest exporter based on stealing U.S. know-how and subsidizing Chinese manufacturers.

That’s only part of China’s strategy to cheat Americans. When U.S. companies build plants in China, Beijing forces them to disclose their technology in order to gain contracts, and the result is that major U.S. corporations, including our biggest technology companies, have given away their most valuable industrial secrets. And it gets worse.

“Indigenous innovation” is China’s new offical policy. That’s China’s label for anti-American trade rules that prohibit imports and U.S. manufacturing in China unless based on intellectual property developed and owned in China, with its trademarks registered in China. This new rule targets our most innovative manufacturing and service industries, including computers, software, and telecommunications.

The Chinese government’s list of products subject to this obnoxious rule is constantly expanding. China’s “indigenous innovation” policy forbids U.S. products from being sold in China unless the U.S. companies give China their current patents and technology plus information about their research and development of new products.

China has no plan to be a market for U.S. products. China’s principal imports are and will continue to be U.S. jobs.

The right of inventors to own their own inventions is a precious American right written into our U.S. Constitution even before the famous rights of freedom of speech and religion. this inventors’ right is uniquely American: it was an original creation by the Founding Fathers and it’s still unique in the world.

That’s why nearly all the world’s great inventions are American. Our superiority in inventions and innovations is the principal reason for our world leadership and standard of living.

For years, foreign corporations have been trying to destroy our innovation superiority under the code word “harmonization”, i.e., persuading us to harmonize our patent law with foreign laws, down to the levels of unfair European and Japanese systems.

Now Communist China has replaced the harmonization slogan with indigenous innovation, China’s code word for theft. We are fools if we allow China to steal our innovations, which are the mainspring of our high standard of living.


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Levin: Major Changes Needed Before Colombia Trade Pact Can Proceed


The following article appeared in The Washington Post here.

The government of Colombia needs to make extensive changes to its laws and bolster its protection of union members before a free trade agreement moves forward, a key Democratic lawmaker said Tuesday in the most explicit statement yet of the hurdles facing the proposed Colombia-U.S. trade deal.

The comments by Rep. Sander M. Levin(D-Mich.), ranking member of the Ways and Means Committee and an important voice on trade issues, shows the quandary faced by the Obama administration. It is trying to push a recently negotiated agreement with Korea through Congress amid Republican demands that long-pending deals with Colombia and Panama move as well.

Levin’s comments in a speech at the Peterson Institute for International Economics raise the prospect of Democratic opposition to the Colombia deal in particular. He urged the administration to pursue separate action on the different agreements, and to pressure the Republican House leadership to vote on Korea now. The work to be done on the other agreements, particularly Colombia, can’t be rushed, Levin said.

“They need to change their laws and they have to take steps” to ensure that workers can organize and that violence against union leaders is prosecuted, Levin said. Although Levin said he believes the new administration of Colombian President Juan Manuel Santos is sincere about improving conditions for unions in the country, the reforms that are needed are complex and have been stymied in the country’s legislature before.

They include, for example, reform of Colombia’s labor laws to restrict the use of what Levin called “shell companies” that insulate larger corporations from collective bargaining agreements, and prosecution of several high-profile cases of violence against union leaders.

Until those and other actions are taken, Levin said the administration should not submit the Colombia deal for ratification.

“The president has been clear that it is his goal to send three trade agreements to Congress,” said Carol Guthrie, a spokeswoman for the U.S. trade representative’s office, adding that the timing would be determined by the pace of negotiations with each government.

Levin’s talk reflects the still-deep national divisions over trade, with traditional Democratic voices arguing that existing agreements have cost the U.S. manufacturing jobs, and organized business groups and Republican leaders calling for faster action on a variety of proposed trade treaties.

U.S. trade officials have held several rounds of talks with the Santos administration in recent weeks. Although they have said they hope to complete negotiations by the end of the year, they have not detailed what they are asking Colombia to do to satisfy what U.S. Trade Representative Ron Kirk has referred to as “core American values” on labor and union rights.

Like the proposed Korea deal, the Panama and Colombia free-trade pacts were negotiated by the Bush administration, but have languished without congressional ratification.

Negotiations between the U.S. and Korea focused on commercial issues, and Kirk was able over several months of talks to win significant concessions, including tariff and regulatory changes that prompted the United Auto Workers to offer an important union endorsement of the pact. Levin also supports it.

The issues surrounding Colombia, however, are a more direct test of Obama’s campaign pledge to retool U.S. trade policy so that it does not extend free-trade privileges to countries with lower labor, environmental and other standards. While the approach has a moral dimension, it is also meant to keep U.S. workers from competing against countries where goods can be produced more cheaply because the laws are lax.

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An Open Challenge to Free Traders: Debate Free Trade on Camera!


The following article by Ian Fletcher, Senior Economist of the Coalition for a Prosperous America, appeared in The Huffington Post today here.

I’m going to ask the reader to forgive the somewhat personal nature of this post, as personal experiences are sometimes revealing about larger issues.

Earlier this year, I was excited to organizing a debate, under the auspices of the San Diego World Trade Center and held on the campus of California State University, San Marcos, on the wisdom of free trade as a policy for the U.S. My opponent was going to be the respected Dan Griswold of the libertarian Cato Institute.

It was going to be a well-produced affair, described by the SDWTC staffer organizing it thus:

Tuesday 21 June
11:30 am: Registration and networking

12:00 noon: Welcome Karen Haynes, Ph.D., President CSUSM
Introductions Bella Heule, President & CEO, WTCSD
The Debate - moderated by Camille Schuster, Ph.D., CSUSM

1:00 pm: Q & A and discussion

1:30 pm: Conclusions and thanks, Jan Jackson, Ph.D., CSUSM
Book signing and sales (if you wish)
Media interviews (if you wish)

The event will be held at McMahan House, a new and very attractive special events complex on the CSUSM campus, which can hold about 150 attendees.

So far, so good. Then I innocently asked about video. I mean, I like San Diego and all, but there’s not much point in travelling 400 miles to do a debate that only 100 or so people will hear.

Big Mistake.

Much to my surprise, the World Trade Center wouldn’t allow video. I got the following email:

Dear Ian,
We appreciate your desire to reach as many people as possible.

The objective for WTCSD and CSUSM is to attract as many as possible to the campus and to learn about the positive and negative impacts of free trade.

We have decided that we do not wish to have a recording of this debate.

If you need to withdraw your acceptance of our invitation to speak at the event, we would understand and respect your action. Please let us know.

Best wishes,
Hugh Constant
Executive Vice President
2980 Pacific Highway
San Diego, CA 92101

I tried to find what concession could change their mind, but couldn’t. So I withdrew from the now-pointless debate.

Next, I offered a video-recorded debate to the person, Dan Griswold of the libertarian Cato Institute, whom I was supposed to have debated. Mysteriously, he, too, was somehow camera shy. I even offered to have the debate somewhere else, closer to Washington where he lives, and to let him have the same raw footage as my own organization got, to foreclose the possibility of abusive editing. (We can cut, they can cut.) But no dice.


I can only conclude from all this that free traders are uncomfortably aware that their position doesn’t stand up well once publicly challenged. (The problem can’t be that a debate isn’t convenient, or that I’m not a worthy opponent, because they already agreed.) So they’re prepared to have a “play” debate, i.e. one that maybe 100 people in San Diego see, but not something that might actually get posted on the Internet and reach significant numbers of people.

At this point, I can only restate my offer to the World Trade Center and the Cato Institute, and reiterate that I am quite prepared to proceed as planned if I somehow misunderstood their position and they are, in fact, willing to have a video recording made.

Beyond that, I’d like to offer this challenge to free traders generally: Is any one of you willing to debate me on camera? My only proviso is that it needs to be someone with enough standing that their own side will take them seriously: it needs to be someone who works for an organization espousing free trade, holds a university appointment, has written a book on the subject, or something like that. (I’m not trying to be a snob here; it’s just that the whole point is to have a debate that actually reveals something about the merits of the two sides of the argument.)

Until somebody takes me (or any other critic of free trade, I don’t care) up on this, skeptics of free trade are entitled to accuse free traders of being unable to defend their own position. Free traders know perfectly well that with the corporate-dominated media and an academic economics community that’s lost touch with the real world shilling for their position, they currently have an advantage that open debate would dissipate.

The last time free trade got a real debate in this country was in 1992 with Ross Perot and Al Gore on Larry King. So c’mon, free traders-how hard can it be to find as much courage as Al Gore?

Ian Fletcher was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

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