Free Trade vs. Fair Trade

Nelson Hultberg

March 13, 2016

The argument over trade and whether governments should allow it to be “free” goes back to the latter 18th, early 19th century economists, Adam Smith, David Ricardo and James Mill. They could be said to be the fathers of the free trade movement that is still argued over today.

In essence, the argument says that people should be allowed to trade freely among themselves for goods and services without government intervention and restrictions in their own country and also with others in foreign countries. Such an arrangement leads to countries producing and exporting those goods that they excel in and importing those goods that they do not excel in. This leads to the benefit of everyone involved because we as consumers attain our goods at the lowest price possible. This was termed the “Law of Comparative Advantage” by Ricardo.

This is all very true. Free trade is certainly the ideal, and it should be our goal in all countries the world around. Mercantilism (i.e., managed trade by governments) leads to favoritism, inefficiency, and tyrannical statism.

A Profound Caveat

But all this comes with a profound caveat. This caveat is that “free trade” is the ideal only if it is practiced fairly and equally by all participant countries, and only if our government stays out of our domestic marketplace so that our own manufacturers can compete with the manufacturers of other countries. Unfortunately this is not the case in today’s government dominated world. Here’s why:

1) Foreign governments do not play the game of “free trade” fairly. They impose all kinds of tariffs and restrictions on our exports to them while we open our borders to their goods. China is the worst at this, but Japan and other foreign countries (especially in Asia) are close behind.

2) Our government has forced up the cost of industrial production drastically in America with its heavy corporation taxes, its monetary inflation, its massive regulations of businesses, its utopian environmental restrictions, and its coercive support of labor union monopolies that force wages up to prohibitive levels. As a result of these policies, our government has priced our manufacturers out of the world market. This has forced them to go offshore in order to stay alive. As a consequence the jobs they create go with them.

This has stripped America of millions of manufacturing jobs over the past 40 years. It is hollowing us out as a country. Manufacturing jobs are the top jobs for the working class. No nation can be a great nation without a vital manufacturing sector. We used to be the manufacturing leader of the world because we created a low-tax, low-regulation, uncoerced wage system that encouraged manufacturing.

However, this favorable market for manufacturing in America started self-destructing with the passage of higher and higher corporate taxes throughout the 20th century, along with egregious monetary inflation and the crazy-quilt of regulations imposed on businesses by the federal government in Washington. Adding further to the destruction have been the utopian environmental restrictions forced upon industry by a naive political left that has more concern for hawksbill turtles and rare bug species than they do for jobs and freedom.

There is also a fifth factor involved that no one wishes to talk about. Our favorable market for manufacturing has been hindered by passage of the Wagner Act of 1935 under FDR that created the National Labor Relations Board that acts as a support for coercive labor union monopolies. This allows unions to force wages up excessively above levels that would come about if a truly free market in labor-management bargaining was allowed to take place.

By the 1970s, the burden on our manufacturers from all this became too excessive to endure, and many of them started going offshore to more hospitable countries. Thus if we want to become a great manufacturing nation again, we must lessen these burdens we have imposed. Taxes must be lowered drastically, monetary inflation must be tamed, crazy-quilt regulations must be abolished, environmental lunacy must be ignored, and labor union monopolization must be contested. Trade must be free, yes, but it must be rational in perspective.

Rational Free Trade

The “rational free trade” argument merely says that until foreign governments start playing fairly (i.e., quit slapping tariffs and restrictions on our exports to them), and until our own government makes it easier for our manufacturers to exist, then we must play hardball with China and other nations who are taking such advantage of us.

According to this argument, the solution to the loss of our manufacturing jobs is two-fold: 1) reduce corporate tax rates and the burden of regulations and inflation drastically here in America, and 2) impose some kind of tariffs on China, Japan and others until they lift their own restrictions on our exports to them and quit manipulating their currencies so as to gain unfair advantage. This is fair “free trade” rather than the suicidal “free trade” we now partake in. It would give our manufacturers a chance to compete and consequently remain here in the U.S.

Thus the ideal of pure free trade among nations applies only if we had a world where other nations played fairly and our own government stayed out of the American marketplace. Sadly this is not the case, and until it is the case (maybe in some idyllic future 200 years hence), we need to play hardball with China, Japan and others. We need to make better trade deals.

Unilateral Trade Deals

Playing trade hardball would entail abandoning trade organizations like the WTO and NAFTA and establishing “unilateral trade deals” with foreign nations individually. This will be vehemently opposed by the Wall Street – Washington axis of corporatists dominating the nation because it would impede their dreams of phasing into global government.

However, playing trade hardball would be most indubitably in our best interests as a nation. It would benefit us as citizens in the long run because American sovereignty and prosperity would be greatly strengthened as manufacturing jobs return. If trade hardball raises prices for toys, clothing, and cars from Asia, it would only be temporary because as foreign nations open their markets to us as a result of our playing hardball, we could then reopen our markets to them. Prices would return to lower levels.

But most important to understand is that there would take place a dramatic long run improvement in American life because millions of manufacturing jobs would return to our country. Top companies would be able to once again thrive here. We would become a producer nation again instead of the consumer obsessed nation we are at present.

In conclusion there is no conflict between free trade and fair trade. If properly implemented, they are one and the same. And they will make America great again.

 

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