Free trade is a confused orphan of a political issue. Many in the Tea Party movement seem to despise the idea of free trade, especially NAFTA, even as the conservative movement has long embraced the idea. Democrats and independents who have become convinced of the economic utility of unhindered trade, are left to deal with the structural resistance from within the party driven by union opposition to the concept. Standing above all is the idea that America doesn’t build anything anymore, evidenced some say, but the burgeoning trade deficit.
The one critical item missing from most of the media conversations on trade, has been the facts. The media dutifully repeats the positions of the parties on trade, and records the voices of angry Americans regarding trade. What we don’t often here, are conversations on what causes trade deficits or facts supporting the notion that job loss is driven by free trade. This column will seek to define free trade, and will also look at the other important factors in this under-reported story.
The arguments over free trade are fueled, in part, by a regrettable tendency of economists to always (it seems) choose the wrong words to describe economic phenomena. By way of example, many economists described their “excitement” over the recent collapse of the housing bubble and associated economic calamities. Folks who lost their jobs are unlikely to pay specific attention to economists after statements fitting that description. In a similar vein, economists have repeatedly described, in abstract terms, the tendency of economies to evolve towards a service-driven model. Such a model describes a gradual reduction in living standard (service jobs typically pay less per capita than manufacturing jobs), and is precisely what is happening in our nation. Given that stark presentation, it would be logical to demand a closed border society, which is essentially the position of today’s economic populists.
Every choice has a cost, and the good folks in favor of limiting trade seem to consistently miss two major costs; the increase in prices in the domestic market, and the loss of jobs that would occur as other countries raised barriers to U.S.-made goods. With all of the talk about the U.S. trade deficit, it is easy to miss the fact that only two nations, China and Germany, export more annually than we do. We Americans, in fact, make a lot of stuff…or at least a lot of stuff is made in America. Jobs have been lost to developing nations because of cheaper land, labor, and capital, but the stunning reality is that more have been lost to a force inside the United States. Automation, we call it robots, has taken far more jobs from Americans than cheap labor in faraway countries. In fact, automation is taking manufacturing jobs away from workers in those faraway countries.
We have seen this trend before, in agriculture. Once representing 30% of the jobs in our nation, agriculture now accounts for fewer than 3%. Walk into a market or diner today in the heartland, and you will find an old man who can tell you about farming before automation and targeted herbicides. Walk into a small town square today in the heartland, and you can see U.S. communities laid waste by automation far before the Rust Belt earned its name. That the U.S. agricultural industry is financially healthy is not in doubt, but the cultural loss and community devastation caused by the economic evolution have been severe. Of interest is the point that agriculture is one area that has continued to be protected by the U.S. Large subsidies meant to protect U.S. farmers, have facilitated job losses in the United States and internationally.
Very few address the issues with automation, and those that do are often accused of being fringe alarmists. Given the historical trends and modern processing power, the prognostications and possibilities are indeed alarming. A article postulated the potential for computers with the processing power of the human brain in the next few decades, and the ability of robots using the technology to be as mobile as a human, or better. What is needed on these subjects is not panic or blatant political branding, but a reasoned consideration of the facts. Major legislation in our nation has a tendency to create blowback because it is often debated and passed in a vaccum. Asumptions are made and existing frameworkers are ignored.
Two problems typically cited with free trade are exploitation of uneducated labor in developing countries, and the abandonment of labor in developed nations. In the United States, blow-back from NAFTA exists because we never inoculated ourselves against the side effects of trade by increasing educational and redevelopment resources in areas of likely effect. Municipalities throughout our nation have given away the tax revenues created by major employers in an attempt to hold onto the factories. The lack of a strong basic education and a portable health care structure (whether public or private), limits the adaptability of both U.S. workers and U.S. small business owners. In the undeveloped countries, the lack of market pressure on those nations to extend property rights to individuals or to comply with the environmental regulations of developed nations destroyed much of the positive benefit.
These are important issues for Americans, especially in the working class, because the economic growth of the developing world is the best defense against crime, terrorism, and open warfare. Those three factors represent the largest recipients, by far, of federal tax dollars. We live, whether we want to admit it or not, in an interconnected world. This is not the result of some vague conspiracy or “new world order”; it is the logical result of our most human attributes. Human beings are social animals, it is against our nature to live in isolation. In any case, Republicans in particular seem to have forgotten the last time a major party was pro-isolationism; it was the Republican Party in the 1930’s, and it didn’t work out so well.
My last point relates to the oft-reported trade deficit. It is important to all Americans, but not for the reasons most reported. The trade deficit is critical because it is the precursor to federal budget deficits. By definition, trade deficits mean the movement of money out of the economy; less money in the economy means less demand, less development, and less tax revenue. Our trade deficit is not driven by a lack of competitiveness (although it is a factor in some industries), it is driven by the over-valued U.S. dollar. Because of the high relative value of our dollar versus currencies like the Chinese yuan, their products are far cheaper for us to buy, than our products are for them to buy. A gradual reduction in the value of the U.S. dollar, in relative terms, is a positive event for our nation. Ask yourself if you have gotten that impression from the media.
It is the position of The Rational Middle that:
- Open trade, in and of itself, is a positive concept for the United States
- Negative effects of open trade, in the United States, can be resolved by better universal education, portable health care, and a favorable environment for locally owned and operated firms
- Negative effects of open trade, in the developing world, can be resolved by an insistence by the U.S. market that firms operating in both the U.S. and the developing world respect the environmental, individual, and operational norms of the developed world
- The trade deficit is a critical precursor to the budget deficit, and is the product of an over-valued U.S. dollar
- The principle driver of job loss and wage degradation is the shift to a service economy; a shift that could be mitigated by a focus on local products and open market processes in regards to wage levels
There are no easy answers, and my principle hope in this column (and the series of bullet points above) is to inspire a dialogue on the topic. If a cable news outlet, radio host, or Op-Ed columnist is screaming about this topic, or carrying on in sarcastic tones, the likelihood is that they are glossing over critical facts.
The Rational Middle is listening…
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