July 28, 2016

Free Trade co-opted by progressives

A core conservative principle has always been that of free trade.  Or HAD always been.  Free trade encourages countries to specialize their resources - land, labor and capital - in the areas which they can most efficiently utilize them. That specialization results in the most efficient use of resources, and therefore the imbalance of goods and services is neatly resolved by trade.  Producers are at their most efficient and consequently consumers get the best products as well as the lowest prices.  If pencils cost 50 cents to buy when made in America but 5 cents a piece when made in Vietnam, the other 45 cents can be used elsewhere or perhaps invested in more innovation through the purchase of shares in companies.

All good.

So what went wrong?  Why is Donald Trump heading the GOP into the 2016 presidential election?  He's a candidate who has vowed to build walls to keep out illegal immigrants, he's vowed to exit from multiple free trade deals.  And he won the nomination and has a good shot so far at winning the presidency.

The problem with free trade is two-fold. Firstly, the outcome of signing these deals has had some unintended consequences.  American workers are losing jobs to China, India, Bangladesh, Mexico, and other countries.   That's a natural fallout as resources within America have to be re-allocated to more efficient usage.  People get displaced and that does not get fixed overnight. Nobody in the free trade camp seemed to give that proper consideration when pushing free trade deals.  And without jobs, there is another fallout - there's no money to spend on goods and services in a larger swath of the populace.  This reduces demand domestically for both foreign and domestic goods and probably contributes to decreased efficiency in production. There's potential for a downward spiral in an economy not set up properly to capitalize on trade.

That leads to the other problem on which Trump is capitalizing. Progressives have both co-opted the free trade agenda for their own purposes and distorted the playing field in such a way as to favor trade partners over domestic producers.  On the latter point, tax laws, labor laws, environmental regulation and red tape for things from Dodd-Frank to FATCA etc. make it more desirable for companies to do their work from offshore and simply push product back to America.  In other words Democrats are not business friendly.  They view the business environment as a zero-sum gain - any advantage to business has to (in their view) come at the expense of workers.  There is no concept of synergy  - an environment that enables both companies and workers - among Democrats when it comes to business or the economy at large.  Winners means losers.  There's no "we can all be better off together if..."

Finally, truly progressive Democrats - socialists like Bernie Sanders - are either completely clueless or are actively seeking the destruction of the system that has made America great.  Sanders never spoke about offshoring. He speaks about a living wage.  As if those arguments will create jobs.  It will drive more business offshore because free trade allows it.  They are actively, purposefully seeking the destruction of American capitalism.  They will change America into an also-ran.  They are leveraging the existence of free trade to do so, or are exploiting it's fallout due to trade deals that were not well crafted in the first place, in order to further their agenda.

Trump makes a point about the free trade deals that conservatives and the Republican establishment would do well to heed.  China steals technology.  China pays slave labor wages and does not have health and safety protections for workers that America does.  That does not create a level playing field.  Put the same regulations in place in China that exist in America and then a truly free trade deal would be a fair trade deal.  As it stands free trade with China, is biased trade in China's favor.  Ignoring that fact will eventually spell the doom of the free trade movement.

Addendum: You can read more about free trade with protectionist nations here.
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