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Thoughts on Free Trade

It's not nearly as simple or as clear cut as either side believes.

by Mike Hartnett (August 16, 2004)

A recent CLN report on U.S. textile manufacturers lobbying Congress to extend quotas set to expire this year brought an avalanche of pro-free-trade articles from a subscriber in Asia. So the debate continues in Congress, the presidential race, and in the media, including CLN.

President Harry Truman would be happy about the debate. He once said he wished he could find a "one-handed" economist who therefore wouldn't be able to say, "on the one hand ... but on the other hand...." Everything I've read on the subject seems to have been written by one-handed economists. They're adamantly for � or against � free trade and outsourcing.

I guess I must have both hands.

I absolutely agree with free trade, in theory. If everyone in the world does what he does best, without tariffs, subsidies, and tax breaks, then everything will be grown or manufactured as productively and as efficiently as possible. That means lower prices, enabling everyone in the world to buy more, which helps every business, every economy, every country.

Wonderful idea � but on the other hand, too bad it's a myth.

The U.S. textile manufacturers are screaming bloody murder because of the expiring quotas. Pretty short-sighted of them in light of the free-trade theory, eh? Yes, if every country dropped its quotas, tariffs, and tax subsidies and allowed its currency to float vis a vi the U.S. dollar and other currencies.

Ain't gonna happen, folks. For example, the current U.S. farm bill, passed in 2002 by our free-trade-loving Congress and signed by our free-trade-loving President, allows each farmer to receive subsidies of as much as $360,000. Anyone out there think our Congressmen from farm states will vote to eliminate those subsidies because it's better for the world in the long run?

As economist John Maynard Keynes said, "In the long run, we're all dead."

That's why true free trade is a dream. Every government has some group that demands help, often because that group is at a competitive disadvantage with a group in another country. So no one is willing to suffer today for the greater good tomorrow.

Just ask the 1,800 Maytag workers in Galesburg, IL who are losing their jobs because NAFTA makes it more profitable to make washers and dryers in Mexico. These folks bought into the American Dream � learn your job, work hard, and support your family. They played by the rules as they knew them. Then governments changed the rules. Oops, sorry about that.

Somehow, I don't think they're going to vote for any free-trade politician. They're too busy scrambling to find jobs so they don't lose their homes. Oh, and Galesburg doesn't have 1,800 jobs waiting to be filled.

Maybe the concept of free trade would be more acceptable to frightened workers around the globe if the proponents didn't sound like such uncaring, theoretical schmucks. Consider David Eldon, writing in the Aug. 6 edition of the Wall Street Journal: "Although outsourcing can create structural shifts or dislocations such as unemployment, the impact of which certainly needs to be addressed, the net benefits far outweigh the costs."

Easy for him to say; his job isn't being sent to India.

I wish the free-trade proponents would spend more time discussing those "structural shifts" the Maytag workers are going through and less time talking theory.

But ultimately, long term, they're right. The answer is not to abandon the free-trade goal, but the government does have an obligation to help those workers who lose their jobs through no fault of their own. Money "saved" through free trade should be spent on job re-training programs.

I sound like Dennis Miller on a rant, don't I? If you'd care to join the discussion, please email me (on or off the record) at mike@clnonline.com.

(Note: For previous Business-Wise columns, click on the titles in the right-hand column.)

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