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The Free Trade Tug-of-War

July 7, 2008

Presidential hopeful John McCain has recently traveled to Canada to discuss his support of NAFTA as well as to Colombia and Mexico to discuss trade agreements, possibly to bolster the Hispanic vote and promote his open-mindedness to prosperity. McCain is accomplishing this by traveling overseas instead of spending time with Americans. Most Americans aren’t so hot on John McCain’s brand of prosperity a/k/a free trade.

The general attitude and proof among American workers is that free trade has been bad for American jobs, resulting in exporting industry in a wholesale fashion. The evidence is hard, if not impossible, to refute.

Interestingly, Presidential contender Barack Obama openly states that the American work force has been hurt by poorly negotiated and improperly enforced trade policies. He wants to amend NAFTA to enforce labor and environmental standards, while pushing for greater global market access for America.

While this move portends some change, the debate in America rages about whether free trade policies have been good for anyone except the bottom-line of big government internal interests and to strengthen already burgeoning big business.

The fact that John McCain is roving the world to sell free trade to the world is somewhat troubling since Americans are the ones that need to buy off on his ideals. Remember the election? This isn’t readily happening and makes Mr. McCain seem out of touch. On the other hand, Barack Obama is focused on dealing with the country on its’ own turf. He hasn’t been sold on extensive overseas trips in the hope of bolstering support for his policies and political stands.

McCain says we can’t rescind the free trade agreements we’ve negotiated. He doesn’t give a good reason why or admit that the truth that foreign powers have already broken trade agreements. His stand is that free trade needs to create jobs on both sides of the border. That good idea has not happened in the last decade. Instead, the U.S. economic engine has been sacrificed on the altar of big business prosperity through government lobbyists. A recent TV ad by Mr. McCain doesn’t say anything about the specifics of the Colombia agreement or why opposition to free trade agreements will hurt American workers.

The fascinating part of the whole scheme is that free trade doesn’t require a single treaty or agreement. For example, the notorious NAFTA free trade agreement consists of two thousand or so pages. Nine hundred pages of text are devoted to tariff rates. On the other hand, the Constitution uses fifty-four words to establish free trade among the states.

Free trade agreements are full of controls, rules of origin, inspection, verification and inference with labor laws. Trade agreements spell out the exceptions to the rules by bending or breaking rules that exist. Instead, free trade agreements are, in fact, a display of political favoritism based on common interests that usually bolsters bureaucracy and government largesse.

Controlling trade between countries makes as much sense as controlling trade between states within this country. Free trade agreements favor certain preferred countries instead of creating real economic solutions. The bottom line is that trade does not need to be managed by government in order to be fair.

NAFTA, for example, is not completely free trade. Certainly, free trade is better than any specialized trade policy that must be legislated. Politicians have failed to prove how trade agreement policy is superior over real business free trade. The results of our ravaged economy are part of the proof, a decade or more after the proliferation of free trade agreements and political favoritism.

If more bureaucracy is needed, it is needed to police the imports that come into this country for safety and legality. To add to matters, this country has a worrisome trade deficit. The trade deficit is the difference between the goods and services Americans sell to foreigners versus the goods and services that Americans purchase from foreigners. As business has become more global in scope, especially in the last decade, more and more money leaves the United States to support business in other countries. As a result, the dollar eventually destabilizes. For more than 30 years, the United States has produced consistently increasing trade losses which don’t affect business directly, but weaken the dollar that drives the economy through inflation or deflation. The enormous size of successive trade deficits raises the possibility of a severe international economic crisis if other economies begin to dump dollars held in world currency markets.

The Cato Institute holds that the trade deficit is not caused by unfair trade practices abroad or declining industrial competitiveness at home. In their view, trade deficits simply reflect the flow of capital across international borders. Therefore trade policy is an ineffective tool for reducing a nation’s trade deficit. While this fact can be argued, the Cato Institute is looking at the balance between industrial decline and the yearly trade deficit. Cato insists that trade deficits do not cost jobs and that rising trade deficits correlate with falling unemployment rates. The reality is that expecting economic symptoms to correlate is poor economic guessing at best. To top off the foolishness, Cato mistakenly expects surveys of America’s major trading partners, the ones that benefit from trading, to reveal the right answer. That is politics pure and simple.

Meanwhile, thousands of U.S. layoffs continue occur every week as the national economy continues to contract. This is a symptom with multiple causes. A high percentage of these layoffs are as a direct result of competition from foreign companies as well as sending jobs overseas. Eventually, as more and more money leaves the U.S., the economy becomes helpless to prevent further losses as it ultimately sinks to the level of a third-world economy full of impoverished citizens.

In our current economic scenario, we have almost arrived. The question is whether the nation will remain in this position and for how long.

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