Free trade is basically a good idea. The classic example was Britain’s trading wool for wine with Portugal in the 18th century. Everyone got richer due to specialization within the expanded markets. So how about here and now?
Though he pursues the point very stupidly, President Donald Trump is correct in drawing attention to America’s trade deficit (excess of imports over exports). This was $568 billion in 2017. For context, World War II cost around $4 trillion in today’s money. This deficit is not some piffling detail that goes away if we ignore it hard enough. It siphons away $568 billion, or whatever, every single year.
We certainly have a large trade deficit with China, at $375 billion in 2017. But starting a trade war is bonkers. Nobody forces us to import stuff from China, so Trump’s claim that they are treating us terribly is hogwash. Yes, they steal our technology, but nobody forces us to set up factories in China in the first place.
Ah, yes; remember technology? We are supposed to be world leaders in technology. You would not think so from looking at the trade numbers. Imports of high-technology goods are far higher than exports. The result? The Information Technology and Innovation Foundation estimated that, from 2003 to 2013, more than 60 percent of the 5.7 million manufacturing jobs lost here were due to imports of manufactured goods. For confirmation, visit Best Buy and Office Depot, then open your eyes.
Trump is mostly right in saying that America’s leaders have negotiated trade agreements that open our market to foreign goods but leave overseas markets relatively closed. The admission of China to the World Trade Organization is the prime example. Both major parties rushed this through.
America’s fixation on free trade comes from bad politics and faulty reasoning. It is argued that the lower consumer prices resulting from cheap imports will exceed the corresponding wage losses, making the overall economy better off. On balance, therefore, free trade is always supposed to be a win-win deal.
This argument ignores key facts. America is not at full employment, despite the official figures. Nor does it have an economy with high prevailing wages — such that workers displaced by free trade are unemployed only briefly, until they find new jobs paying the same as their old jobs.
We see the fallacy of this argument if, again, we open our eyes. Millions of workers, laid off due to cheap imports and the offshoring of jobs, were simply thrown under the bus. A few found new jobs in lower-paying sectors, such as in retail and service work, import distribution and Amazon’s horrific sweatshops. But many hit the opioids. And many became homeless as, again, we see if we open our eyes.
Cheap imports led to a race to the bottom, producing lower wages. The Peterson Institute of International Economics estimated in 2015 that 39 percent of the increase in income inequality was due to America’s imbalanced trade (the rest coming from Reaganomics).
The trade deficit resulting from cheap imports does not magically vanish. As an accounting matter, this deficit flows into the annual Deficit on Current Account ($462billion in 2017). This has to be financed by selling the family silver and other deadbeat measures. Former Rep. Alan Grayson, D-Florida, estimates that one-seventh of America is now foreign-owned. Grayson calls this idiotic system “fake trade.”
America’s fake trade springs from America’s fake democracy. America is now “an oligarchy with unlimited political bribery” (President Jimmy Carter). America’s oligarchs call the shots. They get richer from selling cheap imports marked up to the old American prices. This is a cycle of power/money/more power/more money. The oligarchs get richer by selling America down the river by creating the Current Account deficit. If the quality of the imports is miserable, good jobs vanish and the Rust Belt gets rustier … hard luck, kids.
As a result of the failure of recent Democratic politics, it was a Republican billionaire with a history of lying and swindling who told the Rust Belt he would be their savior — even though it was Republican-driven policies that had driven them to desperation in the first place! This is why 80,000 voters turned against free-trader Hillary Clinton and fell for Trump’s lies. His good noise on trade drowned out his real goal — to make America’s oligarchs even richer.
We conclude that Americans are not better off when the gains from free trade go to a select few, with millions left behind. We also conclude that economics is not “just theory.” It comes from opening our eyes and looking at the moving parts
We shall soon get more of it. The brilliant Alexandria Ocasio-Cortez, D-New York, candidate for the House of Representatives, is the new face of the Democratic Party. She has a degree in economics.