Why FREE TRADE was never the answer.

self | 7/28/03 | RaceBannon

[RaceBannon]

There has been a few threads on here where Free Trader enthusiasts have defended their view, and have been responded to by those who feel that Free Trade is not helping the American Economy, in fact, is part of the reason we are NOT going to see a great recovery any time soon.

I am one of the latter. The following is a cut and paste job, taken from my own comments on these threads, which I feel tell my side of the story.

Some of the points are repeatd, 3 and 4 times. That is because I feel they are the forgotten reasons and ideas why we are in what I believe are dire economic straits.

Feel free to comment.

[Lazamataz]

Lincoln (founder of the GOP)said, "Thank God I am not a free trader".

Nossir. The quotes are:

• "Give me a tariff and I will give you the greatest nation on earth." -- Abraham Lincoln
• "Prosperity is the trophy of a protective tariff." -- McKinley
• "I thank God I am not a free trader." -- Teddy Roosevelt

[FITZ]

If there is any chance in hell that the Mexican immigrant sneaking across the border today is going to pay $400,000 for your house in 15 years, he's going to be permitted to sneak across the border.

The only Mexican immgigrants sneaking across the border who can pay $400,000 for a house in 15 years are those fairly high up in the drug cartels. $400,000 is a fairly steep price for an American working for American level wages, an illegal working for $5 an hour needs government housing or they live in colonias where they can build their homes out of discarded wood pallets.

[Cacophonous]

Out of curiosity, what swayed you?

[Cacophonous]

I stand corrected. Proudly.

[Alberta's Child]

If Airbus wins the market, and drives US competitors out of business, they are then the only game in town. A monopoly. They can then name their own price and recover, massively, their earlier losses.

It is my understanding that this is a common fallacy in economics. Most economists will tell you that they can't think of a single case in which this kind of strategy has worked successfully. Companies that engage in this kind of predatory practice never make up for all the losses they incur.

[malakhi]

Anyone who thinks it's great that the Chinese Communists are becoming the world's leading machinists and die makers and that American die makers are cleaning carpets to hang onto their houses is a complete total idiot.

I have an uncle who is involved in the auto industry in Detroit. He says they can't find people who want to go into the skilled trades anymore.

[Alberta's Child]

It's not the same thing as subsidization, a guarantee to keep them in business.

Actually, it is. When you start dealing with contracts of that magnitude, what you find is that the government assumes the role of distributing the contracts "fairly" so that all of the different companies in any given industry are kept in business.

[Lazamataz]

We did? Cool! Walk toward the light!

Dude, it took months -- maybe years. But your arguments, coupled with the reality I saw unfold before me, has convinced me that "free trade" is a very bad thing, at present.

Now, one of the problems we have is of semantics. "Free trade" sounds so very nice. It's free! It's trade! What can be wrong with that?

We need another, more ominous and more accurate term to describe "free trade". "Slave economics" springs to mind, to remind people of the slavish conditions that exist in China and other similar nations. "Unequal trade", to remind people of the unequal playing field we face. I intend to devote my heart and soul in writing to expose this horrible fraud -- "free trade" -- on America.

Rumor has it I can write, too. ;^)

[olorin]

well said

[Cacophonous]

That's because these predatory practices were countered with punitive tariffs.

It requires a commitment to keep shoveling money down a rathole on the part of the subsidizers. If that commitment is there, it will work. If the tariffs are punitive enough, the commitment goes away.

[Lazamataz]

Out of curiosity, what swayed you?

Outsourcing of whitecollar jobs on a grand scale.

It didn't hurt that you guys had a civil tongue even in the face of my ignorance. You could have easily made it personal, then no amount of evidence would have swayed me.

[Alberta's Child]

I agree with all of those statements, but you have to understand them in the context of their times. Notice that every one of these U.S. Presidents served before the Constitution was amended to permit the government to collect income taxes.

When these quotes were uttered, the tariff was one of the few methods the government had to collect revenue.

[Lazamataz]

When these quotes were uttered, the tariff was one of the few methods the government had to collect revenue.

Yet, they are referring to the economic prosperity of the masses and the results of trade. It is quite clear that theirs is not commentary upon Federal gross revenue receipts.

Teddy Roosevelt lived in a time of income tax, and yet he thanked the Almighty that he had not been so mistaken as to embrace "unequal trade", aka "free trade".

[Lazamataz]

It is you Free Traitors that are the communists, not me.

I know that as a former Marine, and a retired martial arts champion, your approach to a given problem might be brute force, an overwhelming of your opponent.

However, in the battle for minds, this is VERY counterproductive. Could I suggest that you tone it down a notch?

[Alberta's Child]

That's because these predatory practices were countered with punitive tariffs.

I'm talking about cases where tariffs don't even come into play (predatory trade practices among corporate giants in U.S. history, for example).

Suppose you and I are both in the market of selling a Product. The "market price" for this Product is $5, but I decide to drive you out of business by charging $4 apiece and making up the difference by tapping into an inheritance or getting a rich uncle to subsidize my operation. My goal is to run you out of business, secure a monopoly position in our industry, and make up for all my losses by charging $6 per unit.

The problem here is that this strategy will never work, even if I am successful in driving you out of business. By underselling the "market price" by $1, I have gotten all my customers (and all of your former customers) used to the idea of buying this Product for $4. As soon as I raise the price to $6 (or even back to $5!), a substantial number of these customers are going to stop buying this Product, or at least buy as few units as possible.

An interesting point to note here is that even a company that functions as a monopoly must still engage in competitive business practices, because they have to act as if a potential competitor will open its doors tomorrow.

In the case of the industry I used in this example, it is true that you might be out of business. But in the long run you will be better off than me, because after I run you out of business I will never recover my losses. And I may even have to bankrupt myself and my stupid uncle just to stay in business through perpetual "subsidies," too.

[Alberta's Child]

It is quite clear that theirs is not commentary upon Federal gross revenue receipts.

No. But the point is that a tariff today specifically penalizes "the masses." First you lose 40% of your income in taxes at various levels of government, and then you end up paying a higher cost for everything you buy.

In case anyone thinks this looks familiar, this is exactly how the European system works -- and this is why the average middle-class European has a standard of living that one would expect to find below the poverty line here in the U.S.

[Lazamataz]

No. But the point is that a tariff today specifically penalizes "the masses." First you lose 40% of your income in taxes at various levels of government, and then you end up paying a higher cost for everything you buy.

Products and services produced in America are unaffected by tariffs. A tariff only penalizes imported goods, and more importantly, exported labor.

Because frankly, it is not a concern to lose 40% of your income to taxes, if you don't have a job. Let's get the job first, shall we?

[Lazamataz]

I'm talking about cases where tariffs don't even come into play (predatory trade practices among corporate giants in U.S. history, for example).

I'm all for enforcement of existing anti-collusion and anti-monopoly laws.

[underbyte]

"I have an uncle who is involved in the auto industry in Detroit. He says they can't find people who want to go into the skilled trades anymore."
888888888888888888888888888888888888888888888888888888
In Taiwan, according to my chinese production manager the kids of the production line workers all went to college and do not want to work in the factories, Hence the migration of manufacturing to the mainland.

[egomeimihi]

Having had a full night's sleep and reflection, I see your point, and it's an excellent one. What I failed to see initially was that what goes by the name "free trade" is really something else entirely when one's own economy is fettered by excessive taxation and regulation, and the "competition" is bankrolled by socialist governments. In the long run, I doubt that economic systems such as China's will prove sustainable. On a fundamental level, however, I agree that in order for free trade to work, there must be minimal governmental interference on both sides. I found the quotes from Adam Smith very persuasive. The quote from Karl Marx, however, was less persuasive, as his predictive abilities have proven less than reliable. When I first glanced through RB's post I really only saw the quote from Marx, along with the implication that supporters of free trade are closet Marxists. I obviously misunderstood his point, and apologize for the flame. I was simply wrong. Mea culpa.