Posted on 12/19/2006 6:43:46 AM PST by hedgetrimmer
Since the end of World War II, the United States has promoted free trade in the General Agreement on Tariffs and Trade, the World Trade Organization and the North American Free Trade Agreement.
The objective is to promote growth by encouraging trade based on comparative advantage. The logic: Let national economies specialize in what they do best, higher productivity and lower prices will follow, and everyone can live better.
Now, thanks to resistance from developing countries led by China, India and Brazil, the Doha Round of WTO negotiations is almost certain to fail. President Bush faces tough resistance in Congress to new trade agreements with Latin American and Asian countries.
The reasons are simple. China is doing well playing by mercantilist rules, and other developing countries see it. Trade agreements are destroying more good-paying jobs than they are creating for many ordinary Americans.
Annually, the United States exports about $1.5 trillion in goods and services, and this finances a like amount of imports. So moving workers from import-competing to export industries pushes up GDP by about $160 billion, thanks to higher productivity in export industries.
However, U.S. imports exceed exports by an additional $800 billion, and many workers released from making those imports go into activities that do not compete in trade, where productivity is at least 50 percent lower. That slashes GDP by $400 billion to $500 billion.
Netting out the effects of the trade deficit, free trade is pushing down GDP by at least $250 billion annually, and those losses are mostly visited on ordinary workers.
Trading partners in Asia have suppressed the values of their currencies, maintained very high tariffs, imposed arcane regulations on foreign investors, and perfected various mercantilist devices to create a $435 billion annual trade surplus with the United States. Annually, China prints and sells more than $200 billion worth of yuan in foreign exchange markets to keep its currency and goods cheap in U.S. and European markets. Other Asian governments must follow similar strategies, lest their exports become uncompetitive.
The Bush administration reasons that China will eventually conclude these practices do not serve its self-interest and quit them, because Western economists theorize that printing so many yuan will create inflation and protectionism will undermine growth. Unfortunately, China has figured out how to make mercantilism work.
While growth slows to about 2 percent a year and inflation remains a nagging problem in the U.S., growth rocks along at 10 percent and inflation at about 2 percent in China. China subsidizes exports into Western countries while locking out imports, tightly regulating foreign investment and permitting the theft of intellectual property. If the U.S. and EU behaved as China does, China would not be enjoying the success it does. Unemployment would likely break the Communist Party’s grasp on power.
If the United States does not confront Chinese mercantilism directly, China will never change, and free trade will be the casualty. Developing countries will emulate China’s example, and populist politicians will turn American voters away from the market deregulation and pro-growth strategies that have served so well since Jimmy Carter and Ronald Reagan. Stagnation will follow, and keeping free trade alive will be the least of our problems.
However, it's important to remember that the US Economy grew more last year than the entire size of the Chinese economy.
People have diversified their assets for quite some time - spreading risk across industries and countries. If you own stocks or mutual funds your assets are invested in foreign countries already. That you don't know this is a measure of your ignorance. I owned Chrysler (got it cheap and it has made me a bunch of money), when it got bought out by Daimler-Benz I got shares in Mercedes. Now I own part of a German company. That's the way the world works. My hope is that long term, this will be a good thing. Why? People rarely bomb, blow-up or destroy their own property. It's not good business to go to war against a country where you own significant assets.
Actually I want less government control over trade. That'd be less tariffs and less restrictions, not more.
Thanks todd for the first non-smart aleck response.
I know you want less government and I absolutely agree. But that doesn't mean NO government. We call that anarchy and our founders alled that the WORSE form of tyranny.
I am not a fan of tariffs per se either., at least not high tariffs.
However having NO tariffs EVER is even worse, especially when it comes about as a result of having surrendered your bargaining rights to an international arbitration board to decide what's "fair".
So when I say "fair trade". I mean that the US and the US only decides what is right for the US. Not the WTO, not the Un, not anyone outside of the US.
Tariffs are in the end no better or worse than any other tax. They have a time and place and both should be limited (by US).
Thanks for your patience and patients if you have them too.
That'll never happen.
So when I say "fair trade". I mean that the US and the US only decides what is right for the US.
Like steel tariffs or tariffs on Canadian lumber?
Sometimes. Or like tariffs on a country that uses slave labor or a country that is actively seeking to counter US agenda.
But at any rate, as unpalatable as the choice may be I would prefer Pelosi over Anan, I would take Dodds over Castro, I would take Reid over Mahmoud.
I didn't realize Anan, Castro and Mahmoud had any control over US trade.
Just joking... Yea "fair" trade is simply a way of euphamising some level of tariffs. There's no getting around that.
Actually I understand the vulnerability your stating but what is called "free" is far from either. If the American side is going to be hindered by laws that wed them to labor unions who oppose automation/efficiency improvements then allowing products produced by out and out slave labor is not "free" to the American side. (There are other examples but this is the first one to come to mind.)
Tariffs are a constitutionally approved tax. I want taxes to be as low as possible but SOME are neessary.
Pushing for NO government hoping to get LESS government is a dangerous proposition. Anarchy could be the result.
I believe in strong, SMALL, effective government.
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