What is the true impact of free trade agreements on the American economy?

[Informal Logic]

I was watching a program last night on PBS about the ongoing debate regarding free trade and agreements such as NAFTA and now CAFTA. I consider myself a fiscal conservative, and while I favor free trade in general, so far I find myself very concerned about such trade agreements. Though the topic involves politics, it is really an economic issue, so I'm posting this here. Maybe members with background in economics can help address the matter. To start, here is information against CAFTA:

http://www.stoptheftaa.org/economy/

Economic Impacts

...America has long been admired as the land of opportunity. In America, hard work was rewarded. Most Americans could better themselves and look forward to rising prosperity.

But this American dream is in trouble. Not because there is some new threat of foreign competition from low-wage countries. Nor is it because greedy American businessmen, ever eager for profits, have suddenly discovered how they can cut costs by shifting manufacturing and investment abroad to these cheaper labor markets.

Without a recognition of the underlying causes, it is all too easy to blame symptoms and support cures that actually aid the disease. Surprisingly, destructive government programs and agencies -- in effect for years -- are responsible for much of the loss of quality American jobs and manufacturing. These programs and agencies encourage businessmen to invest abroad with both a carrot and a stick. [See "Engineered Extinction" under "Recommended reading" below.]

Wielding the stick are the oppressive regulatory agencies that drive up the cost of doing business here at home. Other government agencies, such as the Overseas Private Investment Corporation hold out the carrot by providing incentives and assuming risks so that businesses find it advantageous to invest abroad, even in Communist nations such as China.

Rather than reversing these destructive policies, internationalists are cynically seizing the crisis they helped to create in order to sell even more destructive proposals as cures. The proposal for a Free Trade Area of the Americas is the prime example.

An essential step toward activating Congress to reject the FTAA agreement is to help a substantial bloc of American opinion molders understand the real intentions of the internationalists. Then these opinion molders can withdraw their trust from the architects of America’s decline.

The attack on America’s productive capacity is virtually universal. Areas threatened include:

· Hi-Tech Jobs
· Manufacturing
· Services
· Resource Industries

The classical free trade model shows how high-wage nations and low-wage nations can trade with each other for mutual benefit through the principal of comparative advantage. [Voluntary trade should be mutually beneficial because it’s voluntary.] But the basic model does not account for government policies that encourage major movements of labor (immigration) and investment. We should never underestimate the power of misapplied government to create a ghost town or impoverish its people.

The question is: If hi-tech jobs, manufacturing jobs, service jobs, and resource industry jobs are shifted abroad, what will be left for Americans to produce so that they can purchase in the world economy and enjoy a rising standard of living (or even maintain where they are)? When the plans of the globalists are understood, the answer is grim. They have targeted the American middle class for extinction.

The promised help for the less fortunate throughout Latin America is also a fraud.

------------------------

To see how our Latin American neighbors can truly prosper, let’s consider the source of our own prosperity. Why is it that in America, in just three generations, man managed to outstrip the world's total progress for six thousand years? How was it possible that our republic, with less than seven per cent of the Earth's population, was able to create more wealth than all the other billions of people in the world?

The reason is that Americans have made more effective use of their human energies. And they were able to do so because they were blessed with liberty -- the mainspring of all human progress.

"Don’t trust the fox to protect the chickens." -- Obvious to those who can recognize the "fox" - I highlighted a couple of points that are contrary to US foreign policy, or should I say what is purported to be our foreign policy, most specifically Bush's reasoning for spreading democracy in the Middle East. Yet in reality he continuously supports big business in ways that seem contrary to such a goal.

 

[SOS2008]

You may want to ask to have this thread moved to Politics and World Affairs just the same. There have been quite a few posts in the thread on Unocal and China's purchase attempt. I don't think there is much participation on economics in PF.

In any event, the program you mentioned may be a series. I think I caught the program one evening. It was about CAFTA, but the focus was on agriculture. The sugar farmers say they would be ruined by cheap importation, but other farmers (pork or something) felt they would have more opportunity. I have a problem with agriculture when it comes to the topic, because in my mind it is very different from the kinds of production mentioned in the source:

· Hi-Tech Jobs
· Manufacturing
· Services
· Resource Industries

Agriculture should not be imported--it is a basic need and therefore a matter of national security in that the U.S. should always remain capable of feeding it's own. Let's not become dependent on other countries for food in addition to fuel. Also, agriculture is not high dollar in comparison to other exports, so if we really want to address the trade deficit I feel we should look at Hi-tech jobs, manufacturing, etc.

 

[selfAdjoint]

Agriculture should not be imported--it is a basic need and therefore a matter of national security in that the U.S. should always remain capable of feeding it's own. Let's not become dependent on other countries for food in addition to fuel. Also, agriculture is not high dollar in comparison to other exports, so if we really want to address the trade deficit I feel we should look at Hi-tech jobs, manufacturing, etc.

Before you get too set in this attitude, do look into the scam the huge sugar producers have been putting over on the US people for years.

 

[SOS2008]

Before you get too set in this attitude, do look into the scam the huge sugar producers have been putting over on the US people for years.

I realize there is a lot of self interest on both sides of the argument for/against CAFTA on behalf of agriculture. One of which is that the candy manufacturers are the ones who would most benefit from cheaper sugar, but would not pass the savings in cost on to the consumer (you know your candy bars would still cost the same--or maybe get even smaller at a higher cost). And I realize protectionism of agriculture, whether in the form of subsidies or high tariffs generally result in a higher cost to Americans. But I'm a big proponent of protecting basic needs in the interest of national security, because I believe we will pay an even higher cost if we allow ourselves to become dependent on other countries for such needs.

My main point is that agriculture is a raw material, not a finished product. I'm a big proponent of terms of trade economic theory (i.e., raw goods do not decrease trade deficits). Aside from agriculture as a raw good, there is the question of what these countries can export, and more importantly the inability to import goods from the U.S. because there is no middle class/expendable income.

Arguments against CAFTA are so numerous. Such as the exploitation of cheap labor in countries where there are no labor laws. It is not fair to ask American workers to compete with this. More to the point is it is damaging to labor in the host countries. Aside from child labor, etc., for example they are paid $2/hour (with no benefits) so there is no real economic growth or increase of a middle class (etc., etc., etc.)--in fact, the standard of living may well decrease. And if/when the labor force begins to make demands for better pay, etc., the multinational companies close shop and move elsewhere with very little effort/cost.

The overall picture shows nothing good in my opinion--well nothing good except for U.S. multinational companies. There were several good points made last night on C-SPAN - don't know if I can get transcripts...

 

[Informal Logic]

Here are some updates per transcripts from recent CNN broadcasts:

LOU DOBBS, CNN ANCHOR: Good evening, everybody.

DOBBS: My next guest is one of most respected economists in the world, Columbia University Economics Professor Joseph Stiglitz. He's the winner of the Nobel Prize in Economics in 2001, now here to talk about a few interesting geopolitical economic developments. Joe, first of all, it's good to have you here.

JOSEPH STIGLITZ, ECONOMICS PROF., COLUMBIA UNIVERSITY: Nice to be here.

DOBBS: Let's start with the CAFTA debate. This is turning into a monumental issue -- $32 billion in total trade involved, perhaps and a vote in the dark on Capitol Hill. Should we or should we not, in your judgment?

STIGLITZ: Probably not. The administration has given up defending on economic grounds. They're talking about politics, security. Every one of their bilateral trade agreements has really been backfiring. They used that same argument with the Morocco Agreement and there were riots in the streets, because it was actually recognized to be actually bad for Morocco.

----------------

DOBBS: A $162 billion deficit with China last year. We're going to move certainly to 700-plus billion this year in terms of our deficit worldwide. We have 29 years of trade deficits, $4 trillion in external trade debt.

Why in the world is not your profession the academic orthodoxy, as well as the ideological partisan orthodoxies that surround this issue -- Republicans on the right and Democrat on the left -- why can't they look at the empirical facts and say: there's something going on here we need to deal with?

http://transcripts.cnn.com/TRANSCRIPTS/0507/27/ldt.01.html

LOU DOBBS, CNN ANCHOR: Good evening, everybody.

Tonight, political outrage and protests after the House of Representatives votes in the middle of the night in favor of a so- called free trade agreement with Central America, but by only the narrowest of margins. Two leading congressmen on opposite sides of the issue join us here tonight.

...It was really an incredible scene yesterday. And just within the last 12 to 24 hours, the president on Capitol Hill, the vice president, as well two of secretaries of Commerce, Agriculture, a U.S. trade representative. All of them trying to push the Republicans to support this...

The focal point came when President Bush met behind closed doors for an hour or so with the Republican conference, and he made the case this way. He said it was more than just expanding free trade in opening markets, but he said this was about U.S. security, national security, and that it was also about rewarding allies for their work in the war on terror.

...When the gavel came down, the vote 217 yes, 215 no, but it was what happened in the hours before, the arm-twisting and the favor dropping that prompted the House Democratic leader to say Congress resembled the set of "Let's Make a Deal." She even went so far as to suggest laws may have been broken.

http://transcripts.cnn.com/TRANSCRIPTS/0507/28/ldt.01.html

I agree this topic may have been better suited for the Politics section, probably under the labor thread. In the meantime, I suspect this will go the same way as the energy bill--all criticism will be ignored.

 

[SOS2008]

When "one of most respected economists in the world, Columbia University Economics Professor Joseph Stiglitz...winner of the Nobel Prize in Economics in 2001" says "The administration has given up defending [CAFTA] on economic grounds" you'd think more people would be concerned. Oh well, guess not.

 

[Antiphon]

When "one of most respected economists in the world, Columbia University Economics Professor Joseph Stiglitz...winner of the Nobel Prize in Economics in 2001" says "The administration has given up defending [CAFTA] on economic grounds" you'd think more people would be concerned. Oh well, guess not.

Tell us, SOS2008- what exactly are your concerns about it?

 

[SOS2008]

This nation is being force-fed bad policy again:

Bush signs Central America trade pact
Agreement became medium for fierce debate over U.S. trade policy

http://www.msnbc.msn.com/id/8794279/

Tell us, SOS2008- what exactly are your concerns about it?

I'm sure if you were to read through my posts, you would see what my concerns are. Perhaps you would care to contribute something enlightening to this thread?

 

[Antiphon]

I'm sure if you were to read through my posts, you would see what my concerns are. Perhaps you would care to contribute something enlightening to this thread?

Yes, you are right. I missed the one 4 posts back, but now that I see it
let me try to take up your challenge and add something tiny to the thread.

I'll just start by pointing out that one of your arguments against it is the same
old saw we've heard for over a hundred years, and its internally inconsistent.
I mean the one about the deal being simultaneously detrimental to US
workers (loss of jobs or lower wages) and detrimental to low-wage
foreign workers.

If those worker have better wage alternatives, they'll take them. But if
this is the best wage they can make ($2/hr) then it's of benefit to them.

As for child labor laws, I'm with you- I'm all for extending US hegemony
around the globe and forcing our values onto those people too. I mean
if it's bad for a child to work here, then it's bad everywhere, right?
Who do those people think they are setting their own children to work?


When the US TV manufacturing industry was wiped out by the Japanese
in the 60's and 70's, gloom and doom was predicted. But those workers
found other jobs- some of them perhaps at Intel or IBM. Others may have
started their own businesses. Only a few would have been permanently
dislocated by this industrial shift but we all benefitted from cheaper and
better TVs.

 

[SOS2008]

As for child labor laws, I'm with you- I'm all for extending US hegemony around the globe and forcing our values onto those people too. I mean if it's bad for a child to work here, then it's bad everywhere, right?
Who do those people think they are setting their own children to work?

I wouldn't say it in that way -- US hegemony "forcing" values, but rather global consensus regarding human rights.

Getting back to your questions. First, the idea for any country is to export more than import--right? The U.S. has a large, wealthy consumer market. CAFTA pertains to a group of small, third-world countries with poor populations that can't buy any of our goods. How will this help our trade deficit?

What will be traded between the U.S. and these countries? At first the only goods we might import would be agricultural, for example. I'm against importing anything on Maslow's Hierarchy of Needs, such as food. Why? Because basic needs are a matter of national security, in that we do not want to ever lose our ability to feed our own.

But this isn't really a trade agreement--it is an outsource arrangement. Multinational companies can now go to these countries and set up shop--let's use textiles as an example (textile workers in the U.S. have long since lost their jobs). In the Central American countries, this will attract workers away from other indigenous industry. Still these workers won't make enough money to really get ahead. There won't be any advancement, no increase of a middle class, and worse yet all the profit will be retained by the multinationals, not reinvested in their country. And in time, the multinationals will leave and find even cheaper labor elsewhere. The workers will have to find work, but their old jobs will have disappeared. They will be left even poorer than before.

A kind of sad musical chairs for everyone but the multinationals, wouldn't you say? One thing to mention is the migration of workers to these 'off-shore' factories are often farmers. So in the long run we may be able to export agricultural goods to them, making them dependent on us for the most basic needs. Very clever, and probably why some in the agricultural industry in the U.S. have supported CAFTA? Still the export of raw goods will not help our trade deficit--we need to export finished goods, like textiles, or better yet high-tech goods.

I believe we should be focusing on trade with countries that have a good consumer market, such as Japan, etc. And I believe we need fair trade, not free trade, because free trade results in theft of intellectual property, subsidized competition, and all kinds of loopholes that have hurt the U.S. and American workers.

 

[russ_watters]

I know I'm a little late in posting in this thread, but I just saw it...

I see a contradiction in the liberal position of being against free trade - one that should be obvious: free=freedom and liberals are supposed to be pro-freedom. Outsourcing to foreign countries is a biproduct of free trade and I don't think it should be discouraged: it doesn't hurt us as much as liberals like to think (unemployment is at 5%) and it helps 3rd world countries a lot. The resulting increase in world GDP/reduction in poverty is a good thing on its own, but it also can only help us in the long run.

edit: and while I'm not a big fan of Indian tech support, I truly do believe in the free market: we should let the market take care of it, not legislate it away (Dell has already ceased doing it because of complaints). Capitalism really does work: the markets will reach equilibrium and the global economy will be better for having a natural equilibrium instead of a forced one.

 

[Informal Logic]

I know I'm a little late in posting in this thread, but I just saw it...

I see a contradiction in the liberal position of being against free trade - one that should be obvious: free=freedom and liberals are supposed to be pro-freedom. Outsourcing to foreign countries is a biproduct of free trade and I don't think it should be discouraged: it doesn't hurt us as much as liberals like to think (unemployment is at 5%) and it helps 3rd world countries a lot. The resulting increase in world GDP/reduction in poverty is a good thing on its own, but it also can only help us in the long run.

edit: and while I'm not a big fan of Indian tech support, I truly do believe in the free market: we should let the market take care of it, not legislate it away (Dell has already ceased doing it because of complaints). Capitalism really does work: the markets will reach equilibrium and the global economy will be better for having a natural equilibrium instead of a forced one.

It seems the so called left has become more fiscally conservative than the so called right. I am in agreement with above posts that free trade is too easily abused (like an honor system), and as with so many other issues, regulation does not necessarily mean a loss of freedoms but rather insurance that everyone has freedoms. In other words, fair trade allows goods to be 'freely' exchanged, but in a win-win way for both countries.

 

[Telos]

Though the topic involves politics, it is really an economic issue...

No it isn't. Economics clearly illustrates that the free trade model allows for the most social welfare. Why do we even think of interfering and manipulating the market, then? Because of political goals, and here I do not use the word "political" as derogatory. Politicians (again, not derogatory) sometimes think that they can direct the power of the market to benefit specific groups of people. This issue is entirely political, because intervention is typically where political science takes over and economics lingers in the background.

Again, there's really nothing inherently wrong with this, but there is positively a reason why economics and political science are not the same subject.

The trouble is that, as SOS2008 said, economic situations are not often discussed within the framework of economic study. This is partly the fault of economists and partly the fault of economics, which is again in the hands of economists. Every time an economist comes on one of these shows I want to punch them in the face for not taking their fight to academia and make my economics classes a little more interesting and meaningful!

I'm not sure how many others have had some education in economics, but watching the news can be exorbitantly frustrating on many levels, to the point where economics professors regularly complain about it as well. I would have liked to have been a physicist.

From the quote in the original post:

Without a recognition of the underlying causes,

Economics always ignores the "underlying causes." Every discipline has a weakness insofar as it can't be a discipline of everything. And for economics this is by far its biggest weakness, because economis alone doesn't propel is to the apex of social welfare, and everyone blames it for not addressing very important issues like human rights, etc.

But that weakness is the biggest for political science, too. Did you know that Thailand has almost exactly the same child labor laws we do in the US? And that prostitution is illegal, not to mention human trafficking? Fat difference that makes.

My personal opinion, as a senior in economics, is that the richer people become the more likely it is that they will respond passionately to attempts to impose limits of their freedoms. This principle works very well on children - they have incredible restrictions on their freedom, while not having much property to speak of, making it much less likely that they will fight back when their freedom in other areas is limited. Communist China will change gradually when the people say, "wait a minute, some of us are frickin' rich, we don't need to take this..." and start getting together towards reforming their government. China is a very loosely organized nation politically. I recommend the book "Understanding China" by John Bryan Starr for info on their political weaknesses.

Bush may be an awful president, namely because he hasn't been straightforward with the American people when he should have. But when he talks about the "ownership society," how people are more active in their country because they own a stake in it, he's spot on.

 

[selfAdjoint]

China will change gradually when the people say, "wait a minute, some of us are frickin' rich, we don't need to take this..." and start getting together towards reforming their government

Much more likely they will say "we are frickin' rich, let's take over this country", and whether by bribing politicians, buying elections or any combination thereof, they will. Why on Earth would they support democracy except as a pacifier for the workers and consumers?

 

[Telos]

Much more likely they will say "we are frickin' rich, let's take over this country", and whether by bribing politicians, buying elections or any combination thereof, they will. Why on Earth would they support democracy except as a pacifier for the workers and consumers?

Because there would be a lot of them. Your scenario is much easier to conceive if the wealth was concentrated in a few hands. But there are just so many hands in China, building so many things, and they're more interconnected now that they've moved to the cities. The country was easier to dictate when everyone was spread out and isolated from trade.

But I'm not suggesting that free trade is a panacea for China. There's cause to be worried about their military build up and such, but there's also cause to be optimistic.

 

[selfAdjoint]

Your scenario is much easier to conceive if the wealth was concentrated in a few hands.

In 1990 the wealth from the PC revolution was spread out and in many hands. In 1999? Contrary to Hayek, concentration of capital into oligopolies is not a figment of German history but an iron hand that grips all burgeoning economies.

 

[EnumaElish]

In 1990 the wealth from the PC revolution was spread out and in many hands. In 1999? Contrary to Hayek, concentration of capital into oligopolies is not a figment of German history but an iron hand that grips all burgeoning economies.

Since it seems probable that due to some unforeseen technical difficulties the revolution of the dispossessed will have to be postponed to a later date still, and since legislating out oligopolies is somewhat unlikely given the current political climate, the watchdog agencies should better make sure that the oligopolies follow the existing laws in the U.S. and the EU. And forcing countries to open up their borders to international competition is a second-best option for global welfare, since at least there is the possibility that monopolies and oligopolies in anyone country will face competition from firms in other countries.

 

[SOS2008]

Public Citizen's Global Trade Watch has announced the launch of the CAFTA Damage Report, an on-going series of reports to track the consequences of the Central America Free Trade Agreement (CAFTA) in Congressional districts where Congresspeople accepted "deals" in exchange for their trade vote.

http://www.citizen.org/hot_issues/issue.cfm?ID=1172

 

[EnumaElish]

http://www.citizen.org/hot_issues/issue.cfm?ID=1172

That's democracy in action, for you. Democracy = compromise. Nobody likes to compromise, but virtually everyone does.

 

[Informal Logic]

That's democracy in action, for you. Democracy = compromise. Nobody likes to compromise, but virtually everyone does.

Yes...and then there is "buying" votes, or fear of losing constituent support due to threats to local projects (blackmail) in which a true win-win scenario may not exist. Too many votes were flipped last minute not to be highly suspect.