The New Truth About Free Trade

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I used to believe in trade agreements. That was before the wages of most Americans stagnated and a relative few at the top captured just about all the economic gains.

[Robert Reich| March 14, 2016 |Robert Reich]

The old-style trade agreements of the 1960s and 1970s increased worldwide demand for products made by American workers, and thereby helped push up American wages.

The new-style agreements increase worldwide demand for products made by American corporations all over the world, enhancing corporate and financial profits but keeping American wages down.

The fact is, recent trade deals are less about trade and more about global investment.

Big American corporations no longer make many products in the United States for export abroad. Most of what they sell abroad they make abroad.

The biggest things they “export” are ideas, designs, franchises, brands, engineering solutions, instructions, and software, coming from a relatively small group of managers, designers, and researchers in the U.S.

The Apple iPhone is assembled in China from components made in Japan, Singapore, and a half-dozen other locales. The only things coming from the U.S. are designs and instructions from a handful of engineers and managers in California.

Apple even stows most of its profits outside the U.S. so it doesn’t have to pay American taxes on them.

Recent “trade” deals have been wins for big corporations and Wall Street, along with their executives and major shareholders, because they get better direct access to foreign markets and billions of consumers.

They also get better protection for their intellectual property – patents, trademarks, and copyrights – and for their overseas factories, equipment, and financial assets.

That’s why big corporations and Wall Street are so enthusiastic about the Trans Pacific Partnership – the giant deal among countries responsible for 40 percent of the global economy.

That deal would give giant corporations even more patent protection overseas. And it would allow them to challenge any nation’s health, safety, and environmental laws that stand in the way of their profits – including our own.
But recent trade deals haven’t been wins for most Americans.

By making it easier for American corporations to make things abroad, the deals have reduced the bargaining power of American workers to get better wages here.

The Trans Pacific Trade Partnership’s investor protections will make it safer for firms to relocate abroad – the Cato Institute describes such protections as “lowering the risk premium” on offshoring – thereby further reducing corporate incentives to make and do things in the United States, using and upgrading the skills of Americans.

Proponents say giant deals like the TPP are good for the growth of the United States economy. But that argument begs the question of whose growth they’re talking about.

Almost all the growth goes to the richest 1 percent. The rest of us can buy some products cheaper than before, but most of those gains would are offset by wage losses.

In theory, the winners could fully compensate the losers and still come out ahead. But the winners don’t compensate the losers.

For example, it’s ironic that the Administration is teaming up with congressional Republicans to enact the TPP, when congressional Republicans have done just about everything they can to keep down the wages of most Americans.

They’ve refused to raise the minimum wage (whose inflation-adjusted value is now almost 25 percent lower than it was in 1968), expand unemployment benefits, invest in job training, enlarge the Earned Income Tax Credit, improve the nation’s infrastructure, or expand access to public higher education.

They’ve embraced budget austerity that has slowed job and wage growth. And they’ve continued to push “trickle-down” economics – keeping tax rates low for America’s richest, protecting their tax loopholes, and fighting off any attempt to raise taxes on wealthy inheritances to their level before 2000.

I’ve seen first-hand how effective Wall Street and big corporations are at wielding influence – using lobbyists, campaign donations, and subtle promises of future jobs to get the global deals they want.

Global deals like the Trans Pacific Partnership will boost the profits of Wall Street and big corporations, and make the richest 1 percent even richer. But they’ll contribute the to steady shrinkage of the American middle class.

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  • commented 2016-03-18 11:09:34 -0400
    What people are calling “free trade,” is NOT free trade. We practice free trade by allowing anything manufactured in China to enter our market. China is practicing mercantilism, which is the opposite of free trade. We buy everything that China manufactures, while China buys our recycled cardboard and little else.

    Trump has promised to “make China play fair,” by imposing tariffs on Chinese goods entering our country. The “experts” claim that tariffs will start a “trade war.” Here’s a news flash: We are in a trade war, and China is winning. We are buying half a trillion dollars more from China than China is buying from us. This is destroying our middle class, and draining our wealth. China is not using our money to improve the standard of living of its people, but to build battleships. You might ask why.

    Communist China is a criminal enterprise. We should not be doing business with them at all, much less allowing them to steal our jobs, our technology and our intellectual property. China is cheating us in every way possible. They think we are stupid, and they are right. Our greedy, incompetent government is allowing China to destroy our economy. Read “Death by China,” by Peter Navarro and Greg Autry.
  • commented 2016-03-18 10:10:07 -0400
    This is a good article for its criticisms of Free Trade treaties due to their destructive effects on the US economy and the wages and employment of Americans. But as usual, I must nit-pick:

    1) The TPP, NAFTA, WTO (GATT), TTIP, etc These are not “deals” they are TREATIES despite any legal fictions of “executive-legislative agreements.” Our Constitution requires treaties be ratified by “2/3 of the Senators present.” If Washington returned to Constitutional rules we wouldn’t even have most of these trade treaties that dismantle not just our productive economy but our sovereignty itself.

    2) Mr. Reich is correct to point out the damage done by trade treaties, but where is his outline of the very different new trade policy we actually need? “No TPP” is essential but its not a trade policy and we already have no TPP now yet our manufacturing industries are weakening and the damage ripples out through every other sector of the economy except finance, which itself is globalized and reaps all the benefits of the historic decline of America’s economy.

    Moving now beyond this article, I note that Mr. reich has focused many of his articles and internet chats on income inequality and the need to raise the minimum wage. No doubt growing inequality is a problem but it is more a symptom than cause of our economic decline. Further, raising nominal wages alone won’t help much, it won’t create any new real value to be put into the real wages, and in fact much of the higher nominal wages will leak out in higher trade deficits as poor people take their nominal raise to Walmart and buy even more imports. Until we end our $720 billion annual merchandise trade deficits and block the excessive imports and rebuild American manufacturing, our economy will continue its historic spiral downward.

    No treaty will ever reverse the off-shoring of our industries, end our annual $720 billion merchandise trade deficits, nor dismantle the global governance via treaty laws and international tribunals that undermine our constitutional republic and national sovereignty. The TPP would only make these problems much worse. America must reject the TPP and instead return to a sovereign and nationalist trade policy asserted by Congress in the national interest and without international negotiation. We need a Balanced Trade policy that uses Import Certificates to limit our imports to the same value as our exports. Then use strong Customs laws (again unilaterally made as sovereign Acts of Congress) to sort out which imports will then be allowed as “fair” and not otherwise harmful to American industries and workers. Such a policy would end our merchandise trade deficits and divert that demand into rebuilding our industries and creating over 14 million new US jobs.