Free Trade

[Michael]

I'm a classical liberal. That means I hold to the theory that free trade is inherently a good thing. All of my understanding of the topic reinforces my view of this issue.

I would argue that most trade pacts represent 'unfree' trade and that is where the blame for many 'trade imbalances' belongs.

The US and Canada provide a good example of this. Trade between US and Canada is probably the most 'open/free' trade relationship anywhere on the globe. The auto industry in particular has had complete 100% free trade for over forty years now.

I just don't see how people can assert that free trade doesn't produce a net gain overall.

Anyone disagree? :D

[partofme]

I agree. Other than people that are against it to protect their own industries and line of work I never understood why people would be against it. I think more people would care about free trade if they understood that even though whatever losses they cause are more visible (hurting a particular industry) it is a overall benefit in terms of how much it usually saves consumers but not as noticed since it is more spread out. For example NAFTA is viewed as a bad thing by many in my area that think of jobs going down to Mexico but do not consider how much they save in cheaper goods. I don't even know anybody personally that lost their job specifically because it went to Mexico but does anybody not share in the savings?

[dilettante]

I'll disagree with the notion that free trade is always a good thing. The US and Canada are very culturally and ideologically similar; free trade becomes less appealing when it involves countries with very divergent labor practices, the extreme, naturally, being one nation that embraces chattel slavery (or something close to it) trading with a nation that does not.

In the thread that spawned this one, you mentioned that Canada had a "competitive advantage" over the US auto industry b/c the Canadian companies didn't have to pay such high benefit and pension costs. It seems likely that if the advantage were great enough, the US industry would either collapse entirely or eventually end up scaling back benefits and pensions to Canadian levels.
Now imagine the same scenario brought to an extreme where one competitor, instead of merely having a less obscene benefits package, enforced a 14 hour work day, paid subsistence wages, and made use of child labor. Again, the competitor of this slave-like system would either collapse or eventually embrace its practices. If it collapsed, the former workers might be able to find employment elsewhere in an industry that didn't compete against a slave-system, but they might not.

In short, I can't see how the idea of free-trade can be separate from labor practices. Gains made in securing the rights of labor in one country can be nullified by free trade with a country that denies those rights. The first country must either abandon those rights or give up the industry.

[partofme]

I'll disagree with the notion that free trade is always a good thing. The US and Canada are very culturally and ideologically similar; free trade becomes less appealing when it involves countries with very divergent labor practices, the extreme, naturally, being one nation that embraces chattel slavery (or something close to it) trading with a nation that does not.

In the thread that spawned this one, you mentioned that Canada had a "competitive advantage" over the US auto industry b/c the Canadian companies didn't have to pay such high benefit and pension costs. It seems likely that if the advantage were great enough, the US industry would either collapse entirely or eventually end up scaling back benefits and pensions to Canadian levels.
Now imagine the same scenario brought to an extreme where one competitor, instead of merely having a less obscene benefits package, enforced a 14 hour work day, paid subsistence wages, and made use of child labor. Again, the competitor of this slave-like system would either collapse or eventually embrace its practices. If it collapsed, the former workers might be able to find employment elsewhere in an industry that didn't compete against a slave-system, but they might not.

In short, I can't see how the idea of free-trade can be separate from labor practices. Gains made in securing the rights of labor in one country can be nullified by free trade with a country that denies those rights. The first country must either abandon those rights or give up the industry. The former option is at least potentially "bad," depending on the rights abandoned, and if the latter option is taken, I'm not convinced that there must always be another, protected, industry for the now surplus labor to flow into.

I'm all for having a good system in place for education and retraining those that do lose their jobs. Such a system costs much less than the total gains of free trade. The problem like I said before is that the loss of one particular industry is more visible than the total savings from low prices for all American consumers which makes it easier to point out even though the total is less than what is gained for the whole economy. Plus eventually those countries will likely improve their own labor standards which is what has happened to countries as their economies have grown.

[Michael]

In the thread that spawned this one, you mentioned that Canada had a "competitive advantage" over the US auto industry b/c the Canadian companies didn't have to pay such high benefit and pension costs. It seems likely that if the advantage were great enough, the US industry would either collapse entirely or eventually end up scaling back benefits and pensions to Canadian levels.
Not necessarily.

That same competitive advantage doesn't usually show up in other sectors. It does with autos because of the massively inflated cost of labor on automobiles and the high legacy costs associated with auto manufacturing (indeed, auto manufacturing labor is very untypical given that it involves $40-$50 or more per hour total wage costs for essentially unskilled labor).

This doesn't show up in many other industries/sectors.

And this 'competitive advantage' in auto manufacturing is really only a couple of percentage points, so its not enough to put US auto manufacturing out of business - just enough for Canada to increasingly squeeze a higher proportion of auto production in North America at the expense of US auto manufacturers (Canada accounts for some 25% of all North American auto manufacturing, though it has less than 8% of the total North American population).

I just wanted to address this one key point here. I'll address other aspects of your post and this thread discussion later on when I have more time.

[Americano]

I'll disagree with the notion that free trade is always a good thing. The US and Canada are very culturally and ideologically similar; free trade becomes less appealing when it involves countries with very divergent labor practices, the extreme, naturally, being one nation that embraces chattel slavery (or something close to it) trading with a nation that does not.

In the thread that spawned this one, you mentioned that Canada had a "competitive advantage" over the US auto industry b/c the Canadian companies didn't have to pay such high benefit and pension costs. It seems likely that if the advantage were great enough, the US industry would either collapse entirely or eventually end up scaling back benefits and pensions to Canadian levels.
Now imagine the same scenario brought to an extreme where one competitor, instead of merely having a less obscene benefits package, enforced a 14 hour work day, paid subsistence wages, and made use of child labor. Again, the competitor of this slave-like system would either collapse or eventually embrace its practices. If it collapsed, the former workers might be able to find employment elsewhere in an industry that didn't compete against a slave-system, but they might not.

In short, I can't see how the idea of free-trade can be separate from labor practices. Gains made in securing the rights of labor in one country can be nullified by free trade with a country that denies those rights. The first country must either abandon those rights or give up the industry. The former option is at least potentially "bad," depending on the rights abandoned, and if the latter option is taken, I'm not convinced that there must always be another, protected, industry for the now surplus labor to flow into.

The classic example of that difference being developed nations with organized labor movements who have achieved a higher standard of living with relatively high per-capita income transferring their industrial capital to developing nations with standards of living determined by lower per-capita income levels. While the lower cost of goods sold labor component from developing counties allows finished product to be sold in developed countries at a significantly lower price, margins on return on capital remain equal. The attraction for capital relocation is expanded market and consequently increased volume/efficiency by serving existing developed markets with lower product prices and developing markets due to the labor cost migration.

The surplus organized labor in post-industrial developed nations will be forced to reduce their standard of living (or, in the US instance, use credit in attempts to maintain it at personal levels) or impose politically motivated tariffs to protect what are basically inefficient industries due to non-competitive labor costs.

While I'm not referring to the auto industry in my post as it is unique, here's an interesting article on the auto industry 'free trade' between Canada/US:

http://www.canadianeconomy.gc.ca/English/economy/1965canada_us_auto_pact.html

[dilettante]

I'm all for having a good system in place for education and retraining those that do lose their jobs. Such a system costs much less than the total gains of free trade. The problem like I said before is that the loss of one particular industry is more visible than the total savings from low prices for all American consumers which makes it easier to point out even though the total is less than what is gained for the whole economy. Plus eventually those countries will likely improve their own labor standards which is what has happened to countries as their economies have grown.

I suppose this raises the question of precisely who any particular instance of free trade is a "good thing" for, and over what time-frame.

[partofme]

I suppose this raises the question of precisely who any particular instance of free trade is a "good thing" for, and over what time-frame.

I guess that is why I would like to see free trade with better systems in place for retraining and education so that we could have it while minimizing the negatives at the same time. I think it is our poor education system in the U.S. that is to blame for not having a stronger competitive edge.

[dilettante]

Not necessarily.

That same competitive advantage doesn't usually show up in other sectors. It does with autos because of the massively inflated cost of labor on automobiles and the high legacy costs associated with auto manufacturing (indeed, auto manufacturing labor is very untypical given that it involves $40-$50 or more per hour total wage costs for essentially unskilled labor).

This doesn't show up in many other industries/sectors.

And this 'competitive advantage' in auto manufacturing is really only a couple of percentage points, so its not enough to put US auto manufacturing out of business - just enough for Canada to increasingly squeeze a higher proportion of auto production in North America at the expense of US auto manufacturers (Canada accounts for some 25% of all North American auto manufacturing, though it has less than 8% of the total North American population).

I just wanted to address this one key point here. I'll address other aspects of your post and this thread discussion later on when I have more time.

But surely the small size of the "competitive advantage" is linked to the similarities between systems of labor in the US and Canada. Canada may not offer the exceptionally high benefits of US automakers, but they certainly don't demand 12 hour work days for a subsistence wage. If they did, and the political/cultural/social system there supported them in doing so and gave the workers no better alternatives, then the advantage would be that much greater and US auto-makers in that much more trouble.

But free-trade is hardly something I know a great deal about. It merely strikes me that, while free trade might lead to the most efficient production, efficient != good.

[Donkey]

I think that free trade between "equally yoked" partners, as the Bible might put it, is excellent. However, when you are dealing with serious differences in standard of living and, perhaps more importantly, level of industrialization, it becomes another matter entirely.

And then of course, I would have to oppose any "free" trade situation in which an industry is subsidized in one country, but not in the other. Bogus.

[partofme]

I think that free trade between "equally yoked" partners, as the Bible might put it, is excellent. However, when you are dealing with serious differences in standard of living and, perhaps more importantly, level of industrialization, it becomes another matter entirely.

And then of course, I would have to oppose any "free" trade situation in which an industry is subsidized in one country, but not in the other. Bogus.

True free trade wouldn't have any subsidies.

[Americano]

I think that free trade between "equally yoked" partners, as the Bible might put it, is excellent. However, when you are dealing with serious differences in standard of living and, perhaps more importantly, level of industrialization, it becomes another matter entirely.

And then of course, I would have to oppose any "free" trade situation in which an industry is subsidized in one country, but not in the other. Bogus.

Always interesting to hear the US clamor for free trade with heavily subsidized almost everything. Our subsidized corn has about driven small farmers in Mexico and some S. American countries to the wall.

[partofme]

Always interesting to hear the US clamor for free trade with heavily subsidized almost everything. Our subsidized corn has about driven small farmers in Mexico and some S. American countries to the wall.

I'm all for eliminating those subsidies.

[Americano]

I'm all for eliminating those subsidies.

As long as our political representation is corrupted by corporate special interests, big ag being nearly as large as defense, it's not going to happen. The money and power, in every way imaginable is far too big for all interested parties, including our both hands out representation, to ignore. If the limelight reaches a point near civil unrest they'll reallocate the subsidies into budgets less prone to public scrutiny and adverse reaction. Every federal agency has a research budget; with government accounting they could spread it out so far through allocations it would take enormous resources for any outsider to uncover.

To rub salt in the wound; most subsided crops, virtually all mechanized, are also 'valuable' exports. The US has been a net food importer since 2006. Our corporate interests sell food to other countries for profit at taxpayer expense, while the US consumer buys labor-intensive imported food with inflated currency. Insanity.

[Michael]

I'm all for eliminating those subsidies.
That's a really, really tough one.

Welfare for 'farmers' is politically untouchable in 90% of the countries on the globe. And almost every western democratic country has an electoral system that is disproportionately and heavily weighted to favor rural areas and the farming interest. Japan and France are famously so, USA also. Only Britain and Canada are not (to my knowledge).

It is of course a mockery that farm subsidies are always defended in the name of modest individual farmers and the vast majority of the money goes to large agricultural corporations.

As for agricultural subsidies, the key problem at the root of that issue is the fact that global free trade in agricultural products (true free trade) means that North American farmers will put 75% of the world's small farmers out of business. So everyone protects their farm industry with massive subsidies and tariffs all over the planet.

A good example of 'unfree trade' is that Japan grows the majority of rice consumed in Japan. The price of rice is of course 100 times higher than in the Philipines or Indonesia.

[andrewl]

I'm a classical liberal. That means I hold to the theory that free trade is inherently a good thing. All of my understanding of the topic reinforces my view of this issue.

I would argue that most trade pacts represent 'unfree' trade and that is where the blame for many 'trade imbalances' belongs.

The US and Canada provide a good example of this. Trade between US and Canada is probably the most 'open/free' trade relationship anywhere on the globe. The auto industry in particular has had complete 100% free trade for over forty years now.

I just don't see how people can assert that free trade doesn't produce a net gain overall.

Anyone disagree? :D

I'll disagree. Free trade, assuming that it is good for prosperity and economic growth, absolutely guarantees an accelerated net loss of non-renewable resources, a net loss of bio-diversity, and a net loss of ecological security.

Id say, if free trade works as its supposed to, there is an overall net loss as a result of economic growth.

Andrew

[Americano]

That's a really, really tough one.

Welfare for 'farmers' is politically untouchable in 90% of the countries on the globe. And almost every western democratic country has an electoral system that is disproportionately and heavily weighted to favor rural areas and the farming interest. Japan and France are famously so, USA also. Only Britain and Canada are not (to my knowledge).

It is of course a mockery that farm subsidies are always defended in the name of modest individual farmers and the vast majority of the money goes to large agricultural corporations.

As for agricultural subsidies, the key problem at the root of that issue is the fact that global free trade in agricultural products (true free trade) means that North American farmers will put 75% of the world's small farmers out of business. So everyone protects their farm industry with massive subsidies and tariffs all over the planet.

A good example of 'unfree trade' is that Japan grows the majority of rice consumed in Japan. The price of rice is of course 100 times higher than in the Philipines or Indonesia.

US produced sugar enjoys the same circumstances.

[Michael]

US produced sugar enjoys the same circumstances.
And so long as Florida remains a 'battleground' state, these sugar subsidies will remain untouchable.

Just like Iowa being the lead state for the Primaries. That makes ethanol subsidies equally untouchable.

[Michael]

I'll disagree with the notion that free trade is always a good thing. The US and Canada are very culturally and ideologically similar; free trade becomes less appealing when it involves countries with very divergent labor practices, the extreme, naturally, being one nation that embraces chattel slavery (or something close to it) trading with a nation that does not.

That's only partially true. In the long run, I think free trade can and does equalize labor standards upwards. Certainly in the case of Canada/USA, lower US labor and environmental standards have NOT dragged down Canadian standards. Originally, it was argued that Canada couldn't afford a universal healthcare system because the higher tax rate needed would harm the Canadian economy in trade with the low-tax US. This didn't happen. Indeed, this higher tax-supported healthcare policy has turned out to be a bit of an economic advantage when trading with the USA.

In many ways, modern sweatshop factories in Indonesia are an improvement on what went on their before the sweatshops started to make Nike shoes. Sure it looks ugly, but $2 a day is double $1 a day and that's a big improvement in the local standard of living. China is already starting to outsource cheap manufacturing to Indonesia because Chinese wage costs are rising very quickly and are no longer the cheapest around. That's suggests that there has been an improvement in Chinese standard of living. China is now a huge importer of middle-class luxury products (accelerating quickly).

In short, I can't see how the idea of free-trade can be separate from labor practices. Gains made in securing the rights of labor in one country can be nullified by free trade with a country that denies those rights. The first country must either abandon those rights or give up the industry.

The real problem with human labor is that it is way too 'sticky'. Ten years of working in a high-union-wage factory with zero education and no skill or experience necessary (except maybe a family connection to an existing union member) tends to produce a bunch of ex-workers that are practically unemployable - because of their high-wages and low education/skill status which is not really attractive to anyone anymore, but these types are almost impossible to train up for another job that might pay the same high wages. The education deficit is usually just too big to bridge - especially with a middle-aged worker. We have way too many manual laborers who expect/need to have a middle-class high-wage lifestyle but are unable or unwilling or impractical to do the work (or move to a new place) needed to achieve one. Human labor is just too 'sticky' for the employment markets to work in an ideally efficient way.

If you were willing to learn Chinese and move to China, I'll bet you could make a very good wage over there as an 'imported expert'. But this is just not practical on a 'human scale'. This is what makes labor so 'sticky'. Unemployed auto and steel workers in the USA are in trouble, but China is begging for such experienced hands (if only they could speak Chinese and live in China).

[Americano]

That's only partially true. In the long run, I think free trade can and does equalize labor standards upwards. Certainly in the case of Canada/USA, lower US labor and environmental standards have NOT dragged down Canadian standards. Originally, it was argued that Canada couldn't afford a universal healthcare system because the higher tax rate needed would harm the Canadian economy in trade with the low-tax US. This didn't happen. Indeed, this higher tax-supported healthcare policy has turned out to be a bit of an economic advantage when trading with the USA.

In many ways, modern sweatshop factories in Indonesia are an improvement on what went on their before the sweatshops started to make Nike shoes. Sure it looks ugly, but $2 a day is double $1 a day and that's a big improvement in the local standard of living. China is already starting to outsource cheap manufacturing to Indonesia because Chinese wage costs are rising very quickly and are no longer the cheapest around. That's suggests that there has been an improvement in Chinese standard of living. China is now a huge importer of middle-class luxury products (accelerating quickly).

This is just another step in the global migration of manufacturing capital following labor costs. As you point out standards of living rise when capital is injected into low labor cost countries, just as the standard of living has to decrease in those countries experiencing capital flight such as the US and other 'western' nations with organized labor which has exceeded its market value.

The real problem with human labor is that it is way too 'sticky'. Ten years of working in a high-union-wage factory with zero education and no skill or experience necessary (except maybe a family connection to an existing union member) tends to produce a bunch of ex-workers that are practically unemployable - because of their high-wages and low education/skill status which is not really attractive to anyone anymore, but these types are almost impossible to train up for another job that might pay the same high wages. The education deficit is usually just too big to bridge - especially with a middle-aged worker. We have way too many manual laborers who expect/need to have a middle-class high-wage lifestyle but are unable or unwilling or impractical to do the work (or move to a new place) needed to achieve one. Human labor is just too 'sticky' for the employment markets to work in an ideally efficient way.

Exactly. Which means they must accept lower paying jobs or government assistance to survive, lowering their standard of living. In a post-industrial country like the US this creates the situation of reduced buying power on a mass scale, which the government has attempted to offset with government spending based on borrowed money to create the illusion of economic growth.

If you were willing to learn Chinese and move to China, I'll bet you could make a very good wage over there as an 'imported expert'. But this is just not practical on a 'human scale'. This is what makes labor so 'sticky'. Unemployed auto and steel workers in the USA are in trouble, but China is begging for such experienced hands (if only they could speak Chinese and live in China).

That's almost comical for anyone who has waded through some of the US anti-illegal immigration threads where US posters viciously condemn anyone who doesn't immediately speak fluent English. When it comes to foreign languages few Americans have any flexibility and certainly no desire to learn another language.

[wphelan]

On the subject of agricultural subsidies and trade, I've always found it somewhat insulting when people imply that government money is necessary to keep the "poor small farmers" afloat. As someone who is no doubt considered one of those small farmers, I find the subsidies completely unnecessary and wasteful. That goes for all related subsidies, especially ethanol. I've never taken a direct government payment and have no intention of ever doing so.