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Free Trade?

What is free trade? Free trade means that nations agree to trade goods and services without government interference – no tariffs, no underlying government regulation. The concept of free trade is supported by mainstream economics (neoclassical) which assumes that there is a level playing field worldwide; that free trade means governments do not help the private sector.

However, we know that is not the case. China’s government has put enormous investment in certain of its industries. One example is solar energy. China’s government has invested in this industry with the result that China now leads the world in the production of solar panels. There are dozens of examples of governments investing in private companies to help them in the tough worldwide competition that has developed.

America companies who put their manufacturing plants in China benefit enormous. It is called the “free rider.”  American companies with manufacturing plants keep reaping all the rewards of selling to an enormous, high-price market like America’s. But their China supply bases enable them to avoid many of the costs of this market’s upkeep.
Principally, they don’t need to bear the financial burdens of employing relatively expensive American workers. And they can dodge the taxes that pay for the regulatory apparatus, schools, and other public services essential for maintaining the nation’s prosperity and quality of life.

Free trade advocates ignore these issues.  Prof. Peter Soderbaumof Malardalen University, Sweden, “This neoclassical trade theory focuses on one dimension, i.e., the price at which a commodity can be delivered and is extremely narrow in cutting off a large number of other considerations about impacts on employment in different parts of the world, about environmental impacts and on culture.”
Of course Soderbaum is right. Free trade has had an enormous impact on employment in this country.

Look at Mexico. Labor is cheap in Mexico so many American manufactures moved their plants to Mexico. Between 1994 and 2002, the U.S. lost 1.7 million jobs, gaining only 794,00, for a net loss of 879,000 jobs. Nearly 80% of these jobs were in manufacturing. California, New York, Michigan and Texas were hit the hardest because they had high concentrations of the industries that moved plants to Mexico such as motor vehicles, textiles, computers, and electrical appliances. (Source: Economic Policy Institute, The High Cost of Free Trade, November 17, 2003) We all know that the U.S. government subsidies our agriculture.

This means that when the North American Free Trade Act (NAFTA) removed tariffs, corn and other grains were exported to Mexico below cost. Rural Mexican farmers could not compete. At the same time, Mexico reduced its subsidies to farmers from 33.2% of total farm income in 1990 to 13.2% in 2001. Most of those subsidies went to Mexico’s large farms, anyway.(Source: International Forum on Globalization, Exposing the Myth of Free Trade, February 25, 2003; The Economist, Tariffs and Tortillas, January 24, 2008). Whether it is China or Mexico, American workers lose.

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