Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Skepticism On Free Trade?

By

Some think the first country that actually practices free trade, reduces regulation, and gets government out of the lives of private citizens regardless of what any other country does will flourish.

PrintPRINT

The Wall Street Journal is reporting Republicans Grow Skeptical On Free Trade:

By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president. The sign of broadening resistance to globalization came in a new Wall Street Journal-NBC News Poll that showed a fraying of Republican Party orthodoxy on the economy.

Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports.

Though President Bill Clinton famously steered the Democratic Party toward a less-protectionist bent and promoted the North American Free Trade Agreement, his wife and the current Democratic front-runner, Hillary Rodham Clinton, has adopted more skeptical rhetoric. Mrs. Clinton has come out against a U.S. trade deal with South Korea...

One fresh indication of the party's ideological crosswinds: Presidential candidate Ron Paul of Texas, who opposes the Iraq war and calls free-trade deals "a threat to our independence as a nation," announced yesterday that he raised $5 million in third-quarter donations.


[Mish comment: Ron Paul's actual position on free trade can be found at Issues 2008. He has valid reasons to object to the WTO and some provisions of the other agreements but all in all he is making a mistake on free trade. NAFTA is not going to make a single nation out of Canada, the US, and Mexico any more than the EU made a single country out of Italy, France, and Germany. I support Ron Paul but I believe he is wrong on free trade]


Poll Question / Results

Which of the following statements comes closer to your point of view?

  • Statement A: Foreign trade has been good for the U.S. economy, because demand for U.S. products abroad has resulted in economic growth and jobs for Americans here at home and provided more choices for consumers.
  • Statement B: Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.


Statement A (foreign trade has been good)... 32
Statement B (foreign trade has been bad)... 59

They should know better than to phrase a question like that. Statement B plays on recent unsafe products made in China even if the flaw was a bad design or bad inspection by a US company. Statement A leaves out the biggest benefit of free trade: lower cost on tens of thousands of items.

In essence, the "because" clause as phrased in the Statements A and B are so biased that it is hard for many to to answer A. What I suspect happened is that any hard advocate of free trade answered A on general principles, and everyone else answered B.

Consider these alternative statements:

  • Statement A: Free trade means lower prices of goods at stores like Wal-Mart (WMT), Target (TGT), Best Buy (BBY), and Bed Bath and Beyond (BBBY). Free trade benefits me because I shop at those stores.
  • Statement B: I would gladly pay higher prices on everything even if it only saved a few U.S. manufacturing jobs.


A completely different answer would likely have been given by those statements. There does seem to be a rising tide of protectionism, but that flawed poll is sure not proof of it.

Tariffs Are Not The Answer

Tariffs are not the answer to trade issues, nor are import restrictions, nor is competitive currency debasement.

It is simply impossible to stop globalization and global wage arbitrage via import restrictions or tariffs without destroying the economy. The Smoot Hawley Tariff Act proved that.

The interesting thing is this saber rattling is coming at a time when imports are starting to decline on their own accord. See Cargo Decline Portends Consumer Weakness for more are shipping container declines and consumer weakness.

In response to weak consumer demand, Wal-Mart is cutting prices. Other stores such as Target, Best Buy, etc. will be forced to follow suit. Now imagine the effect if legislation was enacted that forced the prices of those goods back up.

The politicians (and unfortunately the WSJ as well) are playing on the seen (the loss of U.S. manufacturing jobs and unsafe goods). The unseen is all the shipping jobs, doc jobs, trucking jobs, etc that were created in this trade boom. Also part of the unseen is currency debasement by the Fed and Congress that is the root cause of consumers getting rid of dollars as fast as they can.

Tariffs are not the solution to trade issues when the problem is currency debasement by the Fed. Since currency debasement is the problem, it cannot be the solution as well. That is the message behind the recent rise in the price of gold.

Is Fair Trade The Answer?

Some would argue the solution is "Fair Trade".

The problem with "Fair Trade" is that "Fair" is in the eyes of the beholder and no one wants to lead by example. Every country has a different definition of fair, and every country wants concessions from everyone else first. For example, the EU will not give in on agricultural subsidies no matter how unfair those subsidies are to third world countries (and they are blatantly unfair). The U.S. has taken the convenient position that it is all in favor of eliminating agricultural subsidies if the EU acts first.

I believe the first country that actually practices free trade, reduces regulation, and gets government out of the lives of private citizens regardless of what any other country does will flourish. Sadly, no one wants to be first, especially the U.S. and EU.

No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE