What is Free Trade?

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In the late 1970s when I was teenager, Japanese innovation and “free trade” changed cars forever. Until that time I did not know anyone who drove cars from other countries. Occasionally, I would see the rich in a German car or a British car broken down on the side of the road. But, on US roads GM, Ford, and Chrysler in all their brands reigned supreme.

In the late 1970s the oil shock drove up gas prices. And American cars had developed into hard to drive gas guzzlers. Almost overnight little Hondas and stylish but efficient Datsun/Mazda sports cars were in my high school parking lot. The Japanese had hit on a winning formula that the Big Three had missed. Drivers wanted gas efficiency, reliability, and ease of driving.

It would take almost two decades for US cars to catch imports. But driven by Japanese innovation and Japanese access to the US market, they did catch up. The market worked. It drove innovation and competition that benefited the consumer.

For me that is free trade. And even though it dislocated many US workers it was not exploitive. American business and workers had stagnated. Japan kicked us in the butt. And like Americans since the Revolution we got off the floor and competed. Tesla is no accident of innovation. You can see a straight line right back to the 1970s.

But the problem is that not all trade entering the US with little or no tariffs looks like a 240Z or RX7 from 1978.  Instead it is a simple widget assembled into some other product. Or it is a commodity. Both produced in environmental and wage/workers rights conditions that would be a felony in the US.

That is the moral evil of some free or low tariff trade. And it is an evil that established politicians in all the major economies refuse to confront or accept.

The product formerly made in the US is now made overseas because it is cheaper. Pollutants can be spewed into the common atmosphere and water at higher rates than in the US. Instead of paying $35/hour plus benefits, producers can pay $35/day with no benefits.

Imagine a stainless steel valve where excess nickel in production can be slopped into a passing river or into the air. Unquestionably, in these conditions a company can produce a valve at a fraction of the cost, then under WTO (World Trade Organization) rules import them into the US with little in or any tariff.

But is that fair trade? What innovation did it foster in valve production? Are US companies and workers supposed to view abandoning pollution controls and worker rights as innovations to emulate? And if the exploitation is off shore for our benefit, is it really okay for us to sanction it?

Most of our trade deals contain appendices on the environment and worker rights. But as anyone who has done business in Mexico will tell you, those appendices do not work. US firms are locating plants in Mexico to take advantage of lower wages and production costs. If NAFTA went away today, would multi-nationals locate their next plants in the US or Mexico?

The political dialogue has predictably run to its respective corners. Much like immigration’s two extremes of open borders and deport everyone, trade is either “free” or “protectionist”. The reality is trade across borders that fosters innovation is wonderful. It is responsible for lower prices and innovation for consumers. But equally, trade across our borders that exploits foreign workers and our common enviroment is repugnant.

And because exploitative trade dislocates US workers we have to find a new solution. We cannot simply ignore the social insurance, demoralization, and other costs of such dislocation. If the answer is not tariffs on selected products produced in countries like China, what is the answer?

It simply cannot be that we turn to an unemployed US worker and say, “sorry, we’re okay with labor conditions we outlawed a hundred years ago and pollution we outlawed forty years ago.” Current US law allows trade in exploitive stainless steel valves, but not conflict diamonds. You can trade in exploitive solar panels, but not in human beings. Exploitation is exploitation and we should never condone it so we can obtain cheaper widgets.

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