Free trade is bad for the economy, right?

Great Debates
21

athelas, this is a subject where I am very much on the fence about. I really don’t know what to think about free trade…so I appreciate any knowledge I can absorb about it.

I am analytical by nature. I have interest in economics and think I can absorb arguments based on it. The articles I read on free trade are short on ‘mathematics’ and charts but all seem to agree that free trade is a ‘good thing’. This may very well be true.

However…

…I don’t know what it is about free trade that bugs me. It frustrates me that I can’t seem to articulate it very well…but I get ‘ominious’ feelings about free trade.

I will try to articulate but probably won’t do very well:

  • Morality - If a country believes that paying people below a certain wage is immoral, or that child labor is immoral…or that no health insurance and disposable workers is immoral and have laws to legislate against such things…then how is it acceptable to allow companies doing business in that country to manufacture items and sell them made in that way?

  • National sovereignty - I believe it is a ‘good thing’ for a country to be soveriegn within its borders. If free trade is allowed, what is to stop a growth of true multinational corporations from eroding this? If a country does not agree to not tax them, tries to legislate rules etc…the multinational companies could ‘boycott’ that country and hurt them. I know, they could then start up their own businesses/industry to compete but I imagine that the existing companies would be very efficient and the upstarts inefficient. Plus, they could probably make the upstart country miserable in toher ways as well. I’m probably not articulating very well…but can you see what I’m getting at here?

  • Accountability - if free trade is the norm and company screws up/kills people etc. how would they be held accountable? They could just ‘pull back’ from the law and still have business due to free trade.

  • How does a ‘new’ country get started if they can’t ‘protect’ their budding industry? The U.S. had much protectionism early on because England was such a powerhouse compared to us…?

  • Does not shipping jobs overseas endanger the greatness of a country? What makes a country powerful? Some part of it (NOT ALL - so don’t yell at me :slight_smile: ) must have to do with the confidence and inertia of the people. If you screw with it too much, like many entry level jobs not being here, is there not the danger that this ‘spirit’ could fade over generations? Leaving the U.S. vulnerable to stagnation?

Arrgg. Not doing the best job here…but tried. What are your thoughts?

I’m truely on the fence here. I want to like free trade…but have reservations.

22

[QUOTE=BlinkingDuck]

  • National sovereignty - I believe it is a ‘good thing’ for a country to be soveriegn within its borders. If free trade is allowed, what is to stop a growth of true multinational corporations from eroding this? If a country does not agree to not tax them, tries to legislate rules etc…the multinational companies could ‘boycott’ that country and hurt them.
    [/QUOTE]

Whether or not a corporation is “multinational,” it has to be based somewhere and have human agents doing its bidding. That somewhere will be in a soverign nation unless you can figure out a way to run a successful business in Antarctica, or on the moon.

You can’t simply break the law and continue to do business in the United States because you paste the flag of, say, Denmark on your shirt. How will you distribute your goods? Who would buy them if it was illegal to do so? And where would you base yourself that would have a free trade agreement with the United States, but no other laws against the illegal things you do?

Bear in mind free trade is a bilaterally agreed to arrangement. The United States has free trade agreements with a limited number of countries, and even those agreements have a thousand exceptions and caveats. You can’t break laws willy-nilly in the USA and just cross the border at Niagara Falls and escape forever.

“Free trade” refers to removing tariffs and trade barriers, not exempting people from the laws against murder.

It will certainly be easier than if they’re not allowed to export anything.

There are still lots of wentry level jobs. There’s not a shred of evidence free trade reduces entry level jobs. Why would it?

Heck, one of the reasons there’s so much illegal immigration from Mexico into the United States is that there are more cheap jobs than there are workers willing to do them.

23

Doesn’t convince me, Rickjay.

I think you are assuming current world.

What about 100 years from now? A company could be based ‘nowhere’ by being based everywhere.

Let’s say you had a ‘Walmart’ worldwide. This company goes to your country and says. “Look, here’s the deal. You don’t tax us at all. You will not demand anything of us. You will abolish your silly minimum wage law. We will pay what we want and rely on your welfare to keep them alive. If you do not agree, we will take our operations to country Y and still be able to sell in your country.”

This destruction of sovereignty is not possible today, but after 100 years of complete free trade?

Stupid fear or possible? I don’t know.

24

[QUOTE=BlinkingDuck]
Morality - If a country believes that paying people below a certain wage is immoral, or that child labor is immoral…or that no health insurance and disposable workers is immoral and have laws to legislate against such things…then how is it acceptable to allow companies doing business in that country to manufacture items and sell them made in that way?
[/quote]

But in developing countries, it’s often a matter of a job at (what we would consider) horrible wages and no job at all. Or, a job working in the family rice field 12 hours a day, 6 days a week. In the poorest countries, child labor is not necessarily a bad thing-- unless you are willing to subsides the education of that country’s children. In a country with a poor or non-existent infrastructure, the output of a person’s labor just isn’t worth much.

I don’t understand what you’re getting at here.

“Free trade” does not mean no laws. If you don’t like the products made in China, for instance, just don’t buy them. The best system is where consumers are educated about what they are buying and then allowed to make a choice.

By attracting foreign capital: recognizing private property and offering a stable environment. Companies are reluctant to invest in countries that are on the verge of revolution (think South America a generation ago), or that might nationalize industries at any moment (Venezuela today).

It could, which is why we need to stay ahead of the technology curve. We can’t compete with Vietnamese workers making sandals and household goods for $.25/hour. Why on earth would we want to? We have to generate jobs like chip design or financial planning or automotive engineering that pay a much higher wage. There will be plenty of teenagers (and some immigrants) to bag groceries, ask you if you want fries with that at McDonalds, etc. Any adult who aspires to one of those jobs is asking to be poor. That may sound cruel, but that’s the way it is. Now, we could force McDonalds to pay cashiers (and everyone else in teh chain) $15/hour or higher, but who is going to pay 2 or 3 times more for a crappy hamburger there-- they won’t get any better just because you pay people more.

25

[QUOTE=RickJay]
Whether or not a corporation is “multinational,” it has to be based somewhere and have human agents doing its bidding. That somewhere will be in a soverign nation unless you can figure out a way to run a successful business in Antarctica, or on the moon.

You can’t simply break the law and continue to do business in the United States because you paste the flag of, say, Denmark on your shirt. How will you distribute your goods? Who would buy them if it was illegal to do so? And where would you base yourself that would have a free trade agreement with the United States, but no other laws against the illegal things you do?
[/quote]

The point blinkingDuck and I are trying to make is that laws are different in different nations, and much of our trade is with nations that uphold lower standards of human rights and environmental protection. Hence, by helping the ruling elites of those nations to prosper, we’re encouraging them to maintain those lower standards. Thus we have corporations that our violating the spirit of our laws elsewhere, and working to ensure that the situation continues. If our companies make in Bangladesh, for example, it’s probably because Bangladesh allows you to employ nine-year-olds, pay twenty cents per day, and beat your workers. Hence the ruling class in Bangladesh has a strong motivation to make sure that it remains legal to emply nine-year-olds, pay twenty cents per day, and beat your workers. If Bangladesh were to ban child labor, install a reasonable minimum wage, and arrest abusive sweatshop supervisors, the rulers would suddenly be earning a lot less.

(And this, of course, does not even mention the cases where the United States has intervened directly with a trade partner to make sure that an abusive regime remains in powers. That’s what happened in Saudi Arabia, and Guatemala, and…)

Removing a trade barrier between America and a nation that allows murder is a way of promoting murder.

26

I wonder how long the ruling class will like “free trade”-when high-paying professional jobs are outsourced? Take a lawyer-suppose a firm fires its American lawyers an announces it will import Indian lawyers to do the work? Or medicine-you can go to India for heart surgery-and pay less than 25% of what thw operation would cost in the USA! Pesonally, I’d like to outsource government-we could get it for a whole lot less! So, when its blue-collar jobs disappering-nobody cares-but once it starts affecting the upper clases-watch out!

27

Reading through my replies, I think I’ve somewhat nailed down my concern…

The disconnect of businesses with countries.

A smaller analogy is local here. Companies base their HQ in the city that gives them the sweetest deal. They do not care about the locals. That is not what companies do. They care about the stockholders etc. This is fine, I am not critisizing.

However, they never seem to pay tax on their property. They get amnesties…and when that amnesty is up they say “Extend it or we are moving to xxxx”. Over and over and over. The cities get some benefit because of the HQ based in their area but they have no real control anymore. They have to bend to the will of the corporation.

What is to stop this from going extreme and start happening at the world level? It’s fine and dandy to saw that the countries will have laws to prohibit this…but what is to stop these large international companies from saying “Stop it or we moving to country xxxx”

I’m still not doing well explaining here…

28

[QUOTE=ralph124c]
I wonder how long the ruling class will like “free trade”-when high-paying professional jobs are outsourced? Take a lawyer-suppose a firm fires its American lawyers an announces it will import Indian lawyers to do the work? Or medicine-you can go to India for heart surgery-and pay less than 25% of what thw operation would cost in the USA! Pesonally, I’d like to outsource government-we could get it for a whole lot less! So, when its blue-collar jobs disappering-nobody cares-but once it starts affecting the upper clases-watch out!
[/QUOTE]

I have no time to look for the cite…but it is happening. Entry-level lawyer work is being outsourced so how are new lawyers to learn (Insert joke about this being a good thing here :slight_smile: )

In the same article, I read about Xray doctors (Radologists?) looking into why the number of positions was shrinking and their salary was under sdownward pressure…and finding that it was being outsourced to doctors in India.

I think it is happening. This gets at my ‘loss of spirit in the nation’ bullet point I have above.

Look, I really haven’t clue in this debate. I ‘want’ to like free trade, but have concerns.

29

[QUOTE=BlinkingDuck]
Reading through my replies, I think I’ve somewhat nailed down my concern…

The disconnect of businesses with countries.

A smaller analogy is local here. Companies base their HQ in the city that gives them the sweetest deal. They do not care about the locals. That is not what companies do. They care about the stockholders etc. This is fine, I am not critisizing.

However, they never seem to pay tax on their property. They get amnesties…and when that amnesty is up they say “Extend it or we are moving to xxxx”. Over and over and over. The cities get some benefit because of the HQ based in their area but they have no real control anymore. They have to bend to the will of the corporation.

What is to stop this from going extreme and start happening at the world level? It’s fine and dandy to saw that the countries will have laws to prohibit this…but what is to stop these large international companies from saying “Stop it or we moving to country xxxx”

I’m still not doing well explaining here…
[/QUOTE]

Who cares where a company sets up their headquarters, especially if they’re not paying any taxes. That company is still going to do its research in the best country it can find, do it’s manufacturing in the cheapest country it can find (provided quality is high enough), etc. If people in country X want to subsidize us, good for them. Besides, no corporation really pays taxes anyway-- they all shift that burden onto the consumers.

30

Do you oppose free trade amongst inidividuals? Probably not. So try to think about what makes free trade amongst countries different in your mind. Remember, that even free trade between countries is still free trade between two individuals.

31

[QUOTE=Gangster Octopus]
Do you oppose free trade amongst inidividuals? Probably not. So try to think about what makes free trade amongst countries different in your mind. Remember, that even free trade between countries is still free trade between two individuals.
[/QUOTE]

But I do oppose free trade among in individuals?

Sure…society does all the time!

32

An interesting article on economic misconceptions. Number two is opposition to international trade:

33

[QUOTE=athelas]
An interesting article on economic misconceptions. Number two is opposition to international trade:
[/QUOTE]

Does the article touch on the notion that people often think of economic activity as a zero sum game? That also seems to be a common misconception. If someone is winning, then someone else must be losing.

34

Opposition to free trade comes from many sources:

  • Xenophobia. The fear that somehow, ‘others’ are taking ‘our’ things. The idea of one of ‘our’ people losing a sale because the ‘other’ person offered a better deal just doesn’t sit well with some.

Note that the same people who would fight against foreigners taking ‘our’ jobs generally don’t have a lot to say about, say, factory automation or farm automation, which has killed more jobs in those industries than outsourcing ever will.

  • Fear of loss of control. This is why statists don’t like free trade. In a global economy, it’s harder to regulate people. Pass a burdensome law on an industry, and that industry might just fold because it is now non-competitive. With trade barriers, the industry has a monopoly, and therefore can pass the regulatory costs on to society at large. We all get poorer, but the statists maintain control.

  • Lack of understanding. Economics is tough and often counter-intuitive. WIthout hard, rigorous study of the issues, it’s easy to be swayed by ‘common sense’ arguments.

  • Pleading by special interests. This is a big one. The benefits of free trade are typically diffuse, but the drawbacks are generally felt by special interests. The lower cost of foreign steel makes your cars cheaper, your appliances cheaper, your buildings cheaper, and your consumer electronics cheaper. This increased efficiency increases standards of living and leaves more capital to be spent on other businesses. But the effect is spread out through the economy. But the domestic steel industry may see profit margins eroded, so they spend big money on lobbyists, disinformation campaigns, and the like. So we tend to hear all the arguments against in much louder voices than we hear the arguments for.

Nonetheless, free trade is a huge net benefit to the world. It’s a net benefit to the United States. It a HUGE net benefit to the 3rd world - one of the bigger problems Africa has is that they can’t bootstrap their economies because their products are kept off of European markets with tariffs. If you want to help Africa, you’d do a lot better to campaign for the lifting of tariffs against African products than to just throw aid money at dictators.

It’s truly frightening that the forces of protectionism and isolationism are rising equally in the Democrat and Republican parties. This probably means we’re headed for a more protectionist future, and that will be a disaster for everyone.

35

[QUOTE=BlinkingDuck]
Let’s say you had a ‘Walmart’ worldwide. This company goes to your country and says. “Look, here’s the deal. You don’t tax us at all. You will not demand anything of us. You will abolish your silly minimum wage law. We will pay what we want and rely on your welfare to keep them alive. If you do not agree, we will take our operations to country Y and still be able to sell in your country.”

This destruction of sovereignty is not possible today, but after 100 years of complete free trade?
[/QUOTE]

How would this global WalMart sell in “your country” if they have no operations there? They have to ship the products in, do they not? Where will the products be sold, and how? The instant they hit the shores of “your country” they’re handled by people who ARE subject to wage and labour laws. And if in fact there was a rogue state that allowed such things, why wouldn’t civilized countries simply cancel their free trade agreements with that state?

It’s easy to say your evil Walmart can do this, but unless they invent a Star Trek-like transporter to beam the products directly to my house, just how are they going to avoid the labour laws of my country?

Have you ever eaten a banana? Bananas almost all come from poor Latin American countries, almost all of which have long histories of treating their people like shit. The USA has been importing bananas from places with no minimum wage laws and abusive governments since before you were born. Has it caused a “loss of sovereignty,” or forced Safeway to pay their employees 20 cents an hour?

[QUOTE=ITR champion]
The point blinkingDuck and I are trying to make is that laws are different in different nations, and much of our trade is with nations that uphold lower standards of human rights and environmental protection.
[/QUOTE]

There are few, if any, cirumstances in which a lack of trade will change this.

I see nothing wrong in hitching free trade negotiations to such conditions, but one must be careful about what you expect poor people to be able to do. Environmental protection is easy to talk about when you’re a rich American.

It’s fine to point out that the United States has supported dictatorships, but that has very little to do with free trade. The United States does not have a free trade agreement with Saudi Arabia. I’m not sure the nature of “Free trade” is fully understood here; it’s not like anyone in the United States with any influence is seriously considering a unilateral “let’s open the borders” approach.

Now, come on. How many nation-states allow murder? Honestly? Is murder legal in Mexico or Canada?

36

[QUOTE=Sam Stone]
Note that the same people who would fight against foreigners taking ‘our’ jobs generally don’t have a lot to say about, say, factory automation or farm automation, which has killed more jobs in those industries than outsourcing ever will.
[/QUOTE]

Indeed, as I once saw someone insightfully remark, if I were to say “I have a machine which can do the job that guy does, but do it more efficiently”, few would consider the machine’s existence to be a bad thing, and advocate bans on its usage. Yet, once you reveal the machine to actually be a boat to/from Asia or whatever (you put money on the boat and you get back produced goods), somehow, people turn to gibbering masses of convoluted idiocy.

37

There’s a new theory of economics* which holds that part of the value of an organization is its “social benevolence” not just its monetary value. The idea holds that short term, money-only focussed industry ends up leading to a smaller economic gain than a long term and moral and monetary focussed industry.

For example, if you are trying to buy illegal drugs in the US, there is a monetary incentive for the dealer to cut the drugs with whatever he can. The cheapest thing to cut it with may be something that is poisonous but relatively slow acting. Now the most moral drug dealer will not cut his drugs at all and sell them pure. A less moral drug dealer will use something harmless to cut the drugs and will be able to sell the (seemingly) same quantity of illicit pharmaceuticals for a lower price than the most moral drug dealer and thus steal his business. And the least moral drug dealer will cut using the poisonous chemical and sell even cheaper than either of his competitors.

Now the moral competitors have no choice except to cut their drugs with the poisonous substance or go bankrupt. Some will, some won’t, but in the end, the grand majority of drugs sold will be being cut with poison.

So in a unpoliced free market we can say that while as it is profitable to cheat the customer, in the long run it hurts innovation, the customer, and the industry. Copyrights, FDA approval, the Clean Air Act, anti-fraud legislation, etc. are all things that need to be in place to insure that industry works to better the world instead of working to cut the bottom line most. Ultimately you need policing or you’ve got a problem.

Electronics which are manufactured oversees are required to hold up to United States electrical standards and anti-fraud law in their packaging material and advertising, but they aren’t held to things like the Clean Air Act, which only concerns itself with domestically manufactured goods.

So while we can say that in a traditional view of economics that international free trade is a win-win situation for both parties, with a more wide view of the economics of the situation it’s entirely possible that one or both sides are getting the short end of the stick. And personally I would agree that, in the instance of China and such, they are. Until imported goods are required to uphold the same standards of manufacture as domestic, the foreign boon is going into financing the mafioso-style Capitalist instead of the pioneering type.

  • I recall reading a Wikipedia article about it but can’t recall what it was called or how I found it.
38

[QUOTE=Indistinguishable]
Indeed, as I once saw someone insightfully remark, if I were to say “I have a machine which can do the job that guy does, but do it more efficiently”, few would consider the machine’s existence to be a bad thing, and advocate bans on its usage. Yet, once you reveal the machine to actually be a boat to/from Asia or whatever (you put money on the boat and you get back produced goods), somehow, people turn to gibbering masses of convoluted idiocy.
[/QUOTE]

This is a stupid example. Firstly, do you think that people have never been opposed to machines doing the jobs that humans have done? Hell, here in the NYC subway system we had a driver-less train system installed which was never used for precisely the same reason. I don’t think I need to provide more history about people complaining about mechanization.

Regardless, I’m not entirely convinced about the entire theory of economics. There are way too many variables. It seems like the human desire to find rules in and commonalities in everything. We do it because that’s what we do with everything. Now in the hard sciences this works well as the variables and laws of science never change, yet in economics we are dealing with people whose desires are more or less predictable, yet not when it becomes important.

The point being, we understand a lot about economics, but I believe that people put too much faith in economics to solve everyone’s problem.

Let’s give an example here. Instead of the government regulating things we consume to make sure they aren’t killing us, it would be up to the market. Now, that would work by people rationally deciding to stop consuming the poisonous food. However, people aren’t rational in everything. When people see widget A for 2 bucks and widget B for 3, they’ll rationally choose the cheaper one. Yet when they won’t act rationally always. What if said person gets a chain letter telling them not to eat product X? What if someone bribes a local news station to vilify a competitor on TV. These things aren’t solvable by the market, and they never will be because humans, on the whole are stupid and fearful. When given simple choices to make on very easy criteria (cost only!) we’ll only SOMETIMES make the right choice.

So that’s the problem I have with free trade. I am personally in favor of it, but only with substatial government safteynets to make sure we don’t get hurt in the dangerous world.

39

[QUOTE=Merkwurdigliebe]
This is a stupid example. Firstly, do you think that people have never been opposed to machines doing the jobs that humans have done? Hell, here in the NYC subway system we had a driver-less train system installed which was never used for precisely the same reason. I don’t think I need to provide more history about people complaining about mechanization.
[/QUOTE]

Oh, absolutely, there are some who will complain about mechanization as well. I just think that number is substantially smaller than those who will complain about outsourcing, and that position is more manifestly difficult to defend.

40

[QUOTE=athelas]
Negative. First of all, there are many different industries in the US, and so if an industry can’t “compete” with overseas industries, the workers can find jobs in industries in which the US does well. (This is unfortunate for them, as they have to learn how to do a new job, but it’s a fact of life. The same would occur if there was a significant improvement in labor-saving technology, but nobody save a few Luddites would think of complaining then.) Second of all, you seem to think that foreign trade will decrease our overall productivity; this is not the case, as shown by comparative advantage. Finally, as I said above, the loss in production revenue is more than offset by the savings consumers get from cheaper goods. In fact, if you wanted to, you could make everyone buying an imported shirt pay enough to the displaced mill workers to give them back their old wages, and there would still be money left over.
[/QUOTE]

I’m seeing the same issues in your posts that I regard as fallacies. Number one is separating the notion of “paid workers” from the notion of “consumers”, as though they are two entirely separate groups, with the latter having some magic money supply that does not involve working for a living. Strikes me as very pre-Henry-Ford, 19th century thinking.

Granted, you claim that each industry that might shift jobs overseas employs a small part of the total workforce. The laid-off workers in one area move to a different one where “the US does well”. These industries would be which, exactly, these ones that are not seeking to take advantage of cheap foreign labor? And remember, since retraining is a lengthy bitch, which US industries will we continue to do well in so that by the time my retraining is complete, there will still be a high-paying job here in that industry for me? Anything that does not involve extensive retraining is unlikely to pay enough to make up for the loss of my previous job in another industry. Where are these outsourcing proof, high-paying American jobs?

Which leads me to fallacy number two, which is the imaginary bottomlessness of resources that I see in most economic theory.

As more industries ship jobs overseas, you’ve got an increasing pool of laid-off people who’ve sought retraining to get another high paying job competing with the increasing labor pool of fresh-out-of-school kids who don’t have so many financial needs ifor jobs n the same shrinking pool of industries. If the economy is generally growing, then the smaller pool of industries might be seeking to absorb the higher number of workers, but that isn’t always going to happen. So then you’ve got some people who can get their T-shirts nice and cheap if only there was a job to give them money to pay for it. So you take a lower paying job and you still can’t pay for the T-shirt. Of course that’s not of great concern to the captains of industry in our new flat world, because the shifting of jobs overseas means there are expanding markets over there to make up for the loss of revenue here.

Soon the only people who have any dough are upper management, and you can’t have one of those jobs unless you’ve come up through the ranks, the ones that don’t exist in this country any more, because more and more American companies are becoming mere offices that oversee manufacturing in China that is monitored by IT in India.

And here’s the question I killed another similar thread with: What happens when the factories in China and the IT departments realize that they can get upper management to run them that is just as inefficient and incompetent as American upper management in their own countries for a lot less?