One Way to Think of Trade Agreements

GlobalTrade2For the most part free trade agreements fly beyond the scope of interest and understand for most people.  They probably have heard of NAFTA and maybe even hear a little talk about the Trans Pacific Partnership being negotiated (in private) now among Asia-Pacific region nations, including our own.

There are various reasons for entering these trade agreements covering environmental, economic, and regulatory issues.  Trade agreements seem more essential in a world of increased global economic interconnectivity, too.  But in a lot of ways, these trade agreements are self-serving and perpetuate the essential “need” for negotiating free trade issues.

morelos-farmer(For primers on the birth of the modern free trade era — especially its political-industrial motives — see Jeffrey Sachs and especially Naomi Klein, two people who don’t necessarily see things the same way.  Sachs is more of an insider, so to speak, while Klein is not.  Neither give an entirely flattering look at the results of free trade agreements.)

For all the good that trade agreements are meant to achieve, there is one way to look at them that explains, in part, a lot about what is harming the United States economy, especially as it affects the middle class in this country.

questnsThink of national economies as rain barrels collecting water where water represents national wealth.  Some barrels are nearly full, others nearly dry, and many in between.  Some rain barrels, like the United States, benefit from a flow of rain, i.e., the  flow of economic growth to keep its barrel full and rising.

What these trade agreements do is essentially punch holes in the barrels.  The full barrels leak, the emptier barrels fill up relative to where they have been.  The amount of water doesn’t change, it redistributes.  And, as we see today in the United States, the flow of economic growth doesn’t end either, but the barrel into which it flows has holes.

Free trade supporters say that removing tariffs, regulations, and the like will encourage more growth, and they’re correct.  It does.  But who benefits?

American Auto WorkersIf you are a person on an auto assembly line in the United States, probably not you.  But if you’re the American company who makes the cars, you — the company investors and managers — do benefit.  You can make your “American” cars in Mexico.

In a world increasingly tilted to favor multinational corporations, this makes sense.  Tariffs no longer protect workers from cost-of-labor issues in the global economy.

Likewise, if you’re a small farmer in a developing economy, your market is no longer protected from the intrusion of industrial agriculture.  Your livelihood is threatened from the other end.

Of course one can see a lot of positive in some of these changes.  No one can say that the standard of living in countries like China and India or Brazil and Russia have not improved for large parts of those populations.  But it is coming at a cost and that cost is realized in the formerly dominant “developed” economies.

US Trade Balance by End-Use Categories (US$billion)

US Trade Balance by End-Use Categories (US$billion)

So it’s kind of ironic, the altruism is, that in a country like the United States, for example, where “redistribution of wealth” is scolded as a sin, that we sign agreements that largely do exactly that and redistribute wealth across once-poorer economies.

It goes beyond wages and jobs, however.  Yes, jobs increased in the United States after NAFTA, for example, but how much can be attributed to NAFTA is debatable.  Moreover, more jobs in itself does not necessarily reflect a healthy labor market.  Is one million people working for $10 an hour better than half a million working for $20?

In terms of environmental and regulatory standards, if we negotiate away our environmental and financial safeguards for a dubious growth in jobs, are we better off?  Working for lower wagers in a more unstable environment doesn’t seem like a strong trade off.

In essence, we are negotiating a middle ground, finding parity with lesser developed economies.  They give a little, we give a little, but who has more to give?  And when the value of the dollar appreciates…where do investments go today?  China, maybe?

The reason for this is clear.  Government represents the interests of multinational corporations, not the interests of people.  If you run a multinational corporation, what does it matter if your profits are made at home or abroad?  Money is fungible, after all, and the less the exchange of currency and assets is regulated, the easier it is to maximize and bank profits.

I don’t want to deny the realities — or the benefits — of global markets and free markets, but how much of the negotiation for free trade agreements has been made in the interest of individual worker, small business owner, or small investor?  That’s the troubling part.

We seem to be willing to let the wealth of our economy flow more freely throughout the global economy as if that in itself will benefit everyone.  (Remember “Trickle Down Economics”?)  The problem is we are not seeing that benefit being shared.

In the end, if we are going to invest our wealth globally, we should protect the people who have created that wealth in the first place.  If you work in this economy, you add value to this economy.  But today’s policy makers don’t see things that way and that has to change.

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One thought on “One Way to Think of Trade Agreements

  1. Gary Farland

    Great blog. Free trade and automation is creating redundant labor in this country, as it has in underdeveloped countries. We are becoming a big So. St. Paul! Things might change if the dollar ceases to be the international currency and thus devalues due to the trade imbalances. I think we also need to move to a different economic model of employee-owned coops rather than corporations. Another development: Wikileaks documents now show that this administration is willing to give in on important protections in the negotiations with Europe. Our corporations would especially like to get rid of the European ban on having niconids in the food. See


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