CUMBERLAND — I respect Charles Lawton, but I must challenge his stance on free trade. In his June 28 column, he wrote: “Efforts to put the globalization genie back in its bottle will only impoverish everyone. Raising barriers to trade and increasing subsidies to residential preference will only further slow the economic growth that is the only answer to the problems of globalization.”
I too was educated to believe that free trade was beneficial to all. The theory originated from David Ricardo’s “Theory of Comparative Advantage,” which states every country benefits if they manufacture products they can produce most efficiently, and then trade with other nations for the remainder.
But Ricardo’s theory is flawed. It holds true only if all nations can reallocate their displaced laborers to other manufacturing jobs of equal hours and pay. But when outsourcing causes permanent unemployment and underemployment as a result of the layoffs, the benefits evaporate. And we know this occurred in the U.S., since the proportion of workers employed in manufacturing declined from 26 percent in 1970 to just 10 percent in 2013, according to the U.S. Department of Labor.
Historically, we didn’t practice free trade. Under the aegis of Treasury Secretary Alexander Hamilton, the newly formed U.S. government encouraged domestic production by implementing restrictive tariffs for foreign-manufactured goods.
This provided the domestic manufacturers with a competitive advantage over foreign manufacturers. It encouraged entrepreneurs to start companies and gave existing manufacturers the confidence to expand. As a result of tariffs, almost all products purchased in America were also manufactured here.
The tariffs created millions of jobs, funded the majority of the federal government’s spending, allowed the U.S. to build the most admired manufacturing economy on earth and eventually built the world’s strongest middle class and largest consumer economy. In 1900, the average tariff was 27.4 percent; today, it stands at just 1.3 percent, and about 70 percent of all imported goods arrive in the U.S. tariff-free.
With blind faith that free trade was beneficial, we’ve watched as our manufacturing plants shut down, our high-paying manufacturing jobs moved overseas where labor is cheap and our middle class declined. NAFTA, CAFTA and the other free trade deals shoved down our throats over the past 30 years have worked out very well for mega-corporations, but not so well for the average U.S. worker.
Outsourcing continued to create wealth, but almost all of it was captured by those doing the outsourcing. Further, the once-realistic dream of providing a good life for one’s family and a comfortable retirement with only a high school education has been undermined. Those who previously made $25 an hour are now working at Wal-Mart, Home Depot and McDonald’s for far less. This is at the core of the anger that has motivated Donald Trump and Bernie Sanders supporters in this recent primary season.
So, why do people like Lawton so quickly dismiss resurrecting tariffs and returning our manufacturing jobs to the U.S.? I suspect they’d start by pointing out how prices would rise if we used $25-an-hour domestic labor instead of $2-an-hour foreign labor to make our products. And they’d be correct.
But if they did the difficult math, they’d realize we’d still be far better off. The newly created $25-an-hour manufacturing jobs would reverse the decline of the middle class, fuel incremental consumption and rekindle the virtuous cycle of strong demand fueling further business expansion, job growth and wage increases – a return of the American dream!
They might then assert that increasing tariffs would lead to a trade war. And they’re right again. But we possess the largest consumer market that foreigners salivate to tap. While 68 percent of our economy is consumer spending, only 13 percent results from exports. This ratio is our advantage.
Sure, some companies might find it harder to export their goods as a result of a trade war, but these companies’ production declines will be easily overwhelmed by the gargantuan production gains from the tariff-protected goods that are now being domestically manufactured. And the negative impact on exports may be smaller than you think. Many exports (e.g., weaponry, drugs, lobsters) will be purchased by foreigners anyway because they’re state-of-the-art, patent-protected or simply unavailable elsewhere.
It was a huge mistake to so freely open our markets to foreign products. We’ve paid a high price for this error in judgment. But to compound the error by inaction would be a worse mistake. I beg our politicians and economists to critically challenge their belief in free trade. The benefits of free trade are a Trojan horse.
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