Okay, back into the “free trade” fray again. The Republicans and Democrats have entered into what is beginning to sound like a Miller Lite beer commercial. One side shouts “free trade” and the other shouts “more sanctions”. And both are missing the point.
Free trade or open markets or pure capitalism works fine in a unified economy. The market seeks it’s own level across state boundaries in the U.S. or even across country boundaries within the European Union. This works effectively because in both cases the economics of the countries/states in question are very similar and/or share a common currency. The much maligned NAFTA agreement in North America is workable between the U.S. and Canada. Even though they don’t share a currency, the economies are similar, the standard of living is similar, and the currencies tend to both track each other. It is far more destructive to the U.S. economy when considering Mexico as that country is a whole economic world away. Free and open trade with Mexico tends to be one sided. We will export jobs there and import goods from there. Both of which are advantageous to U.S. companies and to the Mexican economy. But while there is value in this equation on both sides of the border, it is not as balanced as it appears. While U.S. companies may profit, the U.S. economy (pronounced “population”) does not – at least not in aggregate. The same situation exits with other 3rd world economies like China, India, Russia, etc.
On the flip, punitive sanctions aren’t really productive either. In the same way that the argument shouldn’t be about whether or not to raise taxes, but rather how to reduce the deficit. The argument should be about how to reduce the trade deficit. Free and open trade will only exacerbate the trade deficit . Sanctions reduce the deficit by reducing the flow across the border. But while that may alter the net deficit, it doesn’t change the import/export ratio. It’s a bit like noticing your household expenditures are $1000 dollars every month and your income is $500. While reducing income and expenses by half means you are only losing $250/month instead of $500. The ratio is unchanged. You’re still on a death spiral.
Politicians are ignoring the root issues because they are hard to solve and don’t resonate well with the under-educated and under-concerned people they think are listening. “Lower taxes” and “More jobs” are themes which resonate directly to the lives of constituents. “Trade deficits” don’t attract the same attention. This doesn’t change the reality that we live in a complex world. If we only address issues simple enough to be understood in 15 second sound bites, we are doomed. Somehow, we either need to raise politics above the level of our least common intellectual denominator, or convince the politicians we are not really as dumb as they think we are.