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The Fallacy and Danger of Free Trade

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The concept of "free trade" as we have come to understand it is inherently misleading. There is a misconception that "free trade" equals "fair trade." The phrase "free trade" merely refers to the ability for trade to move internationally without obstruction. There is freedom in the movement of goods; it has nothing to do with the qualities associated with the practice of international trade.

Modern "free trade" is built around the concept of comparative advantage. The idea is simple, each nation should specialize in the trade or craft that makes the most efficient use of its resources. One country would specialize in one sector, another would specialize in another sector and via "free trade" all parties involved would be better off and more prosperous.

Like many socioeconomic theories, this concept fails in practice. Unfortunately, most economists think only in terms of models and mathematics rather than in real-world observation so the theory has stuck – with some alterations (see: Hecksher-Ohlin Model) – for nearly two centuries.

The United States carries an enormous trade imbalance because other countries have been able to beat us in the production of goods in open competition. Countries like Japan and China have more streamlined approaches to manufacturing and industry, as opposed to the United States' free-wielding method. Japan has a team of experts who target an area that seems to be fruitful and profitable, and they organize their efforts to capture that market.

Everyone is aware that Japan is an electronics powerhouse, but most fail to understand how Japan's electronic industry developed. Following WWII the Japanese government organized itself to become the most efficient producer of commercial electronics in the world, it now dominates the market. Japanese companies have followed this same method for over 30 years in the automobile industry. They have streamlined their efforts to capture the market from their American competition by being more efficient and more productive. Americans tend to look at competition as a good thing, but to the Japanese it is a means to an end and that end is dominance. Japanese car companies do not want to compete with rivals, they want to beat them.

We even help other countries compete by allowing them access to insource here on our soil. The foreign companies come in and let our states compete with each other over who will get these factories. The winner is the state that offers the best tax breaks, giving our home grown companies an even greater disadvantage as these foreign factories have better benefits for themselves and pay lower wages for their employees.

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Fair vs. Free

In a world of "fair trade," the United States would be allowed to protect itself from obvious foreign hostility. In our world, the world of "free trade," the United States can do little more than raise its voice in opposition. The World Trade Organization holds sway over U.S. trade policy and, for some inconceivable reason, has been allowed to force "free trade" down the throat of our hapless government.

The WTO has no actual enforcement arm; most countries go along with favorable policies and ignore those that are not beneficial to them. For the most part there is nothing the WTO can do aside from recommending economic sanctions. The United States goes along with policies that harm its economy because its policymakers are misled by individuals seeking personal gain. "Free trade" has been proven to create small groups of rich people and large groups of poor people. The rich want to stay rich so they encourage the government to continue its ruinous pursuit of foolish policy to the detriment of the rest of us.

After following this listless course for decades the United States is now unproductive and survives on imports.  Thousands of businesses are now foreign owned and entire industries are dominated by foreign competition. Foreign competitors are merely trying to better themselves just as we are, but they realize that the only way to win is to guarantee that someone else loses. Americans tend to think that one day everyone in the world will be "rich," "free" and "democratic" (whatever that means). They fail to understand that winners beget losers, and another's gain is often our loss.

Please visit www.EconomyInCrisis.org for more information 

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Graduate of The Ohio State University with a Bachelor of Arts in History and Political Science. Student at Georgetown University pursuing a Master of Arts in Global History. Craig Harrington is the host of Wake Up America! which can be found on (more...)
 

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