When Trade Theories Confront The Real World, The Real World Wins

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I had a conversation over the weekend about the Trans-Pacific Partnership (TPP). She's for it, because "more trade is always good."

TPP covers a whole lot more than what we would think of as "trade." Regardless, let's look here at the idea that expanding trade is always good.

Trade Is Good

Trade is good. We all at the very least trade our time for our pay. We might make or grow or draw or write something that we sell (trade) for money. Trade is basic.

But how we trade always makes a difference. If we trade our time and get paid too little, is that a good thing because it was a "trade"? Obviously the way trade gets done -- the rules/policies that are in place -- makes all the difference. So the question to consider is whether our current international trade policies as applied under our current economic order a good thing or a bad thing for We the People of the United States.

Cross-Border Trade

"Increasing cross-border trade" sounds like a worthy goal. But if you close a factory in the U.S., move the machines and jobs to a low-wage country, then bring the goods back here to sell in the same stores, you have just "increased cross-border trade." How should we look at this?

The people now making the goods are paid much less, the investors who own the factory are pocketing much more. Sounds bad, unless you're one of those owners.

Economists will tell you this is good because fewer of the resources of your economy are being expended to obtain whatever that factory was producing. Those resources can now be applied elsewhere by the investors, toward more productive investment. Sounds good.

Theoretically those American workers will now be freed up to do more productive work, potentially at a better pay rate. Sounds good.

But the way our current economic order works, those resources (the difference between what the American workers were paid and the lower costs of making the stuff somewhere else) are more often applied to the offshore tax-haven accounts of the elite investors than toward "more productive" investments. Sounds bad.

And the way our current system is working, without this new investment those workers remain unemployed, competing with the rest of the people in the workforce, which drives down everyone's wages except for a few at the top. The reality is that if people laid off due to trade find new jobs, it is at a lower rate of pay. Sounds bad.

Economic theory confronts the reality of America's current economic order and falls short. The elites use rigged "trade" deals to knock down labor costs. Instead of applying the gains toward investment in our economic future and higher wages for America's workforce, they apply it to their bank accounts.

Comparative Advantage

The idea of comparative advantage says that countries (regions, etc.) should do what they are good at and trade with others for the things the others do better. Some countries are good at growing bananas and they can trade them for things they can't grow or make.