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Jerry Shenk


Free Trade is (Usually) a Good Thing

by Jerry Shenk
 

More than 200 years ago, Adam Smith, the forefather of modern economics, promoted free trade.

In the early-nineteenth century, so did economist David Ricardo who introduced the concept of "comparative advantage."

Ricardo concluded that nations which trade for products available from other nations at lower cost are better off than if they had produced the products domestically.

Although he lacked today's mathematical tools, Ricardo is admired by modern economic practitioners for the accuracy of his conclusions.

Before becoming a Democratic operative with a byline, New York Times columnist Paul Krugman advanced economic trade theory. Acknowledging and building on Ricardo's two-century old concept of comparative advantage, Krugman won a Nobel Prize for quantifying aspects of international trade.

While there are few economic theories which can be mathematically proven, free trade is an exception. Free trade benefits American consumers, and trade improves the national economy by freeing assets and attracting capital for commercial activities America does more competitively. Trade provides a calculable net benefit to the nations which engage in it.

But, therein lies a problem. Nations receive a net benefit by engaging in free trade, but realizing those benefits creates losers. In America, the biggest losers have been industrial labor unions which helped drive up the costs of America's manufactured goods, transferring comparative advantages to lower labor-cost areas.

Consider the impact union wage and work rule demands (and management foolishness in meeting them) had on the steel and needle trades industries once important to Central Pennsylvania. As labor costs soared, thousands of workers lost jobs. Eventually, after Bethlehem Steel increased head count and related overhead to allow unsustainable, periodic thirteen-week "sabbaticals" — vacations -- for tenured workers, everybody lost.

The United Auto Workers (and management fecklessness) bankrupted General Motors and Chrysler. Higher prices driven by UAW wage and benefits demands encouraged consumers to buy lower-cost imports, and, when foreign manufacturers decided to build cars in the US, they located in right-to-work states. Non-unionized Mercedes Benz, BMW, Toyota, Honda and Hyundai pay well and provide competitive benefits packages.

Unions jealously protect their perks by accumulating political influence through generous campaign spending. When unions lose jobs, Democrats lose financial support.

Accordingly, unions and most Democrats are united in opposing free trade agreements, but their opposition is based primarily on proximate financial and political self-interest rather than on the national interest.

That said, the Senate-approved Trans-Pacific Partnership free trade agreement (TPP) may not meet national interest standards.

The TPP would be the largest economic treaty in history. Nations party to TTP — the United States, Canada, Mexico, Australia, New Zealand, Chile, Peru, Japan, Malaysia, Singapore and Vietnam — represent a significant portion of the world economy. Absurdly, TPP is classified Top Secret and, reportedly, will remain classified for years whether or not it's finalized.

What's being hidden? Is TPP really about trade? Or non-trade-related constitutional end runs? Will it cede any American sovereignty?

Despite President Barack Obama's plea to "trust me," or, more likely, because of it, TPP must have public scrutiny.


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