Free Trade: A Race to the Bottom?
I've been thinking about free trade a lot lately. This is especially because I don't like admitting I'm wrong. I feel like free traders fall into the perfect world fallacy, as I did myself. Free trade in a vacuum does work perfectly, but that is the issue. There is a lens of equality spread evenly among global market participants.
We can see that this is not true though. The rise of China is a perfect example of this. In the 90's they were granted favorable developing country loans via the World Bank, of which they still receive today (although a transition is underway). On top of that, the Clinton administration ignored their human rights violations allowing them to take advantage of these loans, while also opening them up to world trade.
The US by comparison is seen as a world leader/lender and is subject, in general, to much higher rates over the past 30 years. At the same time, they have had the highest quality of private employer benefits of any other country. This leads to a much higher cost per employee, and cost to employer, which translates to cost of goods.
So, you can see how difficult it is for US companies to compete with other nations (especially and including China), and why outsourcing has become the norm. Where I believe the current administration was right was including tariffs to raise costs on other nations to domestic businesses. Where they were wrong is not including two aspects. Primarily, reduce taxes across the board, not just the corporate tax rate (the consumer is just as important as the producer), and cut the red tape. Let businesses find what a quality job looks like.
The free market must be free for it to work. You could argue, it is not the free market that failed, but government intervention into the market that has destabilized US production. Had companies been able to control wage and benefits, you may have seen a more competitive response to the Chinese introduction to the market.
However, I have come to the conclusion more and more, the West has a largely Christian lens they apply to the world (nonviolence, charity and forgiveness). This governs much of the public perception to policy. I believe a shift must be made in understanding. The world is very much like the Dark Forest analogy, in the sense that if you leave yourself exposed, predators WILL take advantage. We have seen this in the recent decades; the United States has been taken advantage globally.
To start with China, the United States let them enter global trade alliances when they knew they shouldn't. How can you compete with that low a cost of labor? Next, the US has been subsidizing international development for decades. Not all of these have been loans; many are grants which we see no repayment on. Finally, every year the US intercedes in their own markets and raises the cost of employees either through insurance, wage, college loans etc., while their competitors maintain some of the lowest working standards imaginable and receive funding and low interest loans.
I am not saying one is better than the other, but I would say as a culture we need to have a conversation as to how we move forward. Do we protect the quality of life domestically and begin to trade internally and make costs expensive for other countries? Or do we allow free trade but cut mandatory benefits to citizens? I believe we can find a shade of both that brings a stable and balanced economy, but we MUST learn to move forward with a tendency toward caution and think how global market players will take advantage of what we do. This is the aspect that I believe is left out of the free trade argument.
In some instances, it may lead to a race to the bottom. Because in order to compete in a free-market environment you may be forced to undercut your competitors and this may be at the cost of your citizen base. What do you think?
