The fifth principle of economics states that when parties engage in trade, everyone is better off. To distribute labor according to the skills or capabilities of said parties is an effective manner of conducting business. Simply, to get the most, at the least expense. This model is crucial to the global economy and a vital means by which nations and corporations manage limited resources, with unlimited consumption capability.
Nearly everyone involved in the global marketplace benefits from free trade whether they realize it or not. The prices consumers pay for goods and services are lower with open trade. If taxes and tariffs imposed on imports and exports are less, the more productive the private sector becomes. If industry efficiency increases, the national GDP follows suit. The more trade freedom companies receive; the more consumers are inclined to spend as a result. More consumer spending, yields a thriving economy.
If these models are true, then why is free-trade so controversial? Why is there such bipartisan opposition to free trade agreements such as the Trans-Pacific Partnership? The opposition stems largely from domestic labor. The AFL-CIO (American Federation of Labor, Congress of Industrial Organizations) and other pro-labor, pro-union organizations oppose globalization because it may restrict American workers’ job prospects. Groups like AFL-CIO feel the reason that Americans – particularly in the industrial sector – have been struggling to find reliable income, is that so many of the jobs previously performed in the U.S. are being outsourced to emerging economies such as Vietnam, Taiwan, and India. It’s true that jobs have increasingly been allocated to foreign labor.
It is understandable that American industrial workers are uncomfortable with the fact that their job at Ford is now completed by laborers in Mexico or China. American workers should not be faulted for resisting free trade actions. After all, their livelihood depends on these kinds of jobs. American workers matter. They ought to be afforded a secure source of income. However, it must also be understood that it would not be in the best interest of the United States to severely or completely diminish international trade. Just as millions of American factory jobs depend on manufacturers maintaining a presence in the U.S. Millions of American and foreign jobs depend on the global market. Americans drive semi-trucks full of foreign goods. Americans steer freighter ships to foreign ports. We must not neglect the jobs, many of which are American, that are necessary to sustain the global market.
Should the United States choose to levy harsh restrictions like tariffs and quotas on imports, the likely long term outcome would not result in an American worker’s utopia, as current presidential candidate Donald Trump would have you believe. American industrial jobs might return slightly, but at the expense of corporate profitability. Corporate profitability sounds quite detached initially, but the success of the American and international private sectors is beneficial to everyone. Moreover, affordable goods, environmental consciousness, and a healthy economy, not to mention sustained American influence as an economic superpower are gains from free trade.
So why is it that many of our political leaders – including both presidential candidates – appear to oppose free trade agreements which foster economic growth? In order to answer this question, we must understand the root of this debate. The most recent example of such an accord is the Trans-Pacific Partnership. The Trans-Pacific Partnership (TPP) is an agreement among twelve Pacific nations (United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam). The pact aimed to accomplish a number of goals. To boost global economic growth, increase employment and retention of jobs, bring about technological innovation, and promote effective, responsible, transparent governance with respect to labor practices in developing nations.
If these goals can be met, then are trade agreements like the Trans-Pacific Partnership, or previously NAFTA (North American Free Trade Area) always the best solution? “No,” argues Jared Bernstein of the Washington Post, and former chief economist to Vice President Biden. As Bernstein would have it, “I’ve come to view this process as impossibly broken and essentially corrupted.” After years of working for the Obama administration negotiating free-trade agreements, or FTAs, he has come to believe that these agreements benefit the wrong people. Namely, corporate and government elites who naturally would have a vested interest in such dealings. Too often are the people, the bulk of the U.S. and global populations, left with the negative externalities of FTAs.
Unemployment, at least in wealthy, developed nations such as the United States or Germany, is the capital issue for domestic labor. Bernstein does not deny the benefits of globalization but adds a caveat. Agreements like TPP are not transparent, and furthermore, do not benefit the everyday citizen. Bernstein offers suggestions on how to curb currency manipulation – as countries such as China are often guilty of – without trade agreements. Assuming, currency manipulating nations adhere to World Trade Organization or International Monetary Fund regulations – which they may not. Bernstein recognizes the problem of domestic labor and international business, yet provides little insight into how a nation might go about expanding free trade, without trade agreements.
Bernstein believes the era of the FTA is over. Who can say? He may be right. Nonetheless, the TPP is not only a tool by which to bolster private sector efficiency. The Trans-Pacific Partnership was also designed as a means for the United States to maintain its regional influence. Doyle McManus of the Los Angeles Times cited an analysis of the agreement by Joseph A. Massey – a former U.S. trade negotiator with China and Japan “[TPP] is a way to knit countries on the Pacific Rim into a trading system that the United States helped design instead of one run by Asia’s growing power, China.”
In response to Bernstein’s position, the TPP may not be inherently good for domestic labor. But it is good for the United States as a superpower. Moreover, the trans-pacific partnership was signed, in conflict with Bernstein’s prediction. As with many aspects of economics, one cannot accurately predict the behavior of markets. Nor can one accurately predict whether nations will impose further large-scale trade agreements. As it stands, trade agreements are a means of fostering international commerce. Until a balance can be struck between internal job creation and increasingly globalized markets, trade agreements look like they are here to stay.
