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Browsing Posts tagged Free Trade

There are believers that have faith in Free Trade such as multinational agriculture corporations, transnational firms, and job retraining specialists in need of work but it seems America is waking up to the damage inflicted on everyone else by so-called Free Trade.  Even folks that haven’t read the Shock Doctrine by Naomi Klein know the deck is stacked against them.  Jeff Madrick  looks at where we’ve been and where we’re going in Our Misplaced Faith in Free Trade...

The skeptics are on to something. Free trade creates winners and losers — and American workers have been among the losers. Free trade has been a major (but not the only) factor behind the erosion in wages and job security among American workers. It has created tremendous prosperity — but mostly for those at the top.

Little wonder, then, that Americans, in another Pew survey, last winter, ranked protecting jobs as the second-most-important goal for foreign policy, barely below protecting us from terrorism.

Many economists dismiss these attitudes as the griping of people on the losing end of globalization, but they would do better to look inward, at the flaws in their models and theories. Since the 1970s, economic orthodoxy has argued for low tariffs, free capital flows, elimination of industrial subsidies, deregulation of labor markets, balanced budgets and low inflation. This philosophy — later known as the Washington Consensus — was the basis of advice the International Monetary Fund and the World Bank gave to developing countries in return for financial help.

The irony is that during the Industrial Revolution, today’s rich countries — Britain, France and the United States — pursued the very opposite policies: high tariffs, government investment in industry, financial regulations and fixed values for currencies. Trade expanded, and capital flowed anyway.

So how did we get to this point?

Starting in the 1970s, however, under the influence of free-market enthusiasts like Milton Friedman, economists urged further removal of barriers to trade and capital flows, hoping to turn the world into one highly efficient market, unobstructed by government.

The results were often disastrous. The lowering of protective tariffs did not lead to rapid growth in Latin America, which stagnated in the 1980s.

Mr. Friedman’s acolytes also urged the reduction or elimination of capital controls — starting in the 1970s in the United States, and in the 1980s in Europe — along with lower tariffs. This, too, was ruinous. An exodus of short-term investments contributed to financial crises in East Asia, Russia, Argentina and Turkey in the mid-1990s, and to the collapse of the Long-Term Capital Management hedge fund in 1998 (a prelude to the 2008 crisis).

Though these mistakes were recognized, the World Trade Organization continued to push one-size-fits-all rules, premised more on ideology than experience, that hurt developing countries.

If the one-size-fits-all, we are all one happy family Free Trade theory doesn’t work, got any better ideas?

But the consensus was flawed. Even free-trade advocates now admit that American wages have been reduced as a result of outsourcing, the erosion of manufacturing and an ever-increasing reliance on imports. Middle-income countries, meanwhile, have been blocked from adopting policies that might make them world-class competitors. Nations that have ignored the nostrums of the Washington Consensus — China, India and Brazil — have grown rapidly and raised their standards of living. Improvements in poverty and inequality occurred in Latin America only in the 2000s, after the I.M.F. and the World Bank reduced their grip on those nations.

Expanding global markets is a worthy goal, but history offers lessons that can lead to more constructive trade, capital and currency policies.

The first is that gradual reform is more effective than a sudden turn to free markets, deregulation and privatization. Shock therapy in Russia was a failure, and nations from Argentina to Thailand paid a dear price for liberalizing capital markets too quickly. The historical models of sustained growth are clear: gradual development of core industries; economic diversification; improvements in literacy and education, especially for women; slow, deliberate opening of capital markets; and the protection of labor from abusive pay and working conditions.

So should the U.S. continue to pursue the Trans-Pacific Partnership and Free Trade with Europe?

Any trans-Pacific agreement, its terms still a secret, should be discussed in the open with ample protection of worker rights and healthy debate over regulatory changes requested by developing countries or big business. A trade agreement with the European Union makes more sense, but the danger is that environmental, financial and product-safety regulations will be watered down to meet the demands of corporate interests.

Economists are correct that free trade need not be a zero-sum game. But the genuine gains in prosperity from free trade can be maximized, and broadly shared, only if the policy errors of the past 40 years are properly understood.

Forbes has this article by Eamonn Fingleton that points out how thirty years of free trade policies has destroyed the very foundation of American power.  Ironic, since Forbes has promorted these trade deals at every opportunity.  That said, kudos to them for publishing this piece, an important read, which gets to the source of our current problems both foreign and domestic.

Deliberations at the current NATO summit in Wales may or may not produce a reduction in tensions over Ukraine. But one thing is certain: irrespective of how the stand-off is eventually resolved, Vladimir Putin will emerge with his reputation powerfully enhanced. Basically Putin is the new Napoleon, and the Ukraine crisis is his diplomatic Austerlitz… .

As for Barack Obama’s reputation, don’t ask. A Google search this morning for “Obama + wimp” produced more than a million hits. Nothing that he or his aides are likely to achieve in Wales will do much to improve his image. …

The problem is not Obama; it is America. Over the last sixty years, and in particular over the last thirty, America has thrown away almost all the once vast leverage it enjoyed to set the global diplomatic agenda. …

1.   Production technology. Things are different now. The problem is that if you don’t produce much, you don’t have much production technology. Any nation that seeks transfers of the most advanced production technology these days must go elsewhere…

2.   Finance. As by far the world’s largest exporter of capital in the early post-World War II era, the United States was once courted by any nation in need of external financing. That was a lot of nations. Unfortunately the United States has long since migrated from being, on net, a capital exporter to a capital importer. For decades now it has ranked among the ne’er-do-wells of modern diplomacy with a begging bowl constantly out for foreign capital inflows. …

3.  Trade. In days of yore when the United States protected its markets, its allies and other foreign nations vied with one another for privileged access to those markets. Not anymore. Now that the United States has bought into global free trade via its entry into the World Trade Organization, it has unilaterally signed away all the enormous leverage it once enjoyed in trade relations.


Dean Baker dissects a Financial Times pro-Free Trade editorial with Enough Magical Thinking On Trade.

In fact econometric studies have shown that, consistent with economic theory, trade has been a source of downward pressure on the wages of the 70 percent of the workforce that lacks a college education. The basic story is that we put our manufacturing workers in direct competition with low paid workers in the developing world while protecting our doctors, lawyers, and other highly paid professionals. The predicted and actual result is lower pay for the vast majority of U.S. workers.

In additional to the negative impact of current trade patterns on wages, there is also the simple problem of the massive loss of demand due to the trade deficit. We currently import $500 billion a year more than we export. This is $500 billion that is creating demand in Canada, the European Union, Mexico, and elsewhere, rather than in the United States. Is there some story as to how domestic consumption or investment is somehow larger because of this trade deficit? If so, it would be worth a Nobel Prize if someone could lay it out with a straight face.

The $500 billion trade deficit, coupled with a standard multiplier of 1.5, translates into $750 billion of lost annual output (roughly 4.5 percent of GDP). This in turn would come to about 6 million jobs. That is close to enough to get us back to full employment. That would give workers enough bargaining power to secure real wages. So yes, trade is a big deal.

It is also worth noting that the “trade” deals currently on the table, the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Pact, have little to do with trade. Both are primarily about putting in place a pro-corporate regulatory structure that would almost certainly not pass in Congress through the normal process or in any other democratically elected parliament. It will also include increased protectionism in the form of stronger patent and copyright protections. These will have the effect of raising prices, slowing growth, and costing jobs.

Michael Stumo of the Coalition for a Prosperous America rips the New York Times for their antiquated view of trade policy in a recent op/ed.  His  results based logic blows holes in the argument from New York.   You can almost feel Mr. Stumo’s disgust, kind of like the cowboys in the old commercials for Pace Picante Sauce.

This episode of Democracy Now features a discussion of how TISA – A new trade agreement pushes global financial deregulation.  This has been negotiated in secret and the details would not have been released for 5 years post-enactment!  You know there has to be some great stuff for everyone to keep it secret that long.

Public Citizen hits Free Traders in the Solar Plexus with this comparison of claims made to promote past trade agreements and the results with the claims currently being made for the Trans-Pacific Partnership. Priceless!

The report also catalogues decades of trade-pact foreign policy claims, revealing that recent administration arguments for the TPP echo, nearly word-for-word, the sales pitches used for past pacts. For example, Vice President Joe Biden recently called the TPP “a symbol of American staying power,” mirroring the 1993 NAFTA pitch by then-U.S. Rep. Dan Glickman (D-Kan.): “NAFTA has become a critical and yes, symbolic test of U.S. leadership.”

The many unfounded foreign policy claims that repeatedly have been used to push past FTAs and that are being recycled today to pitch the TPP include:

  • NAFTA: In 1993, then-U.S. Sen. John Kerry (D-Mass.) advocated for NAFTA, saying it would “contribute to the growth and the maturity of the Mexican economy and thereby alleviate some of the potential for social and political explosions which could set back progress.” But after 20 years of NAFTA, Mexico’s average growth rate ranked 18th out of the 20 Latin America nations. Indeed, NAFTA contributed to significant poverty and instability within Mexico by enabling a flood of subsidized U.S. corn that eliminated the livelihoods of 2.5 million Mexican farmers and agricultural workers. The mass dislocation contributed to a doubling of migration to the United States in NAFTA’s first seven years and fueled the violence of Mexico’s spiraling drug war. NAFTA failed to prevent the “social and political explosions” Kerry feared; if anything, it contributed to them.
  • CAFTA: In 2005, then-U.S. Sen. Bill Frist (R-Tenn.) argued for the Central America Free Trade Agreement (CAFTA) by saying: “Hugo Chavez moves Venezuela closer and closer to Castro every day. These regimes tend to work to spread their brutal methods and totalitarian philosophies, trying to infect the rest of Latin America and we simply cannot let them succeed. … By linking [Central America’s] economies with democratic capitalism, CAFTA will help gird these nations against the threats at their door.” Soon after CAFTA took effect, most CAFTA nations established close economic and political ties with Venezuela – the Dominican Republic, Honduras, Guatemala and Nicaragua all signed pacts with Venezuela to receive subsidized oil soon after CAFTA took effect.
  • Colombia FTA: In 2011, then-U.S. Rep. Geoff Davis (R-Ky.) pushed for passage of the Colombia FTA by arguing, “The trade agreement with Colombia will advance our national security interests by providing Colombians with alternatives to the drug trade.” Davis’ argument directly contradicts that of Colombia’s own Minister of Agriculture. Before the FTA was passed, the minister predicted that if the deal took effect, Colombian farmers would be unable to compete with an FTA-enabled influx of subsidized U.S. crops and “would have no more than three options: migration to the cities or other countries (especially the United States or bordering countries), leaving to work in drug cultivation zones, or affiliating with illegal armed groups.” In August 2013, thousands of Colombian farmers, facing falling incomes and displacement, blocked highways, launched a national strike and called for the repeal of the FTA.

“The TPP should be debated on the merits of its actual provisions and their likely outcomes, not on the basis of rehashed foreign policy talking points and national security hyperbole that have proved false in the past and that bear little connection to the actual TPP text,” said Wallach.

One of the best Senators in the country, Elizabeth Warren, reveals some beltway secrets surrounding the proposed TPP and Trans-Atlantic trade deals…

One of Senator Elizabeth Warren’s top priorities since coming to Washington has been opening up ongoing international trade talks to public scrutiny—she has, on several occasions, criticized the secret nature of the negotiations, and has pressed the administration’s trade representative directly about transparency.

On Wednesday night in DC, at Public Citizen’s annual gala, Warren spoke about the trade deals in some of her most direct remarks to date on the issue—and revealed some inside details about the debate in Congress.

“From what I hear, Wall Street, pharmaceuticals, telecom, big polluters and outsourcers are all salivating at the chance to rig the deal in the upcoming trade talks. So the question is, Why are the trade talks secret? You’ll love this answer. Boy, the things you learn on Capitol Hill,” Warren said. “I actually have had supporters of the deal say to me ‘They have to be secret, because if the American people knew what was actually in them, they would be opposed.’”

From there, Warren launched a direct broadside on the trade deals, which would include the Trans Pacific Partnership Agreement, and suggested it should be scuttled.

“Think about that. Real people, people whose jobs are at stake, small-business owners who don’t want to compete with overseas companies that dump their waste in rivers and hire workers for a dollar a day—those people, people without an army of lobbyists—they would be opposed. I believe if people across this country would be opposed to a particular trade agreement, then maybe that trade agreement should not happen.”


The recently launched has released The Trad-y Bunch, a look back at all the promises made by lots of different policymakers.  One thing in common were the results – lost American jobs and exploding trade deficits leading to both state and federal budget deficits.

Free Trade has been one of the main tools used by Alan Greenspan to further his stated goal of “maintaining a certain level of job insecurity.”

From our friends at the Coalition for a Prosperous America…

 Voters by a 2-to-1 margin oppose Fast Track authority to pass trade deals, according to a new poll by Hart Research released today.

By a 62 percent to 28 percent, voters are against Fast Track, which would force Congress to make an up-or-down vote on trade deals, according to Guy Molyneux, a partner with Hart who presented the findings on a conference call with reporters. The poll results, said Molyneux,

…would set off alarm bells in any campaign in the country.

Republican voters are especially opposed to Fast Track, with 87 percent against it and only 8 percent in favor. That is significant since the bill is likely to move first in the House, which has a Republican majority.

Molyneux said the public is increasingly concerned about and opposed to trade deals. By a 2-to-1 ratio,  Democrats, Republicans and Independents all think trade deals hurt more than help the country. And voters’ top priority is preventing U.S. jobs from going overseas.

Fast Track elicits intense opposition from 43 percent of voters, who say they are less likely to vote for a member of Congress who supports it. According to Hart,

Demographically, opposition is very broad, with no more than one-third of voters in any region of the country or in any age cohort favoring fast track.

And in more great news for opponents of job-killing trade deals like the Trans-Pacific Partnership, Senate Majority Leader Harry Reid said he opposes legislation to speed approval of trade deal. Bloomberg News reported,

“I’m against fast track,” Reid told reporters in Washington today. Asked whether he would block a floor vote on such a measure, he said, “We’ll see.” He said the Obama administration and top Senate Democrats are aware of his position.

“Everyone would be well-advised just to not push this right now,” said Reid, a Nevada Democrat.

This segment of Bill Moyers and Company features Yves Smith and Economist Dean Baker discussing the secrecy surrounding the supposedly free trade agreement known as  the Trans Pacific Partnership (TPP).  This 33 minute video segment exposes how this agreement will raise prescription prices among many other ways that investors will be protected at the expense of consumers in all nations. There are numerous examples of this agreement using “free trade” to establish a transnational regulatory state.

Want America to weaken the power of our elected legislators and allow foreign nations to challenge our laws?  That’s one consequence of TPP.

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