Free Trade is Harming America?

Free Trade SignIs free trade really helping america? Is free trade really fair trade? There are many questions that I often think about regarding Americas international trade policy and how it has effected our economy over the past few decades and where we stand today compared to where we were back in the 1960s and early 1970’s, when we got away from more trade protectionist policies.

There are some brilliant observers out there that have questioned who really benefits with a unilateral free trade policy like the U.S. has had for several decades now.

Charlie Munger, Warren Buffett’s business partner for 30+ years with Berkshire Hathaway brings up perhaps the best point of discussion regarding Free Trade that the typical short sighted “economist” might easily discard:

Everybody in economics understands that comparative advantage is a big deal, when one considers first-order advantages in trade from the Ricardo effect. But suppose you’ve got a very talented ethnic group, like the Chinese, and they’re very poor and backward, and you’re an advanced nation, and you create free trade with China, and it goes on for a long time.

Now let’s follow and second- and third-order consequences: You are more prosperous than you would have been if you hadn’t traded with China in terms of average well-being in the U.S., right? Ricardo proved it. But which nation is going to be growing faster in economic terms? It’s obviously China. They’re
absorbing all the modern technology of the world through this great facilitator in free trade and, like the Asian Tigers have proved, they will get ahead fast. Look at Hong Kong. Look at Taiwan. Look at early Japan. So, you start in a place where
you’ve got a weak nation of backward peasants, a billion and a quarter of them, and in the end they’re going to be a much bigger, stronger nation than you are, maybe even having more and better atomic bombs. Well, Ricardo did not prove
that that’s a wonderful outcome for the former leading nation. He didn’t try to determine second-order and higher-order effects.

If you try and talk like this to an economics professor, and I’ve done this three times, they shrink in horror and offense because they don’t like this kind of talk. It really gums up this nice discipline of theirs, which is so much simpler when you
ignore second- and third-order consequences.

Does America really benefit in the long run when we bring all the technology to a place such as Japan after World War II, or China in the last 2 decades?

Almost unanimously economists agree that a strong flourishing middle class is the secret to a stable, thriving nation. Yet it can easily be seen that Free Trade has been a major cause in a lot of jobs leaving America, thus more people unemployed, and thus wages stagnating and reaching a situation like America is dealing with now, Killing the Middle Class?

Are we really better off with a nation with 1.3 Billion People having far superior factory output and soon military strength as Munger eludes to above? Is free trade accelerating the decline of America’s Quality of life?

The old adage of everyone else in a society benefits by lower prices for goods, well tell that to the guy that lost his job due to overseas competition, with no job, how do they get these great savings?

Leave a Reply