Trade, Free and Rough

Of the many subjects of current debate that are -- let's admit -- far over the head and beyond the comprehension of the average citizen (if not their elected representatives, although they are under suspicion as well), one of the most exasperating is that of "free trade". One reason for this is that it doesn't boil down to simple political affiliations; there are conservatives who are free-trade advocates and conservatives who are against it, and the same for liberals. Libertarians, of course, tend overwhelmingly to favor free trade, the way they favor free everything else -- uncoerced exchanges, that is, not food, shelter, and clothing. Most of the arguments one hears or reads tend to be on the emotional side, however. Unfree trade favors fat-cat domestic corporations and corrupt unions. Free trade favors fat-cat _international_ corporations, kills jobs domestically, and also gives China the upper hand in the world economy. Unfree trade means I get less for my dollar. Free trade means I get more, but it's all made in China and sold by Wal-Mart. Unfree trade preserves unique and/or high-quality American goods and services. Free trade encourages competition and discourages monopolies and "trusts", i.e. conspiracies to restrain trade or artificially inflate prices. And so in, ad infinitum. When it comes to the direct effect on my pocketbook, if I'm a worker in one of those industries that have been NAFTA'd, or otherwise moved off shore, I'm going to look at free trade about the way the Romans looked at the Huns. But if I'm secure in my job, and the "union label" goods cost twice what the stuff from China costs, I'm going to see unfree trade as blatant protectionism at my expense.

Now, I didn't fire up this post in order to straighten out anyone's thinking on this issue, because, frankly, I don't understand the ins and outs of it myself. It strikes me that, in principle, one ought to be able to buy and sell with anyone one pleases, without constraint by the government or any other entity. A sales tax at the same rate as a domestic exchange might be acceptable, on the premise that it's a not-unreasonable way to pay for government operations, but protective tariffs would be out. On the other hand, I can see how a domestic provider of goods and services might be a bit sore about the fact that someone overseas is willing to provide the same things for half -- one-third -- one-tenth the cost. I might even feel a bit of "solidarity" with that person. It might even get me to "buy American"... unless I can get a _really_ good deal somewhere else, of course.

Now, I say again, what I don't know about economics would fill volumes. But it seems obvious to me that money will tend to flow toward less-expensive products, other things being equal. And jobs will tend to flow in the direction of lower wages (a composite of, among other things, lower minimum wages, lower wage expectations based on a more modest standard of living, and less influence from organized labor). Goods will, of course, flow from Point A to Point B as long as the people who live in Point B have the cash to pay for them. (This is why the "balance of payments" problem baffles me completely. Wouldn't you _expect_ that people with _more_ money would naturally tend to purchase labor -- in the form of goods and services -- from people with _less_ money? And that, therefore, money will always flow _from_ the richer country to the poor country?) (But the poor country stays poor because the money that comes in is either hoarded by an elite, or distributed among a much larger population than that of the rich country. And, they don't demand as much for their labor. The rich country stays rich because they have their _own_ resources -- their own marketability -- which fetches a higher price than the goods and services offered by the poor country. At least that's how it appears to work most of the time.)

Well, anyway... it also strikes me that our trade problems, and balance of payment problems, are concentrated primarily on trade relations with third-world countries (and China -- whichever "world" it's in these days). How often do you hear about a trade issue involving us and Sweden? Or Switzerland? Or even France? It seems that the argument _for_ free trade is basically an argument about everyone getting the most for their money. One way of helping this along is to encourage specialization and division of labor among countries. Another way is by making the _natural_ resources of countries more generally available to other countries -- mediated through trade, of course. (Scotland has the perfect climate, soil, etc. for producing superior single-malt Scotch, for example. Cuba has the best tobacco-producing soil on earth. But we can grow oranges and make maple syrup. So by us buying their specialty products we are also buying a share in their natural resources, which we would be hard-pressed to duplicate ourselves. And vice-versa for them.)

But now some clues are starting to develop. If you have two countries with a comparable standard of living, _and_ a comparable cost of living -- since these are not necessarily correlated -- free trade between the two amounts to a win-win situation, since neither jobs nor goods will flow disproportionately from one to the other. This is not to say there would not be a need for occasional adjustments. An Italian watchmaker might have to go into the wine business, and the Swiss winemaker (assuming there even is such as thing) might have to start making watches. What this amounts to is increased efficiency, i.e. free trade allows each participant to do what they're best at, and leave the rest to someone else. And, of course, free trade is highly dependent on efficient transportation. If we can get wheat from North Dakota to the East Coast in one day, we don't need to have wheat farming in Vermont. On the other hand, we still need dairies just about everywhere, because milk simply doesn't lend itself to long-distance hauling. But there are no forces in place which will seriously threaten people's livelihood in the long run, or their standard of living.

On the other hand, let's say you have an "advanced" country dealing with a "primitive" country. If the goods and services are of such a type that they are not readily moved, the situation is still viable. The advanced country can supply higher-technology products in smaller amounts in exchange for low-tech products in large amounts. Think "banana republics" buying telephones, TVs, and cars from us in the 1950s. You can get a lot of bananas for one TV set. But it works out, and no one loses their job, and the respective standards of living remain stable.

The difference between that scenario and the one facing us today is that most of the goods and services in question can be made, or provided, from a wide range of "platforms". We don't have the logistical and climatic constraints we had formerly. In addition, people world-wide are acquiring specialized skill sets that would have been very difficult to achieve not that many years ago -- partly because of the Internet, and partly as a result of the level of trade (including that in education and technology) that already exists. So the process is self-amplifying. But even this is not the crucial factor. That, I believe, is simply the fact that, so far, the expectations of third-world people when it comes to standard of living are simply much lower than ours. In fact, one might even _define_ "third world" not only on the basis of standard of living, but of expectations. And, one might expect that, in the _very_ long run, third-world people will exert increasing pressure to become "first worlders", and demand higher wages, better living conditions, etc., which will, in turn, reduce the economic gap which is causing the "industry drain" and trade imbalances that have everyone so worried today. But that is in the long run, and the process could take a few generations to bear fruit. In the meantime, we might start looking a lot more like third-world people than they start looking like us.

Now, to get back to the "principle of the thing", the libertarian response to all this might be, well, too bad, we'll just have to stick to what we do best (which is... ??) ("cheesesteak" sandwiches come to mind) and let them do what they do best, and accept the economic consequences. If money always seeks its own level (which it does, if unconstrained), and wages are a product of supply and demand (which they are -- again, if unconstrained), then we may, indeed, find that equilibrium is not reached until the American worker has the same lifestyle as the Swedish worker who has the same lifestyle as the Bangladeshi worker. At that point, "free trade" will be a threat to no one. (And, no one will be able to afford to buy anything either.) Prices for goods and services would still vary based on logistical considerations, of course, but labor would cease to be a factor. In fact, prices would be based largely on the number of hands (of workers all receiving the same compensation) something had to go through between the source and the consumer. So, just like now, Caspian Sea caviar would be more expensive in New York than on the shore of the Caspian Sea -- but not because the caviar workers in Russia were making any less than the waiter in New York, just that the waiter is the end of a very long line of "processors".

So the libertarian response, while attractive in theory, or considerations of "fairness" on a global level, are not likely to satisfy the steelworker in Pittsburgh who would rather live with his family in his own 6-room house than live with the same family in the single room that the Indian steelworker in Calcutta can afford. (And let's not get distracted by "cost of living". Cost of living is nothing more than an intervening variable, or measure, between wages and _standard_ of living. I don't care whether a loaf of bread costs two dollars or one hundred rupees -- what I want to know is how long do I have to work to pay for it?) Besides, where is it written that what is "libertarian" in the domestic context has to extend world-wide? We say, subject the American economy, as much as possible, to the law of supply and demand. But does that require us to impose the same requirement on the world economy? And should an American citizen's "rights" vis-a-vis domestic exchanges be directly extended to the same "rights" vis-a-vis exchanges on the world market? If we can establish, for example, that the net effect of unresticted trade with any and all other countries is negative, when it comes to the aggregate standard of living of Americans, does our loyalty to supply and demand require us to ignore that fact and let the chips fall where they may? This seems to be the position of the government -- both the administation and Congress, and of course it's the position of the firms that are benefiting from the lowering of trade barriers. The unions, of course, have their own agenda, and it's interesting that they have been betrayed by -- as much as anybody -- the very same liberals who look to them for their most unswerving support at election time (and continue to get it! -- which is even more amazing).

I'm not even close to having any answers to these questions. I'm just trying to open up an area of discussion that can home in on these issues without losing sight of the broader concepts of economic freedom. There might be a point at which we have to say, well, it's time to relinquish a bit of dogma and absolutism in favor of the (gasp!) greater good. What point that would be, and what practical application it would have in the current situation, is to be determined. "Comments welcome."