Globalization and “free trade” open poorer countries to capital and opportunities from richer countries. In turn, richer countries gain greater access to existing markets and emerging markets, thus enabling them to sell more products to more consumers. This should mean the embrace of free trade agreements to accelerate globalization helps the economies of the world flourish. The election of Donald Trump with his anti-free trade agenda and the so-called Brexit should, therefore, represent a threat to the prosperity of rich and poor countries alike. These developments are, however, an opportunity for the citizens of rich and poor countries alike.
Elections and public policies that reflect anti-free trade sentiments are fulfilling the promise of democracy by allowing the growing backlash against free trade and the manner in which trade agreements, such as NAFTA and TPP, are negotiated to serve special interests to be represented in government. There is a widespread lack of faith in “free trade” and belief that free trade offers a net negative to average people. Instead of characterizing the election of leaders like Donald Trump and the Brexit as “protectionist” threats, trade advocates must recognize the follies of free trade, including the harm done to the working class of rich and poor countries, and work to foster healthy trade.
Given that domestic governments must tax businesses at uneven rates and regulate industries according to their capacities and needs while government involvement in the economy is unavoidable and workers must be paid in line with their cost of living, free trade policies do not create “free trade” and cannot offer the predicted benefits of free trade. In other words, free trade in practice does not equate to free trade in theory. The removal of tariffs through free trade agreements distorts the economy in favor of imports, thereby catering to special interests, instead of fostering sustainable trade; whereas, the removal of technical barriers fosters trade by making it easier.
With that in mind, the biggest issue with widespread, globalized free trade is that it deleverages workers and localized businesses by forcing them to compete as part of a global workforce struggling to provide for global demand. Based on “supply and demand,” a massive global workforce without enough work means workers face downward pressure on their wages. Conversely, the need to enhance global supply to meet global demand puts upward pressure on the cost of natural resources and goods. Because free trade essentially turns the global economy into a lowest bidder economy, the future bargaining power of workers in poor countries is undermined in the same way the leverage of workers in rich countries is undermined.
Businessmen like Donald Trump see the world in terms of deal making and bargaining. When the parties involved in a business deal have equal leverage and/or act to address each others’ interests, the most viable and mutually advantageous deal is likely to be produced. When one party has greater leverage over the others, that party has an advantage. When the advantage is too great and/or successive deals continually neglect the interests of the other parties, either the negotiations or the business deals will collapse. A lack of adequate leverage prevents workers and localized businesses from pursuing their interests to the detriment of the whole economy.
Celebrities and CEOs are routinely able to extort millions of dollar in pay for their services. The average person cannot do this. The reason is that affluent people have greater leverage when they are seeking compensation, i.e. the potential revenue they can make their employers affords them leverage. For most other individuals, education, expertise, union membership, professional affiliation, and a whole host of other factors give them varying degrees of leverage. Reflecting on America’s Golden Age, the much of the Twentieth Century was spent empowering the masses with greater leverage.
Some of this was accomplished by government bolstering the leverage of individuals with the force of law, e.g. the Labor Movement. This was seen with the passage of laws designed to protect worker rights, customer rights, civil liberties, and the environment. Additionally, the expansion of education afforded more people greater leverage in the economy, until too many acquired college level degrees. In other cases, nongovernmental actions, such as the organization of labor unions, allowed individual workers to establish an equal footing against abusive corporations.
In the 1980 and 1990's, the push for accelerated economic globalization forced workers in wealthy Western countries to directly compete against those working in under-regulated, under-taxed, far poorer nations. NAFTA, for example, was sold to the American People as an opportunity to gain access to new markets and cheaper goods, even though cheaper, less durable goods do not increase living standards. In general, NAFTA deleveraged workers in the US, Canada, and Mexico. China's special trade status was an even bigger assault on individual power due to the size of the Communist country.
In contrast, the formation of the Europe Union helped give the US a stronger economic partner and allowed the Europeans to balance American influence in the global economy. Unfortunately, it also created layers of bureaucracy that put distance between the Peoples and their democratically elected leaders, thereby undercutting the democratic authority of individuals. In all, the over "liberalization" of international trade undercut the ability of governments to tax, regulate, and protect their national economies, thus neutralizing the leverage governments had once extended to their Peoples. In other words, countries outsourced their economic sovereignty and deleveraged their Peoples.
Clearly, there are benefits to free trade, but there are also costs and those costs have created financial problems for average people. Unfortunately, most of the pro-free trade arguments tend to be one-dimensional while neither side can fully support their conclusion. Quite frankly, the endless back and forth between free trade opponents and advocates has done little to address public concerns or support better economic policies. In other words, politics and socioeconomic forces are polarizing people into two camps: those who support free trade and those who resist trade with true protectionist policies, which nearly guarantees a global trade war.
In theory, a trade war is devastating to an economy, because it creates barriers to trade, thus starving the economy of economic activity. Not only do increases in tariffs raise import and export prices, they undermine the sustainability of global production by raising the cost of outsourcing too quickly. Sharp increases also create a lack of uncertainty, which inhibits consumer spending and capital investment, thus helping to stall and destabilize the economy. Instead of feeding opposition to trade and provoking a dramatic embrace of trade wars, which the American People do not seem to fear, the best course is, therefore, to turn to diplomacy.
The economic interests of trade partners shift very rapidly with the changing nature of the economy, especially in an era defined by democratic uprisings and a pull back from rapid globalization to community-centered thinking. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests. NAFTA and TPP do not include maintenance provisions. A stable global economy depends on healthy national economies; therefore, national economies must be built on industries that serve the local needs of a people with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy. In order to avoid a global trade war and turn anti-free trade developments into opportunities through diplomacy, trade agreements must be recalibrated to reflect the economic interests of average people in all countries.
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