The governments of the world should engage in constructive cooperation instead of destructive competition to build healthier national economies. What the governments of the world should not do is engage in cooperation that forces the Peoples and businesses of the world to over compete against each other to their detriment.
With Senate Republicans awarding a President Obama "fast-track" authority to negotiate the Transpacific Partnership (TPP), Mr. Obama and his counterparts in the other 11 TPP countries need to keep this in mind as they negotiate this massive trade deal. They must also recognize more trade does not necessarily have to mean more free trade.
An economy exists solely to distribute a nation’s resources in the most efficient manner possible by encouraging efficient consumption, innovation, and the development of improved production. In other words, the economy exists to provide for the growing needs and wants of people.
The biggest issue with unfettered 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. Ultimately, workers and their families face lower incomes and greater costs.
As the US is both rich in labor and financial capital, America needs financial capital to generate jobs that support a massive workforce with a broad range of skills and technical knowledge. The fact that America is the world’s wealthiest nation dictates labor costs and other operating costs will certainly be higher than those in poorer countries. After all, simply surviving in a developed country, let alone thriving, requires a higher income and access to modern amenities
That said, more than just Americans can be hurt by free trade. Free trade essentially turns the global economy into a lowest bidder economy where market forces pressure consumers and businesses to continually seek out lower costs. Because free trade costs workers in poor countries the leverage needed to negotiate improved wages and living standards, these countries and Peoples will stay poor, even if they see a modest, temporary increase in their living standards.
Furthermore, the economic interests of trade partners shift very rapidly with the changing nature of the economy. As such, trade agreements must be recalibrated regularly to reflect shifting economic interests. Unfortunately, NAFTA and TPP do not include maintenance provisions. Because these trade agreements do not shift with national economic interests, they can do great harm to economies by locking in the undermining effects of free trade.
Because the US, as the world’s largest economy, engages in free trade, it is far more difficult for poorer countries to say no to lower taxes and less regulation. Adding the most populous region, i.e. Asia, into the mix will only make it that much more difficult to reduce the negative impact of free trade. Fortunately, this also means the United States has the power to set the terms of TPP, so the trade agreement provides the greatest benefits with the smallest costs.
Globalization during the Clinton era, when NAFTA was crafted, meant economies should be built to service global demand with each country offering a selection of specialized goods. Because this model creates a fragile global market built on global pricing of overly relied upon goods and price suppression, it can only sustain poverty with marginal improvements in living standards, until the system collapses.
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. After all, a stable global economy depends on healthy national economies.
If a foreign country has an established, efficient industry, which does not cater to vital national interests, that can deliver an equivalent and/or superior product and there is a weak or nonexistent domestic industry, free trade can be beneficial as it can be used to remove trade barriers to established industries in exchange for the same benefit. This can translates into lower priced goods with few economic disruptions to domestic industries.
Absent this scenario, i.e. a clear coequal exchange of economic benefits, free trade is an industry killer, because it disadvantages the already mature, often more expensive, domestic industry and favors investment in cheaper options, especially when it comes to cheap foreign labor.
As the Obama Administration and US trade partners negotiate TPP, they must remember free trade is not always in the interests of their Peoples, their local businesses, and their governments. They need to be willing to walk away when trade will hurt their countries.
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