Why Free Trade is in Trouble


Last night I was reading a piece that Paul Samuelson wrote 12 years ago titled “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization”. It talks about comparative advantage and how this principle is a core long term economic fact and will prevail.


This is no doubt still true, and the piece does concede that in the Short Term things could get out of kilter.


My take on all this is that a combination of the internet/software/technology, the comparative advantage that the US rode out of WWII has now been disseminated around the world, a world where wages are lower than here. What this means is that many areas of comparative advantage in the US have disappeared. What the US has to do is, i.e. figure out new areas where we still have comparative advantage in basic production operations. The current situation is highly focused on producing products which are produced by highly educated people whose ideas are easily stolen by the mechanisms in place. This results in reducing the comparative advantage of the more efficient basic US production worker.


And that, I would offer, has brewed the middle class revolution.




Maybe tight limits of transference of software and technology for use in foreign countries, whether the software/technology is used by foreign companies or foreign subsidiaries of US companies. US production facilities would use the highest level of technology and older generations could be leased/sold to foreign entities. This would mean US based workers would have the advantage of the core comparative advantage that we possess.



Autumn Cote Added Aug 19, 2016 - 11:16am
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Eureka-Perspectives Added Aug 19, 2016 - 2:08pm
I know, but quite frankly I try to stay somewhat removed from a lot of what is said in the blog, I guess maybe I am not a debater, I say what I think, then move to other things.
John Minehan Added Aug 19, 2016 - 2:41pm
A pundit named John Robb believes that where anything can be made anywhere, Ricardo's idea of "competitive advantage" is largely nullified.
I tend to think that cheap labor and less technology is cheaper than a technological solution that may be more productive but comes at a higher capital cost in PP&E. 
Mike Haluska Added Aug 19, 2016 - 2:41pm
Don - the legislation being touted as "Free Trade" has absolutely NOTHING to do with genuine Free Trade.  If it did, why would it need to be 50,000 pages long?  Free Trade is defined as a total relaxation of artificial barriers to trade such as tariffs, duties, limits, etc.  How much paper do you need to describe that?
Here's the dirty little secret that the Crony Capitalists, mainstream media and politicians (let's call them the Cabal) don't want you to know:
Everyone in the Cabal stands to personally benefit financially in a huge way because they are rigging the Free Market's ability to pick winners so that the stock the Cabal has already invested in.  The LAST THING these guys want is a unpredictable free market where they stand a chance to lose money.  It is as if the Mafia picked the Kentucky Derby winner 3 weeks before the race and poisoned the other horses in the race.  If an audit was conducted of the Cabal Congressional members, I guarantee that they ALL (Dem & Rep) have invested hugely in the pre-determined winners. 
Bill Kamps Added Aug 19, 2016 - 4:41pm
Don, first of all free trade is really not free, because all countries try to carve our some advantages, but I get your  point.
For too long the  USA has sat on its advantage, and not taken the competition to heart.  So that is part of the problem.  Another part of the problem is that we have a lot of old laws laying around that encourage workers to move overseas and discourage profits from being brought back to the USA.  These laws were put  in place in the 50s and 60s when we wanted to help other countries develop, they have, and now they compete with us still using our help.
Finally a big one.  We need to encourage a more even playing field.  Part of the reason our costs are higher is because we comply with minimum wage laws, with OSHA, with the EPA, and so on. If the playing field for these laws were more level, then the overseas costs would be higher, and so would wages. We need to base tariffs more on compliance with similar worker regulations, and pollution laws.
George N Romey Added Aug 21, 2016 - 1:32pm
Free trade should not be confused with labor arbitrage, which is what free trade for the US has been mostly about.