Tuesday, July 05, 2016

"Free Trade Good!!" Really??

Now another moment of dissent about free trade.

...U.S. economic growth before the early 1970s, when the first crucial decisions were made to keep America open to the exports of a developed world fully recovered from World War II, was considerably faster (and by all accounts more inclusive) than it’s been afterwards. If you’re skeptical, take a look at these charts, which compare the best pre-1970s American economic expansion (during the 1960s), with the best post-1970s expansion (during the 1990s)....

The linked charts tell the story pretty well.  The fun starts at Chart Five, where it becomes clear that the US' growth pre-'free trade' and post-'free trade' are different.  Manufacturing simply doesn't have the traction post-NAFTA that it did in the 1960's, and manufacturing throws off a lot of free cash which then fuels the service and retail sectors.

Tonelson does not claim that free trade is the source of ALL woes.  But:

...Consider the data-supported claims that a big reason for recent growth woes (even before the financial crisis and ensuing Great Recession) has been weak domestic business investment. I’ve pointed to evidence that the problem hasn’t been feeble capital spending as such, but a growing tendency for that spending to be made on multinational companies’ foreign facilities. It’s clearly reasonable to argue that such spending has been made a lot more profitable by trade agreements that encourage these companies to supply the high-price U.S. market from super-low cost foreign countries in the developing world. ...

Is it only "labor costs" in those super-low-cost countries?  Hardly.  In the real world, the US assigns enormous burdens to manufacturers:  environmental costs, health-care costs, unemployment comp costs, tax costs, "equal opportunity" costs......the list is very long indeed.  (In fairness, these costs have an upside for lawyers.)

He concludes the essay thus:

...the big takeaway here is that the conventional wisdom on trade and growth is anything but unassailable – and that there’s an excellent chance that the trade-skeptic public understands the real relationship better than the self-appointed experts....


By the way, there's an even more alarming essay on the genesis of "Free Trade" available at Cold Fury.

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