I Get Emails: Free Trade

From a RWN reader and advertiser:

In one of your post-Nov 7 posts you mentioned that Republicans should be the party of free trade.

I don’t know whether I support free trade or not.

My conservatism is grounded in national security and a belief that economic competition usually produces the best results. However, it seems like the free trade wing of the Republican Party (Larry Kudlow, Steve Moore of Club for Growth) are willing to sell our national security, sovereignty, and culture to the highest bidder and honestly don’t care about the consequences.

The two most obvious examples are Dubai Ports and the illegal immigration invasion. I’m beginning to think these free trade guys are as dangerous as people like Dennis Kucinich who are hypnotized by a theory that blinds them to reality.

Economic competition is great on a level playing field but why should we let all our steel refineries go overseas? That seems like a real national security vulnerability….

What do you mean when you say you support free trade?

Well, first of all, I don’t consider illegal immigration to fall under the banner of “free trade.” And, as far as the Dubai Port Deal goes, that turned into more of a debate over national security than a debate over free trade.

Free trade issues generally center around things like the steel tariffs, NAFTA, and CAFTA. As a general rule, I’m against protectionism and tariffs and for free trade agreements, including NAFTA and CAFTA.

Overall, free trade agreements help boost the American economy. They get our goods into new markets and they get cheaper goods on sale here in the US.

Now, understandably, there are a couple of groups of people in particular who tend to get hurt by free trade. The first group is union members. That’s because of the way the laws are written in the US which gives union members a big advantage over management and allows them to inflate their wages and benefits to far higher levels than the market would normally bear. Then, the other group that gets creamed are low skilled people in manufacturing jobs. In the past, even if you weren’t well educated or talented, you could still get a “good job” doing some sort of repetitive labor at a factory. Because of the nature of the marketplace, jobs like that are on the way out in the United States and there’s not a lot to be done about it.

That’s because we’re really in a global marketplace. In a lot of industries, you’re not just competing with the business down the street, you’re competing with firms in Germany, Japan, and Sweden that are trying to take your business. If you’re paying an American workforce $25 an hour plus benefits to do the same jobs that they’re paying people from India or Mexico a $1 a day to do, you’re not going to be able to compete.

That’s something a lot of people miss. You’re not just competing with the guy down the street to stay in business any more, you’re competing with businesses worldwide. And in that kind of environment, protectionism and running from free trade hurts the economy overall.

Look at it like this. If the government announced that they were going to take your tax dollars and create a jobs program that paid people $25 an hour to dig holes in the desert and then fill them back in, people would flip out. But, when we let’s say block cheap steel from getting into the United States, we’re doing basically the same thing. We’re saying that in order to preserve some jobs in the steel industry, everybody using steel will have to pay more for their products. Either way, it’s taking money out of people’s pockets for a jobs program.

And that’s bad news for a number of reasons. For example, if steel tariffs end up raising the cost of the average car a hundred bucks, you may see layoffs at the car companies as a result. Moreover, if you buy a car and have to spend an extra hundred bucks for it, you lose the opportunity to spend that extra hundred bucks you would have had otherwise. So, instead of going out afterwards and buying dinner and a CD player for your car, you’ll just go home, because you already spent that money on the car. So, who gets hurts there? You, the restaurant where you would have eaten dinner, and the company you would have bought the CD player from. This sounds like small change, but when you spread it over a nation of 300 million people, it can make a big difference in a lot of different industries.

I know that’s not the most complete explanation you’ve ever heard, but whole books have been written about free trade and it’s simply not a topic you can cover thoroughly in a single blog post.

Also see,

Conservative Economics In Quotes
An Interview With Milton Friedman
RWN’s Favorite Quotes From Thomas Sowell’s “Applied Economics”

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