GLOBALIZATION AND FREE TRADE

At one end of a spectrum, our country might exist with strong trade barriers –tariffs-to entry of gods made abroad. At the opposite end we might have completely open borders allowing unlimited entry of any article. During the past 2-3 decades we have gradually shifted, along with much of the world, from a position of restricted entry, toward open borders without tariffs- free trade- carried out through a multitude of country by country- or area by area- agreements. As this has developed, any company can now produce goods in one country, and sell them more or less freely, around the world. Thus “globalization”.

In the original “Adam Smith”  theory, each area, or country, might produce the material it could produce especially well, and exchange it for needed goods made by another area that was especially capable of making that item. Both parties would benefit by this sort of exchange. The initial effect of free trade and globalization has been somewhat different, a surge in manufacturing in countries with lower production costs, making goods of all types available in huge amounts, benefitting both the producers and the buyers. As an obvious example, the USA buys vast amounts of cheap clothing made in Asia, which saves us money, and Asian countries have experienced a tremendous increase in per capita income. Millions, if not billions, of citizens in the low cost producing countries have in this developmeny been lifted out of poverty to the ranks of the lower economic middle class. The globalization process extends far beyond manufactured goods. With the development of instantaneous worldwide communication, information processing, designing, packaging, construction,.etc., can also effectively be performed in one part of the globe for use in any other. And transport of goods has become much more efficient and economical, so that distances between producers and consumers becomes a small barrier to the flow.

The natural prompt result of the influx of low cost goods is that the higher cost producer can not effectively compete. Cameras made in Asia by workers willing to accept a pay scale that may be 1/10th of that in the USA, lead to the total demise of camera production in this country. To survive, US camera  producers, or makers of any other product, move their production facility- often a complete factory- to the low cost area, be it Mexico, Guatemala, China, or Thailand. American workers loose their jobs, and end up with a lower paying job, or commonly no job. The living standard for our country declines. Our companies can compete effectively in some areas because of a culture of invention and innovation in our very free society, and the skills and industriousness of a relativlely well educated citizenry  But it is obviously not possible to compete effectively in the long term when some production areas have costs dramatically lower that others. Under totally free trade and globalization, living standards must gradually equilibrate around the world, and it is clear that this is happening at a rapid pace in the USA

Perhaps we can-or could- compete effectively if innovation provided areas of expertise that were not so easily undermined by low cost competition. For example, we do well in airplane manufacturing. And for a time it seemed that “information processing” and computerization would provide that niche, or edge. But in an era when information is shipped around the world in microseconds, and computers are a plain commodity , that edge seems short lived.  Perhaps new areas- solar power, alternative fuels, or other yet-to-be-discovered areas, will provide the unique capability we need in global competition.

But a basic problem that we must face is that the playing field is not level. The Adam Smith model posits two trading partners of roughly equal capabilities and does not include a totally lop-sided cost structure.  For example, a manufacturer of shoes in the USA has to pay a wage significantly higher than that in Thailand, provide medical insurance, disability insurance, unemployment insurance, old age insurance, and a host of other fees that make the final labor cost vastly higher than for a worker in Thailand, who has a low wage and absolutely minimal or no benefits.

This difference provides one approach to leveling the competition and making workers  in the US truly able to compete somewhat fairly. We can not legislate wages in other countries. But we can agree that goods shall not be imported freely unless the worker abroad has benefits roughly comparable to those provided under law in our country. This is not a crazy or impractical idea, and in fact many agreements of this type are already in force regarding labor policies. While the effect of this policy would be to increase the foreign producer’s cost and thus retard their economic development to some extent, it would also increase their living standard by providing social benefits appropriate for the 21st century. We also need to develop more equitable trade agreements with other countries.  For example, our agreement with South Korea limits our auto exports to something like 15,000 vehicles/year, while they are allowed ot bring 800,000 vehicles into the USA. Our agreements with Japan impose very severe standards and inspections that are designed to prevent US exports for entering their country, even if the agreement calls for free trade.

To recapitulate, we  need to
1) require worker benefits in our trading partner countries that bring closer parity to labor costs,
2) negotiate truly equitable trade agreements,
3) pray that our scientists, inventors, and entrepreneurs will develop new methods and ideas and products, which will together allow our workers to compete effectively for a decent living in the world of free trade and globalization.
4) alter tax policy to support development of new companies, or that increase employment, and penalize companies that simply ship manufacturing and even whole factories abroad.
5) Find a way through tax policy and benefits to inhibit movement of factories and industries abroad
6) find a way to re-introduce some morality into the operation of corporations, a major topic needing greater exploration. For example, the use of phony  off- shore companies to allow hiding taxable income, and pay to executives that is thousands of times that for an average worker, are gross problems needing legal and moral solutions.
7) Demand that ALL local, state and federal procurment of all goods and servicesx be from the USA.
8) Prohibit Federal subsidies that end up in foriegn countries- i.e.- subsidies for installing solar panels, made in China.

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