Are International Trade Agreements Bad for America? Part 1

        This post and the next one address international trade, including trade agreements such as NAFTA and TPP, which has become an issue in the 2016 election. There are so many myths about foreign trade it requires two posts to debunk them all. Upcoming posts between now and November address several hot-button presidential election issues including: (1) policing in America; (2) political correctness; (3) real versus phony issues; (4) Uber and gay marriage; and (5) economic growth. Stay tuned!

     Both parties and candidates are demonizing international trade making it their bete noire. They have leveled numerous charges and criticisms including, inter alia, the following list. This post and the following one next week will address each of them.

• Trade agreements are not really free trade but managed trade
• Trade deals are poorly negotiated and unfair to the US
• American companies are harmed and workers displaced
• Trade is competition as in the US versus foreign trading partners
• Foreign countries subsidize goods being exported
• Currencies are manipulated and undervalued by other countries
• Tariffs and barriers are needed to support vital domestic industries
• Cheap labor is being used to gain unfair advantage
• The US incurs harmful large and perennial trade deficits

     Tariffs and trade agreements are asymmetrical in terms of perception about those harmed relative to those benefited. Take the sugar tariff; it benefits a handful of big US sugar producers (mainly in Florida) enriching some by $100 million per year. The tariff costs each American (all 320 million of us) $100 per year but is opaque because it is buried in the cost of products – a few cents here, a penny there. Because the benefits are so concentrated and the costs so diffuse, the sugar growers spend a small fortune lobbying Congress for the tariff while there is no broad based popular opposition.

       Trade agreements are the reverse of tariffs; harm to the industry affected is visible, concentrated and immediate whereas the benefits diffused among all 320 million Americans and realized over a longer period of time. Therefore, opposition to trade agreements is populist and political with the industries affected, and of course labor unions, spending a small fortune on lobbying while there is no natural constituency to support the agreements. It is ripe for media and political demagoguery.

      In all cases – tariffs, barriers and trade deals – a small but highly concentrated cohort forces its will on the American people because of politics fueled by money and abetted by media economic illiteracy. In all cases, Americans would be far, far better off without domestic tariffs or barriers and with all trade agreements – even flawed ones. Best of all would be unfettered free trade without any government involvement.

Consider an example – US imports from China – currently $500 billion per year. Let’s say, a arguendo, China cheats by undervaluing its currency and subsidizing exports; moreover, they employ low cost labor. Let’s further stipulate China’s cheating amounts to 33%, i.e. they are dumping $750 billion worth of goods for $500 billion. This is an unmitigated godsend to America which receives a $250 billion gift each year from China – equal to $780 per American or $2,450 per family. The benefits ($2,450 per family annually) far outweigh the costs of some temporarily displaced workers.

     Take the case of Carrier Corp, excoriated by Trump for moving its manufacturing to Mexico from Indiana. It made the move to stave off Asian competition and it enabled Carrier to retain higher paid US jobs in R&D, marketing and high end components.

      In a personal anecdote, I once wanted a Traeger BBQ smoker but never bought one because they were too expensive. Traeger shifted manufacturing to China and the cost plunged so much that I bought one. Sales skyrocketed and Traeger created hundreds more (and better) US jobs than before they shifted manufacturing to China. The new US jobs are in sales, wood pellets, customer service, BBQ supplies and delivery.