Free trade, fair trade and economic nationalism

The theory of free trade is that everybody benefits when individuals and corporations based in different nations are allowed to buy and sell goods and services without restriction.

Unfortunately most of the world operates on a different theory—that the exchange of goods and services should be to the benefit of the nation, not the corporation or the individual.

Subcontracting of manufacturing by, for example, Apple Computer to the Chinese company Foxconn is of mutual benefit to Apple and Foxconn, but it is not of mutual benefit to the USA and China as nations.  It is China’s gain and America’s loss.

Governments of China, Japan, Germany and other countries regard regard the unit of international economic competition as the nation rather than to the individual or the corporation.  They don’t care about the economic benefit to the trading partners.  They’re concerned about the economic benefit to the nation as a whole.

If an American corporation wants to do business in China or Japan, its executives have to provide something that benefits the Chinese or Japanese economy—a transfer of technology, or the creation of manufacturing jobs.

You have the strange situation of American business corporations dictating policy to Washington while kowtowing to Beijing.

What is Hillary Clinton’s trade policy?

HIllary Clinton

Unlike with Donald Trump and Bernie Sanders, it is hard to figure out Hillary Clinton’s positions on trade treaties.

They are clearly and consistently opposed to all the major trade treaties from the North American Free Trade Agreement onward, including the proposed Trans Pacific Partnership Agreement.

Clinton has been all over the map on this issue, supporting some trade treaties and opposing others.  The TPP agreement was signed while she was Secretary of State.  She supported it at the time, but now has doubts.  Some observers, however, wonder whether that is her true opinion, or whether pressure from the Sanders’ campaign has pushed her to the left.

If you put that topic to one side, I have to say that her foreign trade proposals are more detailed and thoughtful than either Trump’s or Sanders’.  She at least recognizes that the key is for the United States to rebuild its manufacturing strength rather than trying to force other nations to change their own economic policies.

Here are key Clinton proposals:

• Reform the tax system so that American businesses can’t evade U.S. taxes by “inversion”—an accounting scheme where profits are assigned to overseas subsidiaries in tax havens.
• Provide tax incentives for manufacturing companies to locate and remain in the United States, especially in high-unemployment areas.
• Invest in infrastructure and in research and development to build up U.S. productivity.
• “Aggressively combat” violations of trade treaties by foreign governments.
• Set a “high bar” for future trade treaties.

Does Bernie Sanders have a real trade policy?

Bernie Sanders

Bernie Sanders is an economic nationalist, like Donald Trump.  But while Trump complains about how other countries are taking advantage of the United States.  Sanders talks about how international corporations are taking advantage of working people (to be sure, with China’s help).

He said he has voted against every trade treaty that came before Congress during his tenure in the House and Senate, and said that, if elected President, he would rescind them all.  Like Trump, he opposes the Trans Pacific Partnership (TPP) agreement.

His opposition is fully justified, in my opinion.  The World Trade Treaty, the North American Free Trade Agreement (NAFTA) and similar agreements limit the ability of national governments to regulate foreign corporations, and give these corporations equal standing with supposedly sovereign governments.

These agreements are not what I would call free trade, but Sanders is not for free trade either.  He says he is for “fair trade,” which I take to mean a fair balance of trade with other nations.  Unlike Trump, he does not say anything about imposing new tariffs and restrictions on imports.

Would Donald Trump’s trade policy work?

Donald Trump’s trade policy might be better than what the United States has now.  The problem with Donald Trump’s trade policy is that it is based on trying to force China and other countries to comply with U.S. demands rather than improving American economic performance.

Ultimately the future of the United States rests on what we Americans do, not on what the Chinese do or do not do.

Donald Trump

He is right about one important thing.  Washington’s trade policies have not served Americans well.

In some ways, current reflect the priorities of Richard Nixon and Henry Kissinger, who thought the trade policies that favored nations such as Japan or Saudi Arabia were a price worth paying to keep them as loyal allies during the Cold War.

In other ways, they reflect the neo-liberal philosophy that emerged during the administrations of Ronald Reagan and Bill Clinton, which was that the route to prosperity was to serve the interests of large corporations.

International agreements such as the North American Free Trade Agreement and the proposed Trans-Pacific Partnership Agreement guaranteed the rights of corporations to move money and goods freely, but restricted the rights of governments to legislate on behalf of workers, consumers and the environment.

Such agreements have contributed to the erosion of American jobs, wages and national economic strength.

Donald Trump’s solution, as stated on his web site, is as follows:

• Declare China a currency manipulator and demand that China allow its currency to rise to its natural rate.  Trump said its current rate is between 15 percent and 40 percent too low.  A rise in the exchange rate for the Chinese yuan would, all other things being equal, raise the prices of Chinese-made products in the U.S. and other countries.
• Demand that China obey international standards for copyright and patent protection.  This would mean greater revenues for U.S.-based and other non-Chinese media, drug and information technology companies.
• Demand that China stop subsidizing its export industries by such means as free or cheap rent, utilities, tax breaks and raw materials, low-interest loans and special tax breaks.
• “Challenge” China to comply with 21st century labor and environmental standards
• Lower or eliminate the U.S. government budget deficit so that we wouldn’t have to depend on the Chinese and other foreigners to buy government bonds.
• Reduce the top corporate tax rate from 35 to 15 percent, and eliminate inheritance taxes and capital gains taxe
• Build up American military forces in the South China Sea.