A thought experiment considers a hypothesis for the purpose of thinking through its consequences. So to better understand “free trade” as we currently practice it, let’s postulate evacuating one of our states and populating it with millions of imported workers. With apologies to the Show Me state, let’s go to the heartland and pick Missouri and replace it with a new country, the Republic of Misery.
[Franklin Kirkland | July 18, 2016]
Let’s postulate that this new Republic is not a democracy as we know it but rather has an autocratic and opaque government. That it has no minimum wage, no labor laws, lax environmental standards, an anarchist’s respect for intellectual property and few cumbersome regulations to check its desire to grow its economy at the expense of the remaining 49 states of the USA and other potential trade partners. Being a sovereign nation, it would have a currency of its own that it can value much as it chooses to help it prosper. And like most nations it has a VAT-based tax system that allows it to subsidize exports and tax imports while claiming to have no tariffs. Because its government and industries are either state owned or at least collude, they get open and hidden subsidies. The US is clearly its most attractive trade partner and it immediately pursues a free trade agreement with the US.
The US government and industries naturally respond like they have been since NAFTA. The US elite, seeing a great source of cheap goods and a new market for exports, rushes to agree to eliminate tariffs and open the border to Misery’s goods and services. Our transnational companies, seeking only a better bottom line, of course seize the opportunity to close down plants in neighboring states and establish new facilities in Misery. As a bonus, this less-than-patriotic action is actually rewarded by US tax laws and profits made in Misery can avoid taxation by being retained there. And if Misery did somehow inhibit their profits, they could use the dispute resolution provisions of the FTA to prevail.
Meanwhile, the displaced Missourians have to scramble for jobs in the neighboring states. With cheap goods from Misery flooding the market, they find lower paying jobs, part time jobs or unemployment the norm. And they are joined by more Americans as more transnationals hurry to offshore (oops, onshore) jobs. Certainly, despite the low income levels in Misery and anti-import policies, some US companies will find new markets in Misery. But exports to Misery will no doubt be far below imports from Misery and US job losses, further income inequality and increased trade deficits will result.
Given the above scenario, the outrage across the US would be palpable. This would be self-evident as the ultimate unfair, job-destroying system no matter how impassioned the protests of the advocates of unfettered free trade. But is this fundamentally different from current trade policy? And when are we going to recognize that highly unbalanced trade is inherently destructive, irrespective of its academic rationale?
We must commit to not only a balanced trade goal but also to a clearly defined strategy to achieve that goal if we are to get America back on track.
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Given I am an engineer and not an economist – and certainly not a known in the trade debates – I don’t know what if anything is useful in term of a bio. So here is some raw data:
Frank Kirkland
BSME and MSME Purdue University
Retired Aerospace Executive
(My last position was with Lockheed Martin as Director of Vehicle Systems on the F-35 program. This included responsibility for the flight control system, the propulsion
