Free Trade, Why "Free" Matters

Monday, 07 July 2008 07:26 By Dean Baker, t r u t h o u t | Perspective | name.

Free Trade, Why "Free" Matters
(Artwork: Ben Shahn)

    Senator McCain was in Colombia last week touting his support for the trade agreement that the Bush administration had negotiated with the country. He also touted his support for NAFTA, contrasting both positions with Senator Obama's opposition to the two pacts.

    McCain had an important ally in his campaign. The media decided to embellish McCain's case by touting his support for "free trade," as opposed to the specific deals in question.
This is a very important difference and it reflects deeply held biases in the media.

    The most important point, which I unfortunately have to keep repeating, is that these are not free trade agreements. They do not free all trade and, in fact, increase some forms of protectionist barriers.

    The main area in which US trade policy has sought "free" trade has been manufactured goods. A main purpose of most recent trade deals has been to make it as easy as possible for US firms to relocate their production to Mexico, Central America, and everywhere else and to ship their output back to the United States.

    This does not mean just reducing tariff barriers. In most cases, the tariff barriers to imports were already low. The point of these deals was to set up an institutional framework that would facilitate foreign investment in manufacturing in these countries for the purpose of exporting back to the United States.

    This meant talking to the auto companies, the textile companies, and other businesses and finding out exactly what was preventing them from taking advantage of the low-cost labor in these developing countries and then removing the obstacles. This had the effect of putting manufacturing workers in the United States in direct competition with low-paid workers in the developing world.

    Putting US manufacturing workers in competition with low-paid foreign workers lowers their wages. It also has the effect of lowering the wages of non-college-educated workers more generally, since manufacturing has historically been a source of high-paying jobs for workers without college degrees.

    Of course, we have seen a decline in the relative wages and job security of non-college-educated workers. This is not a case of the trade agreements not working or not following the course predicted by economic theory. This is what the trade agreements were designed to do - the reduction in the relative wages and living standards of non-college-educated workers is exactly the outcome predicted by economic theory.

    But this is not "free trade." We decided to subject our non-college-educated workers to competition with low-paid workers in the developing world. If Senator McCain and others really supported free trade, they would be insisting that we do the exact same thing for our most highly educated professionals.

    In other words, we would ask our hospitals, law firms, universities, and other employers of highly educated workers, what exactly is keeping them from filling their staffs with low-paid professionals from the developing world? We would then change the laws and structure the institutions to ensure that smart kids from the developing world, who were trained to our standards, could as easily work as professionals in the United States as kids born in New York or California.

    This would send the wages of professionals tumbling, along with the price of their services. This is exactly the sort of gain from trade that economists like so much, except in this case it would come at the expense of the most highly paid workers instead of low- and moderate-income workers.

    We should also have a system that taxes back a portion of the earnings of these foreign-born professionals and sends the money to their home country. This should allow these countries to educate two or three professionals for every one that comes to the United States.

    If we adopted a trade policy that also subjected the most highly educated workers to foreign competition, then it could more accurately be called "free trade." (We still have to talk about patents and copyrights.) But the current trade policy is far from free trade, it is simply one-sided protectionism that is designed to redistribute income from less educated workers to more educated workers. Calling it "free trade" gives a policy designed to redistribute income upward a legitimacy it does not deserve.

    When politicians like John McCain call our trade policy "free trade," they are not being honest. Of course, no one expects politicians to be honest. But when the media call our trade policy "free trade," well they also are not being honest. We do have a right to expect more from the media.

Dean Baker

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.

Last modified on Monday, 07 July 2008 07:54