Friday Rant: Winning the Free Trade Argument Based on Truly Free Trade

For the longest time, there has been a sort of binary perspective in the US -- which, surprisingly, does not break down along partisan lines -- between those in the free trade camp and those who want to erect at least limited barriers to foreign competition, giving domestic companies a boost. Historically, both positions have been perfectly acceptable, depending on time and place in the past, not to mention specific geographic locations on the map. There have been free trading nations (e.g., Netherlands, England) built on world trading commerce engines as well as highly protective states (e.g., China, Japan, Russia) that for periods in history, completely insulated themselves from outside influence, including trade. And of course there have been many countries that towed a middle line.

As someone who has grown up to be both respectful and fearful of all the free market can bring -- reading Upton Sinclair or studying the behavior of Pennsylvania Coal and Iron Police in the 19th century is enough to create a healthy dose of skepticism in even the most ardent libertarian -- I've still come to generally believe that the free interchange of commerce and ideas among nations is generally better than the alternative. It doesn't take reading Thomas Friedman to know that countries which generally support trade and the basic freedoms we take for granted in the US and the west are the ones more likely to have higher per capita GDPs, greater religious freedom, tolerance and more respect for the ability of women to obtain the same standing as men in professional society.

In a traditional context, erecting barriers to trade -- be it between states or between nations -- generally starts as a means to protect the interests of the few at the expense of the many. But it's not often put in these terms. "The many" don't realize that despite the rhetoric involved in promoting the local economy, saving jobs and all that typically comes with barriers -- even targeted trade barriers -- that they'll be the ones who ultimately end up paying a higher price for goods and services down the road. Moreover, they're more likely to be out of a job as well, as countries on the other side of the trade equation put up barriers to sell into their countries too. After all, sustainable trade between nations must be a two way street.

It's for this reason, in part, that I believe it's wrong to think of supporters and detractors of free trade today as simply falling into "pro" and "con" camps. There is a significant middle ground, I believe the silent majority if you will, which believes, as do I, that the only type of sustainable trading programs are those founded on the concept of truly free trade between nations. Consider the benefits for a minute, metaphorically, of course, of a truly level playing field when it comes to trading goods. Thanks to the SEC, FASB, auditing firms and the rules governing financial exchanges in the US, anyone can buy a security from another individual, even a mass murderer, and know they're getting exactly what they bargained for, and that for the most part, the company an individual is investing in is following generally accepted accounting and business principals (i.e., it is not fraudulent in its dealings and can be compared with other like companies as a potential investment based on an apples-to-apples financials and business comparison).

In the capital markets, a complex web of marketplace rules and mechanisms guide a fundamental and moderately efficient process for the buying and selling of basic securities between two parties (at least when it comes to non-exotic instruments; exceptions include the mortgage CDOs that tanked our economy in late 2008 and 2009, along with many others). It would be great if the same could be said of the rules governing international trade between nations, but just as anyone involved in UN procurement knows, the good will and intent that goes into setting up international governing bodies quickly goes out of the window when daylight fades to night in the process and special interests start carving out "take" as part of the bargain.

It's clear, given the limited charter of the WTO, for example, that we don't have the same standards and overlapping, trusted oversight authorities that can collectively create a system of checks and balances on the trading stage as happens in the capital markets. There is no way that on a level global playing field, for example, that China would be allowed to manipulate its currency to a level to cause exports to boom within a decade. Or more specifically, as Wikipedia suggests, "When China's economy gradually opened in the 1980s, the RMB was devalued in order to improve the competitiveness of Chinese exports. Thus, the official RMB/USD exchange rate declined from 1.50 yuan in 1980 to 8.62 yuan by 1994 (lowest ever on record)." This would be the equivalent of saying that I should be allowed to buy shares of GE for $10 a piece, but my sister, for one reason or another (e.g., gender equality discount), should have the opportunity to purchase them for $3.

Aside from currency, on a truly level playing field, no country would be allowed to possess arcane rules for foreign investment, limiting outside private sector ownership of business interests, while still expecting the flexibility afforded other nations when it wanted to invest in foreign nations (even when the government, by extension of its puppet state-owned enterprises, was the one making the investments). But this is precisely the type of double standard that China maintains when it comes to its own expectations of doing business globally and allowing foreign business interests onto its own shores. Nor, on level ground, would countries encourage -- rather than discourage -- the theft of hard-earned intellectual property.

Within the free trade spectrum today, I think there is a giant middle ground of folks like me who believe in our rational, economic hearts that free trade is a far better mode to operate in than the alternative. Yet for us, free trade must be truly free between nations. The potential near-term price we pay by compelling others to play by a common and standardized set of rules (e.g., making it more difficult for the US to continue to print money and go into the red if China cuts off its buying of our debt), is worth paying if we're to preserve a system that keeps our rightful place on the world stage rather than allowing cheaters to steal their way to the top -- and dispose of us at the point in time when it is no longer advantageous to maintain even a one-sided relationship.

Jason Busch

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