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July 1, 2009

Did Free Trade Cause The Recession?

-- by Dave Johnson

For many years the world has suffered under a “free trade” regime that eliminates good paying jobs in every country, sending the work to countries that keep wages low and restrict workers' ability to organize for a better life. The profits went to an already-wealthy few and the inequities increased, wealth concentrating massively at the very top.

And now consumers around the world have run out of money. This is not a surprise.

Did these trade policies cause the recession?

Imagine a company in South Carolina that makes 20,000 pairs of shoes a week and distributes them to stores. Now, imagine that the company closes its South Carolina plant, opens a plant in a low-wage country, ships all the machines and raw materials there, ships back 20,000 pairs of shoes each week and distributes them to the same stores. Is that “trade?” Are the raw materials sent out of the country an “export?” Are the shoes brought back into the country an “import?”

The only thing that has been “traded” in this scenario is American jobs traded for huge executive bonuses. The workers in the low-wage country are not paid enough to buy any remaining American-made products. And, as the economic collapses as a result of shenanigans like this, American workers are no longer able to buy shoes so the executives won’t be getting bonuses next year.

I submit that nothing in this example is “traded” except that our standard of living has been traded away. And this exchange brings little benefit to the workers in the low-wage country. This is exploitative trade, not free trade, and we need to protect our workers, the workers in other countries and the world's economy by demanding that our trade partners provide living wages and benefits. We can enforce this demand by attaching import tariffs at a level that makes our own goods competitive. This removes the advantage gained by exploiting workers - and the revenue reduces our own tax burden to maintain our competitive infrastructure. It is an incentive to pay their workers enough so they can reciprocate and buy the things we make here. Instead of the race to the bottom that led to this recession such tariffs create an incentive to raise standards of living around the world.

We should have national policies that prevent exploitation of workers and the environment and that share prosperity. This is a choice between lifting each other up or continuing a spiral to the bottom.

Posted by Dave Johnson at July 1, 2009 3:09 PM


Comments

It's not trade, it's the trade *deficit*

If trade balanced, dollars would flow overseas to buy shoes, but then they would flow right back to buy US made goods. The shoe industry might suffer, but others would prosper from export sales and would add employees. The end result would be no loss of jobs but a shift in employment to different industries where we have a competitive advantage.

The real problem is the abuse of the dollar's reserve currency role by Japan, China, the US military industrial complex, Wall Street, and the foreign policy elite to further their geopolitical goals at the expense of workers here and abroad.

Posted by: jaycey [TypeKey Profile Page] at July 5, 2009 2:14 PM

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