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Richmans' Trade and Taxes Blog
Prof. Gomory Urges a National Policy of Balanced Trade Not Free Trade
Prof. Ralph E. Gomory, currently Research Professor at New York University, former President of the Sloan Foundation, and former Senior Vice-President of IBM in charge of Science and Technology, in a seminal article entitled “Jobs, Trade, and Mercantilism – Part 1 – Facing Reality” (published in the Huffington Post on 9-22-10) begins by stating, “Our nations’s continuing massive trade deficits are destroying important sectors of American industry and eliminating desperately needed jobs, yet balancing trade is not even on our government’s agenda. This is happening because we are not facing reality, the reality that we are not living in a free trade world but that we are dealing with countries that practice mercantilism.” We recommend that everyone read it.
Prof. Gomory is the co-author with distinguished Professor William J. Baumol of a seminal work, Global Trade and Conflicting National Interest on the role of comparative advantage. In that book, the authors show that free trade is not always and automatically benign. They show that there can be inherent conflicts as well as mutual gain for nations engaged in global trade. Countries can pursue policies that beggar their neighbors. Or countries can pursue trade policies that are mutually beneficial. Our current trade with China falls in the former category.
American businesses profit greatly by outsourcing production of goods abroad and importing those products. This increases their profits and benefits the workers in the country where the products are produced and increases the gross domestic product of the country where the goods are produced but it reduces the demand for manufacturing workers in the U.S. and causes a fall in U.S. gross domestic product. The rate of growth of U.S. GDP declined last quarters because our imports increased more than our exports. The rise in profits during the past year of recession of many of the companies included in the DOW and S&P indices can be attributed to two factors, the lay-offs of redundant workers and the low costs of production as a result of outsourcing.
Trade ought to be beneficial to all trading partners. The only case where one can be sure it is beneficial to all trading partners is when trade is in balance.
Our readers know that we have been making these same arguments time and time again since publication of our book Trading Away Our Future (Ideal Taxes Assn., 2008). Prof. Gomory, as we did in our book, states that if we continue along this tragic path, we will become a poor nation. He argues, as we have been doing for years, that our policy should be balanced trade, not free trade. He concludes by saying, “We must make balancing trade a national goal, and then act effectively to bring it about.”
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