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 Richmans' Trade and Taxes Blog

Free trade in an Unfree Trade World is Economic Suicide For the USA
Raymond Richman, 7/23/2015

George Washington in his farewell address urged the US to “Avoid foreign entanglements”. How right he was. US foreign entanglements began with a vengeance under Presidents Wilson and Franklin D Roosevelt especially the latter. The Bretton Woods agreements which were negotiated by Harry Dexter White, as the U.S. representative, later exposed as a Communist spy, created the World Bank  and the International Monetary Fund.

Benn Steil, senior fellow and director of international economics at the Council on Foreign Relations in New York, founding editor of International Finance, a top scholarly economics journal, in his book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Council on Foreign Relations, (Princeton University Press, 2013), discussing the creation at Bretton Woods of the World Bank and the IMFwrites,

Together with the United Nations, they marked the beginning of Post WWII’s march toward global government and simultaneously the march toward state capitalism, a political mixture of a powerful state, socialist enterprises, and state-dominated private capitalist enterprises. Mussolini, a former Communist, and Hitler, a national socialist were the first world leaders to recognize the power of the new economic system. Both freed themselves from the ideology of Marxism and both recognized how a socialist state could dominate private enterprises and bend their will to the service of the state.

New Deal innovations included the minimum wage and the Davis-Bacon Act, two laws to advantage labor unions, which returned blacks to conditions worse than slavery by denying Blacks equal opportunities for employment since the unions at that time were nearly all lily-white.  Black rates of unemployed males are twice those of whites and in the 1st quarter of 2014 the unemployment rate of black male teenagers reached the astronomical level of 44 percent. Until 1950, blacks had lower rates of unemployment than whites.

Other innovations included the regulation of labor relations, the initiation of farm subsidies, the creation of the Social Security System, the creation of the Securities and Exchange Commission(SEC) and the creation of the Tennessee Valley Authority and its network of electric utilities.

The U.S. in 1947 began the General Agreement on Tariffs and Trade, conducting eight rounds of talks during the ensuing decades The Uruguay Round, which was completed on December 15, 1993 after seven years of negotiations, resulted in an agreement among 117 countries (including the U.S.) to reduce trade barriers and to create more comprehensive and enforceable world trade rules. The agreement coming out of this round, the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, was signed in April 1994. The Uruguay Round agreement was approved and implemented by the U.S. Congress in December 1994, and went into effect on January 1, 1995. This agreement also created the World Trade Organization (WTO) in 1995.

But all this globalization, initiated by the U.S., turned out to be an economic disaster for the U.S. U.S. manufacturers in droves moved their factories overseas and out-sourced production exacerbating the decline of manufacturing in the U.S. which is making the U.S. a second-rate economic power. Millions of well-paid manufacturing jobs of American workers were eliminated. 

The U. S. continued with its free trade policy. Congress passed the North Aerican Free Trade Agreement Implementation Act in 1993. Pres. Clinton, while signing the NAFTA bill, stated that "NAFTA means jobs. American jobs, and good-paying American jobs. If I didn't believe that, I wouldn't support this agreement."   He may have believed that but he was wrong.The US goods trade deficit with NAFTA was $94.6 billion in 2010 and accounted for 26.8% of the overall U.S. goods trade deficit. 

The trade deficits caused the U.S. to go from being the world’s leading creditor before 1970 to becoming the world’s leading debtor by 1985. The huge accumulation of U.S. Treasury bonds abroad has made the U.S. vulnerable to a collapse of the dollar as the world’s medium of exchange, which now appears to be unavoidable. One possibility is that the dollar will be replaced by the IMF’s Special Drawing Rights (SDRs) and a currency of the new international fund being organized by China and Russia.

Why didn’t U.S. corporations move their factories abroad before the era of trade liberalization? Because their exports to the US would have been subject to tariffs.  American firms open factories abroad to produce products to be consumed in the countries they invest in and to produce products to be exported to the U.S. and the rest of the world. The US trade deficits have been exacerbated by the imports from American companies producing their products abroad and exporting them to the U.S. The effect on American manufacturing has been disastrous for American workers. Millions of well-paid American jobs were lost as American manufacturing moved overseas.

A world free trade regime is only possible if countries retain the ability to impose  the Scaled Tariff, a single-country variable tariffs  which we describe in our book Balanced Trade (Lexington Books, 2014). The single-country-variable tariff is indispensable to provide a tool for countries experiencing large chronic trade deficits, as the U.S. has been experiencing with China, Japan, and Germany, to compel balanced trade. Of course, if a country’s total trade is in balance, it should not have the right to impose single-country variable tariffs. A world trade organization like the World Trade Organization has been completely ineffective,  unnecessary, and costly. The right to impose single-country variable tariffs is all a country needs to prevent other countries from employing mercantilist practices, tariffs, barriers to trade, subsidies, and exchange rate manipulation, to achieve a trade surplus, what Keyes described as a beggar-one’s-neighbor policy. The Greek Crisis could be solved  and the Eurozone preserved if members of the Eurozone had the authority to impose the Scaled Tariff.

The number of international agencies has exploded since the end of World War II. The UN alone has created dozens, many of them anti-U.S., and including some inherited from the League of Nations. Most have outlived their usefulness, and many are counter-productive, but remain a burden on taxpayers around the world, particularly the USA.

The USA continues with its foolish trade policies, the latest being the fast-track Trade Promotion Authority requested by Pres. Obama. It is ludicrous to read the U.S. Chamber of Commerce pamphlet entitled “America Needs Trade Promotion Authority”. It points out correctly that U.S. exports provide job opportunities for American workers but make no mention of the fact that increased imports, and the trade deficits, cause a net loss of millions of jobs.

The trade agreements not only have created trade deficits for the U.S. but encouraged American manufacturers to move production of their products abroad. Economists Justin R. Pierce, on the staff of the Federal Reserve Board, and Yale professor of economics Peter K. Schott wrote in 2012 that one result of the U.S.-China trade agreement of 2000 was a sharp drop in U.S. manufacturing employment after 2001 resulting from the elimination of trade policy uncertainty. As a result American companies produced their products abroad and exported them to the U.S. free of duty. The list of companies that moved their production overseas reads like a Who’s Who in the US Chamber of Commerce.


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Comment by M, 7/25/2015:

Boy, the way Glen Miller played.Songs that made the hit parade.
Guys like us, we had it made.

Those were the days.

Didn't need no welfare state.Everybody pulled his weight.
Gee, our old LaSalle ran great.

Those were the days.

And you know who you were then.
Girls were girls and men were men.
Mister, we could use a man like Herbert Hoover again.

People seemed to be content.Fifty dollars paid the rent.
Freaks were in a circus tent.

Those were the days.

Take a little Sunday spin.Go to watch the Dodgers win.
Have yourself a dandy day that cost you under a fin!

Hair was short and skirts were long. Kate Smith really sold a song.
I don't know just what went wrong.

Those Were The Days!!!!!!!

Comment by Ray Tapajna, 1/23/2016:

Excellent article - However, even talking about our present day free trade as trade has to changed. Free trade is not trade as historically practiced and defined. It is more about dividing investments from production and moving productio anywhere in the world for the sake of cheaper labor for the sake of investments.  It does not work. Our economies based on making money on money instead of making things are burning out across the world.

President Clinton had to bail out the process in 1995 after more than 4000 US factories were moved to Mexico. He had to rush billions of dollars to Mexico to save the value of the peso and the Mexican economy. It was threatening  international money values. So the first bail out went to a foreign nation and predicted the coming of the super bail out in 2008 by President Obama.  However he only propped up the big money interests and not anything real.  The value of workers and labor is a real money standard and must be in parity with the value of interests or everything will remain economically upside down. Presently, our economy is set in quick sand.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]