Free trade, the only option

 Uncategorized
Feb 052006
 
Authors: Jake Blumberg

Capitalism is not meant to be a line of Hallmark products intended to make all of its users feel warm and fuzzy inside. Capitalism is an economic system on par with the overused, but relevant statement of Darwin's Theory of Evolution: only the strong survive.

If you can get past the lovey-dovey belief that everyone deserves to be happy and succeed, we can actually have an intellectual discussion about free trade and its benefits-a subject President Bush mentioned as one of his key themes in his State of the Union Address. If you can't leave your Hallmark behind though, you might want to go read the comics or your horoscope.

Free trade in itself is an anomaly, a much talked economic term that has–and never will– truly exist in its purest form. Dr. Ronnie Phillips, the chair of CSU's economics department, put it this way:

"Theoretically, economists favor free trade," Phillips said. "In reality, there is no such thing as free trade. Countries negotiate tariffs and taxes to decrease as many trade barriers as they can, and generally try to reduce limits on trade."

Although free trade will never exist in a way that fits a text book definition, working toward free trade is always mutually beneficial to all the countries involved, and thus, we have trade agreements such as North American Free Trade Agreement (NAFTA)-involving the U.S., Canada and Mexico– and the Central America Free Trade Agreement (CAFTA) between the U.S., Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

Ok, I can hear the argument now; opening up to more free trade creates unemployment and employee mistreatment; thus, is not worth it. This is almost the exact argument you can find on the anti-CAFTA Web site, www.stopcafta.org. In an editorial featured on the Web site, Tom Rickers and Burke Stansbury argue against CAFTA:

"…CAFTA will hurt small farmers, worsen workers' rights, and lead to environmental degradation, among other negative effects…"

And, guess what? They are wrong.

Let's take a hypothetical situation, one that involves two countries that do not open their borders to trade with one and other; let's-just for grins and giggles–call these two countries the "USA" and "Mexico."

Instead of stimulating the economy in a nation generally considered as part of the third world, "Mexico" continues to exist in poverty because any products it produces have no market to be traded in. Without an open market, there is no reason to produce anything-all cost and no profit is basically a one way street towards failure. Since production is virtually worthless, companies do not employ workers, and thus, an entire economy becomes stagnate. Overly simplified but certainly accurate.

On the other side, the "USA" continues as a dominant economy, the leader of the free world as some– in this hypothetical world– might call it. Yet, the "USA" economy too becomes stagnate without trade. "USA" companies also lose a valuable market for their products, and even more importantly, lose a source of labor.

Instead of shipping work off to "Mexico," a source of efficient and inexpensive labor, "USA" workers must continue to provide labor themselves. The only problem is that "USA" workers refuse to work for low wages-wages that look like treasures to many workers in "Mexico"– and in turn, companies must pay more for their work. This added cost causes products to be more expensive and prevents consumers from expanding their buying patterns, slowing the economy down considerably. Once again, simple but true.

Luckily, this situation was only hypothetical, and the real United States and Mexico chose to come together with Canada to create a free trade agreement that allowed all three economies to blossom. According to the CIA World Factbook's Web site, www.cia.gov, trade has tripled between Mexico and its northern counterparts since the signing of NAFTA.

This increased trade has created opportunities for Mexican companies to expand, and with the expansion, has allowed many Mexican citizens to hold jobs; citizens who would have been unemployed without the expansion. Although the wages paid to some of the citizens are low by U.S. standards, they are exponentially better than nothing, the cold reality of a world without NAFTA.

On the U.S. side of the agreement, many point to growing unemployment as a negative effect from NAFTA. Yes, jobs have been outsourced, and American employees have been left without work. Yet, this is the nature of the beast that is capitalism-the best work for the cheapest price will always be chosen over the same work at higher prices.

In theory– a theory proven true again and again– those left without work will find new jobs in other sectors. It may not happen quickly, but capitalism works, and ultimately, there will be a job somewhere. In the end, this is the best step for the economy because the consumer is the ultimate benefactor from agreements like NAFTA– cheaper products mean more purchasing, and a healthier economy.

Until then, some economists like Dr. Phillips suggest the government help those left behind.

"We must have some policy to deal with those who are laid off, like the employees from General Motors (GM recently laid off 30,000 employees)," Phillips said. "We must have a policy to promote new industry, especially the knowledge industry."

Helping those left behind is certainly a necessary step for our government to take to lessen the effects of a more open economy. Free trade agreements like NAFTA and the fledgling CAFTA– approved by Congress in July 2005-are the best way for the US to help other economies grow, while stimulating our economy. Unemployment is one of the necessary evils of economic expansion, an evil that will luckily defeat itself if the economy is allowed to work on its own.

Capitalism and 'free trade" work; they just aren't always kind to everyone. That is why we have puppies and flowers to make us feel good about ourselves, instead of a "fair' economy.

Jake Blumberg is a junior technical journalism and political science double major. His column runs every Monday in the Collegian.

 Posted by at 5:00 pm

Sorry, the comment form is closed at this time.